chapter 08 im

8/3/2019 Chapter 08 IM

1/30

CHAPTER EIGHT

CONTROL, CHANGE, AND ENTREPRENEURSHIP

OVERVIEW OF THE CHAPTER

This chapter examines the nature of organizational control and describes the four steps of thecontrol process. It also discusses three types of systems available to managers to control andinfluence organizational members: output control, behavior control, and organizationalculture(clan control). Effective management of organizational change is addressed, as well asthe role of the entrepreneur in the change process.

LEARNING OBJECTIVES

Define organizational control and identify the main output and behavior controlsmanagers use to coordinate and motivate employees. (LO1)

Explain the role of clan control or organizational culture in creating an effective

organizational architecture. (LO2) Discuss the relationship between organizational control and change and explain why

managing change is a vital management task. (LO3)

Understand the role of entrepreneurship in the control and change process. (LO4)

MANAGEMENT SNAPSHOT: CONTROL IS NO LONGER A PROBLEM FOR

ORACLE

One of the main advantages of Internet-based control software is its ability to centralizemanagement of a companys widespread operations, thereby allowing managers to easilycompare and contrast the performance of different divisions spread around the globe in real

time. Oracle, the second largest independent software company in the world after Microsoft,did not have such a system in place and therefore was not experiencing the cost savings thatcould result from it. Instead, Oracles financial and human resources information was locatedon seventy different computing systems across the world.

Recognizing the irony of the situation, CEO Larry Ellison ordered the implementation of anInternet-based control system as soon as possible. His goal was to have all of Oracles sales,financial, and human resources information systems consolidated in two locations. Thisinformation was to be made immediately available to all managers with one click of a mouse.He also instructed that any paper-based control systems be immediately automated. Savingsresulted in over $1 billion a year.

Jones and George, Essentials of Contemporary Management, Third Edition 8-1


2/30

CHAPTER EIGHT


LECTURE OUTLINE

I. WHAT IS ORGANIZATIONAL CONTROL? (LO1)

Controlling is the process whereby managers monitor and regulate how efficiently andeffectively an organization and its members are performing the activities necessary to achieveorganizational goals.

In controlling, managers monitor and evaluate whether their organizations strategyand structure are working as intended, how they could be improved, and how theymight be changed if they are not working.

Control involves keeping an organization on track and anticipating events that mightoccur.

It is also involved with keeping employees motivated, focused upon importantproblems facing the organization, and working together to take advantage ofopportunities.

The Importance of Organizational Control

A control system contains the measures or yardsticks that allow managers to assesshow efficiently the organization is producing goods and services. Without a control

system in place, managers have no idea how their organization is performing and howits performance can be improved.

Organizational control is important in determining the quality of goods and servicesbecause it gives managers feedback on product quality. Effective managers create acontrol system that consistently monitors the quality of goods and services so that theycan make continuous improvements to quality.

By developing a control system to evaluate how well customer-contact employees areperforming their jobs, managers can make their organizations more responsive tocustomers. Monitoring employee behavior can help managers find ways to increase

employees performance levels.

Controlling can raise the level of innovation in an organization by deciding on theappropriate control systems to encourage risk taking.



3/30

CHAPTER EIGHT


Control Systems and IT

An effective control system has three characteristics: 1) it is flexible enough to allowmanagers to respond as necessary to unexpected events, 2) it provides accurateinformation, and 3) it provides managers with the information in a timelymanner.

New forms of IT have revolutionized control systems because they facilitate the flowof accurate and timely information up and down the organizational hierarchy andbetween functions and divisions.

Control systems are developed to measure performance at each stage in the conversionof inputs into finished goods and services.

- At the inputstage, managers usefeedforward controlto anticipateproblems before they arise so that problems do not occur later, during theconversion process. At this stage, IT can be used to keep in contact withsuppliers, monitor their progress, and control the quality of inputs receivedfrom them.

- At the conversionstage, concurrent controlgives managers immediatefeedback on how efficiently inputs are being transformed into outputs.Concurrent control through IT alerts managers to the need to react quicklyto the source of the problem. Concurrent control is at the heart of total

quality management programs.

- At the outputstage, managers usefeedback controlto provide informationabout customers reactions to goods and services so that corrective actioncan be taken if necessary.

The Control Process

The control system, whether at the input, conversion, or output stage, can be broken downinto four steps. They are:

Step 1: Establish the standard of performance, goals, or targets against which

performance is to be evaluated.

Step 2: Measure actual performance.

Step 3: Compare actual performance against chosen standards of performance.

Step 4: Evaluate the result and initiate corrective action if the standard is not beingachieved.



4/30

CHAPTER EIGHT


OUTPUT CONTROL

All managers develop a system of output control for their organizations. The three mainmechanisms that managers use to assess output or performance are financial measures,organizational goals, and operating budgets.

Financial Measures of Performance

Top managers use various financial measures to evaluate performance. The most commonfinancial measures are:

Profit ratios, which measures how efficiently managers are using the organizationsresources to generate profits.Return on investment (ROI),whichis an organizations

net income before taxes divided by its total assets, is the most commonly usedfinancial profit ratio. Gross profit margin is the difference between the amount ofrevenue generated and the resources used to produce the product. It providesinformation about how efficiently an organization is using its resources. Both of theseprofit ratios allow managers to assess its competitive advantage.

Liquidity ratios measure how well managers have protected organizational resourcesso as to be able to meet short-term obligations. The current ratio (current assetsdivided by current liabilities) tells managers whether they have the resources to meetclaims for short-term creditors. The quickratio tells whether they can pay these claimswithout selling inventory.

Leverage ratios such as the debt-to-assets ratio and the times-covered ratio measurethe degrees to which managers use debt or equity to finance ongoing operations.

Activity ratios provide measures of how well managers are creating value from assets.Inventory turnovermeasures how efficiently managers are turning over inventory.Days sales outstandingprovide information on how efficiently managers arecollecting revenue from customers.

The objectivity of financial measures of performance is the reason why so many managers usethem to assess effectiveness and efficiency. When an organization fails to meet performance

standards, managers know that they must take corrective action.



5/30

CHAPTER EIGHT


Management Insight: Making Financial Figures Come Alive

Some top managers, including Michael Dell, make a point of showing employees exactly howtheir activities affect financial ratios. At his companys boot camp for new employees, Dellhas been known to bring financial charts that show employees how each minute they devoteto performing a specific job activity, or how each mistake made is assembling or packaging aPC, affects bottom line profitability. Dell does not care about how profits or sales growindividually; he cares about how these two figures work together. For that reason, he placesheavy emphasis on operating margin ratios.

Financial information helps managers to evaluate past decisions, but does not tell themhow to find new opportunities to build competitive advantage. This is whyorganizational goals are important.

Organizational Goals

After top managers have set the organizations overall goals, they then establishperformance standards for the various divisions and functions. These standards specifyfor divisional and functional managers the level at which their units must perform ifthe organization is to achieve its overall goals.

Divisional managers then develop a business- level strategy that they hope will allowthem to achieve that goal. In consultation with functional managers, they specify thefunctional goals that managers of different functions need to achieve to allow thedivision to achieve its goals.

In turn, functional managers establish goals that first-line managers and non-managerial employees need to achieve to allow the function to achieve its goals.

It is vital that the goals set at each level harmonize with the goals set at other levels.Also, goals should be set appropriately so that managers are motivated to accomplishthem. The best goals arespecific difficult goals, often calledstretch goals, that willchallenge and managers ability but are not out of reach.

.Operating Budgets

The next step in developing an output control system is to establish operating budgets.

An operating budgetis a blueprint that states how managers intend to useorganizational resources to achieve organizational goals efficiently.

Managers at one level allocate to subordinate managers a specific amount of resourcesto use to produce goods and services. These lower-level managers are evaluated ontheir ability to stay within the budget and to make the best use of resources.



6/30

CHAPTER EIGHT


Large organizations often treat each division as a stand-alone responsibility center,and then evaluate each divisions contribution to corporate performance.

- Managers may be given a fixed budget and evaluated for the amount ofgoods or services they can produce from it (a cost or expense budgetapproach).

- Or managers may be asked to maximize the revenues from the sales ofgoods and services produced (a revenue budget approach).

- Or they may be evaluated on the difference between the revenuesgenerated and the budgeted cost of making those goods and services (aprofit budget approach).

Problems with Output Control

Managers must be careful that the output standards they create do not cause managers atlower levels to behave in inappropriate ways to achieve organizational goals. Outputstandards should encourage managers to be most concerned about the long term.

Problems With Output Control

When designing an output control system, managers must be sure that the output standardsthey create motivate managers at all levels and do not encourage inappropriate behavioras a way to achieve organizational goals.

Managers primary concern should be long-term effectiveness. Therefore, ifconditions change, it is probably better that top managers communicate to those lowerin the hierarchy that they are aware of the changes taking place and are willing torevise and lower goals and standards.

Managers must be sensitive to how they use output control and constantly monitor itseffects at all levels in the organization. Output controls should serve as a guide toappropriate action.



7/30

CHAPTER EIGHT


BEHAVIOR CONTROL

Behavior control, along with output control, is a method of motivating employees. There arethree mechanisms of behavior control that managers can use: direct supervision, managementby objectives, and rules and standard operating procedures.Direct Supervision

The most immediate and potent form of behavior control is direct supervision bymanagers. Under direct supervision, managers actively monitor and observe, teach,and correct subordinates. Direct supervision requires that managers lead by exampleand can be a very effective way of motivating employees.

Problems are associated with direct supervision include:

- It is very expensive because a manager can personally manage only a smallnumber of subordinates effectively. For this reason, output control is usuallypreferred over behavior control.

- Direct supervision can demotivate subordinates if they feel that they are notfree to make their own decisions.

- For many jobs direct supervision is not feasible. The more complex a job, themore difficult it is for a manager to determine how well an employee is

performing.

Management by Objectives

To provide a framework within which to evaluate subordinates behavior, many organizationsimplement some version of management by objectives (MBO). Management by objectives is asystem of evaluating subordinates for their ability to achieve specific organizational goals orperformance standards and to meet operating budgets. It involves three steps.

Step 1: Specific goals and objectives are established at each level of the organization.

Step 2: Managers and their subordinates together determine the subordinates goals.

Step 3: Managers and their subordinates periodically review the subordinatesprogress toward meeting goals.



8/30

CHAPTER EIGHT


In companies in which responsibilities have been decentralized to empowered teams, MBO

works somewhat differently. Managers as each team to develop a set of goals andperformance targets that the team hopes to achieve. Managers then negotiate with each teamto establish its final goals and the budget the team will need to achieve them. Rewards arelinked to team performance, not to the performance of any one team member.

Bureaucratic Control

When direct supervision is too expensive and MBO is inappropriate, managers may usebureaucratic control.Bureaucratic controlis control of behavior by means of acomprehensive system of rules and standard operating procedures (SOPs) that shape andregulate the behavior of divisions, functions, and individuals.

Rules and SOPs guide behavior and specify what employees are to do when theyconfront a problem. It is the responsibility of a manager to develop rules that allowemployees to perform their activities efficiently and effectively.

When employees follow the rules, their behavior is standardizedactions areperformed in the same way time and time again. There is no need to monitor theoutputs of behavior because standardized behavior leads to standardized outputs.

Problems with Bureaucratic Control

With a bureaucratic control system in place, managers can manage by exception and interveneand take corrective action only necessary. However, the following problems have beenassociated with bureaucratic control, which can reduce organizational effectiveness. Theyare:

Establishing rules is always easier than discarding them. If the amount of red tapebecomes onerous, sluggishness can imperil an organizations survival.

Because rules constrain and standardize behavior, there is a danger that people becomeso used to automatically following rules that they stop thinking for themselves.Innovation is incompatible with the use of extensive bureaucratic control.

Bureaucratic control is most useful when organizational activities are routine andwhen employees are making programmed decisions. It is less useful wherenonprogrammed decisions have to be made and managers have to react quickly tochanges.



9/30

CHAPTER EIGHT


For many of the most significant organizational activities, output control and behavior control

are inappropriate, for the following reasons: A manager cannot evaluate the performance of workers such as doctors, research

scientists, or engineers by observing their behavior on a day-to-day basis.

Rules and SOPs are of little use in telling a doctor how to respond to an emergencysituation or a scientist how to discover something new.

Output controls such as the amount of time a surgeon takes for each operation or thecosts of making a discovery are very crude measure of the quality of performance.

II. ORGANIZATIONAL CULTURE AND CLAN CONTROL (LO2)

Organizational culture is another control system that regulates and governs employeeattitudes and behavior. It is the shared set of beliefs, expectations, values, norms, and workroutines that influence how members of an organization relate to each other and work togetherto achieve organizational goals.

Clan controlis the control exerted on individuals and groups in an organization byshared values, norms, standards of behavior, and expectations. Organizational cultureis not an externally imposed system; rather, employees internalize organizationalvalues and norms. Rather, employees internalize organizational values and norms, andthen let these values and norms guide their decisions and actions.

Organizational culture is an important source of control for two reasons: 1) it makescontrol possible in situations where managers cannot use output or behavior control,and 2) when a strong and cohesive set of organizational values and norms is in place,employees focus on thinking about what is best for the organization in the long run.

Manager as a Person: James Casey Creates a Culture for UPS

UPS employs over 250,000 people and is the most profitable company in its industry. Sinceits founding in 1907 by James E. Casey, UPS has developed a culture that has been a modelfor competitors, such as FedEx and the U.S. Postal Service. From the beginning, Casey madeefficiency and economy the companys driving values. Loyalty, humility, discipline,

dependability, and intense effort were established as the key norms and standards UPSemployees should adopt. UPS has always gone to extraordinary lengths to develop andmaintain these values and norms in its workforce.



10/30

CHAPTER EIGHT


The companys operating systems are subject to intense scrutiny by the companys 3,000

industrial engineers, who are constantly on the lookout for ways to measure outputs andbehaviors to improve efficiency. For example, they time every part of the truck drivers job,and as a result, truck drivers are instructed with extraordinary detail on how to perform eachcomponent of their job. Its search to find the best set of output controls leads UPS toconstantly develop and introduce the latest in IT into the companys operations, particularly inmaterials management. UPS also offers a consulting service to other companies in the area ofglobal supply chain management to teach other companies how to pursue its values ofefficiency and economy.

Adaptive and Inert Cultures

Many researchers and managers believe that employees of organizations go out of their wayto help their organization because the organization has a strong and cohesive organizationalculture, i.e., an adaptive culture.

Adaptive cultures are those whose values and norms that help an organization to buildmomentum, grow, and change as needed to achieve its goals and be effective.

In contrast, inert cultures are those that lead to values and norms that fail to motivateor inspire employees. They lead to stagnation and often failure over time.

Researchers have found that organizations with strong adaptive cultures invest in theiremployees and demonstrate their commitment to them. An example of such

investment and commitment is emphasizing the long-term nature of the employmentrelationship, trying to avoid layoffs, developing long-term career paths for employees,and investing heavily in training and development to increase employee value to theorganization. Also, employee rewards are linked directly to employee andorganizational performance.

Other organizations, however, develop cultures with values that do not reflect acommitment to protecting and increasing the worth of their human resources. In acompany with an inert culture, poor working relationships frequently develop betweenthe organization and its employees. Instrumental values of non-cooperation, laziness,and loafing are prevalent and work norms of output restriction are common.



11/30

CHAPTER EIGHT


An adaptive culture develops an emphasis on entrepreneurship, respect for employees,

and uses an organizational structure that empowers employees and motivates them tosucceed. In contrast, in an inert culture, employees are content to be told what to doand have little incentive or motivation to perform beyond minimum workrequirements.

III. ORGANIZATIONAL CHANGE (LO3)

There is a fundamental need to balance two opposing forces in the control process. On onehand, adopting the right set of output and behavior controls is essential for improvingefficiency. One the other hand, however, employees also need to feel that they have theautonomy to depart from routines as necessary to increase effectiveness because the

environment is dynamic and uncertain.

Many researchers believe that the highest performing organizations are those that areconstantly changing and thus have become experienced at it. For this reason, it is vitalthat managers develop the skills necessary to mange change effectively. Severalexperts have proposed a model that managers can follow to implement changesuccessfully.

Organizational change is the movement of an organization away from its presentstate and toward some desired future state to increase its efficiency and effectiveness.

Assessing the Need for Change

Organizational change can affect practically all aspects of organizational functioning,including organization structure, culture, strategies, control systems, and groups andteams, human resource management system, as well as critical organizationalprocesses such as communication, motivation, and leadership.

It can also bring alterations in the way that managers carry out the critical tasks ofplanning, organizing, leading, and controlling, and the ways they perform theirmanagerial roles.

Deciding how to change an organization is a complex matter because change disrupts

the status quo and poses a threat to many, prompting some employees to resistattempts to alter work relationships and procedures.



12/30

CHAPTER EIGHT


Organizational learning, the process through which managers try to increase the ability

of organizational members to understand and appropriately respond to changingconditions, can be an important impetus for change.

Assessing the need for change calls for two important activities: recognizing thatthere is a problem and identifying its source. Sometimes the need for change isobvious, but at other times, problems develop gradually, making it more difficult torecognize that change is needed.

To discover the source of organizational problems, managers need to look both withinand outside of the organization.

Deciding On the Change To Make

Once managers have identified the source of the problem, they must decide what they thinkthe organizations ideal future state would be and begin engagement in planning how they aregoing to attain the organizations future state.

This step also includes identifying obstacles or sources of resistance to change.Obstacles to change are found at the corporate, divisional, departmental, andindividual levels of the organization.

Corporate-level changes, even seemingly trivial ones, may significantly affect how

divisional and departmental managers behave. For this reason, an organizationspresent strategy and structure can be powerful obstacles to change.



13/30

CHAPTER EIGHT


Whether a companys culture is adaptive or inert also can facilitate or obstruct change.

Organizations with entrepreneurial, flexible cultures are much easier to change that areorganizations with more rigid cultures.

The same obstacles to change exist at the divisional and departmental levels as well.Division managers may differ in their attitudes toward changes proposed by topmanagers, and if their interests and power seem threatened, will resist those changes.Managers at all levels usually fight to protect their power and control over resources.

At the individual level, people are often resistant to change because change bringsuncertainty and stress.

Managers must recognize and take into consideration potential obstacles that can makechange a slow process. Improving communication and empowering employees byinviting them to participate in the planning for change can help to overcome resistanceand allay fears. In addition, managers can sometimes overcome resistance byemphasizing group or shared goals such as organizational efficiency and effectiveness.

The larger and more complex an organization, the more complex the change processis.

Implementing the Change

Generally managers introduce and manage change from the top down or from the bottom up.

Top down-change is implemented quickly. Top managers identify the need forchange, decide what to do, and then move quickly to implement the changesthroughout the organization.

Bottom-up change is typically more gradual. Top managers consult with middle andfirst line managers, and then over time, managers at all levels work to develop adetailed plan for change. A major advantage of bottom-up change is that it can co-optresistance to change from employees.



14/30

CHAPTER EIGHT


Evaluating the Change

The last step in the change process is to evaluate how successful the change effort has been inimproving organizational performance.

Using such measures as market share, profits, or the ability of managers to meet theirgoals, managers can compare how well an organization is performing after the changewith its performance prior to the change.

Managers also can use benchmarking, which is the comparison of their performanceon specific dimensions with the performance of high performing organizations, todecide how successful a change effort has been. Benchmarking is a key tool in totalquality management.

IV. ENTREPRENEURSHIP, CONTROL, AND CHANGE

Entrepreneurs are the people who bring about change to companies and industriesbecause they see new and improved ways to use resources to create productscustomers will want to buy.

Entrepreneurs assume the risk associated with starting a new business, which issubstantial since many new businesses fail. They receive all of the returns or profitsassociated with the new business venture.

Employees of existing organizations who notice opportunities for product or serviceimprovements and are responsible for managing the development process are knownas intrapreneurs.

There is an interesting relationship between entrepreneurs and intrapreneurs. Manyintrpreneurs become dissatisfied when their employers decide not to support their newproduct ideas and development efforts. Very often they leave their employer to foundnew ventures that may compete with the company they left.

Frequently, founding entrepreneurs lack the skill, patience, or experience to engage inthe difficult work of management. Therefore, they must hire managers who can create

an operating and control system that will help the new venture to prosper.



15/30

CHAPTER EIGHT


V. SUMMARY AND REVIEW

LECTURE ENHANCERS

Lecture Enhancer 8.1

ANTICIPATING THE NEED TO CHANGE

Major shifts in the competitive landscape may seem to appear overnight, but in reality, theyusually evolve quietly over a number of years. CEOs usually have enough time to adapt tothe shift once they observe uncertainty creep into the competitive picture, but only if they arewilling to embrace the need for change.

In order to make prudent decisions regarding change within an organization, a manager mustfirst understand how the entire industry in changing, according to Anita McGahan, a professorat Boston Universitys School of Management. As a result of extensive research, she hasidentified four distinct trajectories of change that industries evolve along radical,progressive, creative, and intermediating. Dr. McGahan asserts that if CEOs understand thechange trajectory of their industry, they can then determine which change strategies are mostappropriate for their individual company. Below is a description of each..

Radical Change: Radical change occurs when an industrys core assets and core activities areboth threatened with obsolescence. Under this scenario, the knowledge and brand capital builtup in the industry erode, as do customer and supplier relationships. During the 1980s and

1990s, an estimated 19% of U.S. industries went through some stage of radical change. Agood example is the travel business. The core activities and core assets of travel agenciescame under fire as the airlines implemented systems to enhance direct price competition (suchas SABRE and other reservations systems) and as the agencies clients turned to web-basedsystems that offered new value, such as Expedia, Orbitz, and Travelocity.

Progressive Change: When neither core assets nor core activities are threatened, theindustrys change trajectory is progressive. Over the past twenty years, this has been by farthe most common trajectory, with about 43% of U.S. industries changing in this manner. Anexample is the commercial airline industry. Innovators like Southwest and JetBlue succeedednot because of the incumbents strengths became obsolete but because the upstart firms had

smart insights about how to optimize efficiency.



16/30

CHAPTER EIGHT


Intermediating Change: Managing a company that is experiencing intermediating change is

extraordinarily difficult. Although the core activities of industries on this change trajectoryare threatened, the core assets of these industries, such as knowledge, brand capital, orpatents, can retain most of their value, if they are used in new ways. Managements challenge,therefore, is to find new and sometimes unconventional ways preserve valuable assets andextract value from core resources while simultaneously restructuring key relationships. In themusic industry, for instance, recording companies are beginning to sell their services a la carteto aspiring musicians rather than making huge investments in the artists upfront and incurringall the costs of artist development. The customer and the activities have changed, but the coreresource, the recording companies ability to develop new artists, retains its value.

Creative Change: In industries on a creative change trajectory, relationships with customers

and suppliers are generally stable, but assets turn over constantly. The film productionindustry is a good example. Large production companies enjoy ongoing relationships withactors, agents, theater owners and cable television executives. Within this network, theyproduce and distribute new films all of the time. This combination of unstable assets (newfilms) and stable relationships (with buyers and suppliers) makes it possible to deliversuperior performance over the long term.

Dr. McGahan warns that the four change trajectories are not evenly distributed amongindustries. Surprising, radical change affects less than one-fifth of all industries, despite theamount of attention given to it. More prevalent are progressive and intermediating change. Byunderstanding of these trajectories, a manager can avoid the looming fear of industry change

by anticipating how change will unfold in their industry and how to take advantage ofopportunities as they emerge.

Adapted from How Industries Change, by Anita McGahan, Harvard Business Review, October 2004, p. 86.


USING THE EXIT INTERVIEW AS A CONTROL SYSTEM

Feedback on problems is the only way to prevent them from recurring. One often-overlookedway of getting this feedback from employees is through the exit interview. Interviews withemployees who voluntarily leave the organization serve a dual purpose. For the employee,exit interviews are a chance to say many things they havent been able to say before. Foremployers, the interviews can be an excellent source of information. Many companies,however, do not conduct exit interviews or conduct them ineffectively.



17/30

CHAPTER EIGHT


A good exit interview should consist of structured and unstructured questions. If the employee

is counting on a reference, he or she may be unwilling to be too truthful. To put the employeeat ease and get honest information, some human resource professionals recommend writingthe reference in advance and letting the employee know at the beginning of the interview.Then questions such as the following can be used to get honest information about thecompany as a whole.What did you like most about working here? This helps gain insight into how the employee

perceives the corporate culture. At AT&T one of the answers most frequently heard is thatthey appreciated the benefits package. When exiting employees mention this, it reaffirms tothe company that the investment in benefits is paying off.

What do you feel good about having accomplished? This helps determine what

responsibilities gave the employee a sense of accomplishment.

If you were in charge here, what would you change? This question is used to give theemployee a chance to figuratively change the work environment. Prepare for a candid answer.

What best helped you achieve your goals? This is where managers find out whichemployee-support systems are working and which are not. If, for example, the vicepresidents open door policy was useful in getting some project underway, the policy could beencouraged among other senior management.

What did you dislike about the work environment here? An exit interview survey at a

Boston hospital showed that twenty percent said they had problems with the work scheduleand 15 percent said they disliked their direct supervisor. This information encouraged hospitaladministrators to implement schedule alternatives and management training for supervisors.

Finally, the exit interview information should be used. Managers at AT&T produce a twice-yearly, in-depth analysis of exit-interview findings, which are presented to the Senior VicePresident of Human Resources. The information is used to reexamine policies, makesuggestions for change, and generally help retain skilled employees. Some of the best ideashave come from people who are leaving.



18/30

CHAPTER EIGHT



THE CONTROL EXPERIMENTS

In Search for Excellence, the Peters and Waterman study of Americas excellent corporations,recounted an experiment conducted by an industrial psychologist. The subjects were givensome difficult puzzles to solve and some rather dull proofreading to do. While they attemptedthese chores, a raucous audiotape consisting of one person speaking Spanish, two peoplespeaking Armenian, a mimeograph machine running, a chattering typewriter, and street noiseran in the background. Half the subjects were given a button they could push to suppress thenoise. The other half were not. Those with buttons to push solved five times more puzzlesand made one-quarter as many proofreading errors as those who had no button. The news wasthat never once (and the experiment was repeated several times) did anyone ever push his or

her button. The mere fact that peopleperceivedthat they had a modicum of control over theirdestinythe option of pushing the buttonled to an enormous improvement in performance.In the follow-up book,A Passion for Excellence, another experiment is described, this one atEdison, New Jersey, site of a Ford Motor assembly plant. They had begun an experiment thatparallels the one in the lab. Every person on the line in the huge facility was given access to abutton that he or she could push to shut down the linequite a gutsy move on the part of theplant manager. The results that follow occurred during the first 10 months of the experiment.

To begin with, Edison, New Jersey, is not like an industrial psychology lab. People didpushtheir buttons at Edison. To be precise, they shut the facility down 30 times the first day andabout 10 times a day thereafter. The good news is that after the first day the average shutdown

lasted only about 10 secondsjust time enough to make a quality adjustment, a tweak, atwist, a turn, to tighten up a nut or bolt.

Productivity in the plant did not change. Three other indicators, however, are worthy of note.The number of defects per car produced dropped during the first months of the experimentfrom 17.1 per car to 0.8 per car. The number of cars requiring rework after they had come offthe line fell by 97 percent. And the backlog of union grievances plummeted. Moreover, thechange in attitude was as extreme as the numbers. One old pro on the line commented, Itslike someone opened the window and we can breathe.

MANAGEMENT IN ACTION

Notes for Topics for Discussion and Action



19/30

CHAPTER EIGHT


Discussion

1. What is the relationship between organizing and controlling? (LO1)

The text defines controlling as the process whereby managers monitor and regulate howefficiently and effectively and organization and its members are performing the activitiesnecessary to achieve organizational goals.

In previous chapters the text defines planning and organizing as the process whereby mangersdevelop the organizational strategy and structure that they hope will allow the organization touse resource most effectively to create value for customers.

In order to control the organization, managers must monitor and evaluate whether their

organizations strategy and structure (which was developed during the organizing function)are working as they intended, how they could be improved, and how they might be changed ifthey are not working.2. How do output control and behavior control differ? (LO1)

In an output control system managers must first choose the set of goals or output performancestandards or targets that they think will best measure efficiency, quality, innovation, andresponsiveness to customers for their organization. Then they measure whether or not theperformance goals and standards are being achieved at the four main levels in an organization(corporate, divisional, functional, and individual levels.)

As its name insinuates,behavior control systems

involve providing mechanisms to ensure thatworkers behave in ways that make the structure work. It concentrates on controlling thebehavior of the workers opposed to their output or results. The three kinds of behavior controlsystems are direct supervision, monitoring progress toward goals, and bureaucratic control.

3. Why is it important for managers to involve subordinates in the control process? (LO1)

It is very important to involve subordinates in the control process in order to achieve successin any organization. If subordinates are involved in setting the goals and standards, they willfeel a sense of ownership toward them, which will motivate them to work to achieve thosegoals. They will be more committed to goals that they helped to design. It will also help toensure that unrealistic goals are not created.



20/30

CHAPTER EIGHT


4. What is organizational culture and how does it affect the way employees behave? (LO2)

The text defines organizational culture as a specific collection of values, norms, and standardsof behavior shared by people and groups in an organization which controls the wayemployees interact with each other and work toward organizational goals. If organizationalculture is in place then employees are not controlled by some external system of constraints,but rather, employees make organizational values and norms their own, and then they makedecisions and act in accordance with these values and norms. Employees also become focusedon thinking about what is best for the organization in the long run, taking actions and makingdecisions that are oriented toward helping the organization to perform well.

5. What kind of controls would you expect to find most used in (a) a hospital, (b) the Navy,

(c) a city police force. Why? (LO1)

A hospital would most likely use output and behavior control systems. Ratios such as thenumber of days outstanding for receivables are used to determine the economic health of thehospital. Operating budgets are used for each department as well as each function (i.e.,marketing and advertising) of the hospital. Organizational goals, such as the desire to achievethe best reputation in the treatment of heart disease, are usually established.Behavior controls, such as direct supervision and bureaucratic control, are also very common.Interns and residents of the hospital are regularly monitored to ensure that they are making thecorrect diagnosis for patients. Bureaucratic controls are evident in the abundance of rules,policies and procedures that are established and must be obeyed. This is done to ensure safety,

health and well being of the employees and patients of the hospital.

The Navy primarily uses behavior and culture control systems. The behavior of enlistedpersonnel is constantly monitored and they are expected to follow a plethora of rules,including the way that they should walk, talk, and respond to superiors. There is a deepculture entrenched in the military. Since members of the Navy are representing their countryand their arm of the military at all times, there is a high level of behavior that is expected ofthem, especially when they are in uniform.



21/30

CHAPTER EIGHT


A city police force uses output, behavior, and clan control systems. Since the city established

a budget for the police force, they are under the control of their output. They are expected tokeep the crime level below certain levels working within their budget. Behavior controls areused when policemen are expected to follow established procedures in many of their duties. Aculture is created within the police force in regards to the way that they fulfill their duties.Because their purpose to protect the people, they should deal with the community in aprofessional manner and develop a trusting relationship with its members.

Action

6. Ask a manager to list the main performance measures that he or she uses to evaluate howwell the organization is achieving its goals. (LO1)

(Note to Instructors: The following are some examples of performance measures.)

Managers can use financial measures to determine the performance of the company. Theseinclude financial ratios such as profit ratios, leverage ratios and activity rations (mentioned inthe text.) If organizational goals are used such as: the company must be first or second in itsindustry in terms of level of profit; increase the level of sales; increase the quality of inputs orlower their costs; develop a number of new products or patents, a manager would need tomeasure the respective activities and compare them against the goals to evaluate performance.If operating budgets are used to measure performance, then budget are set for functions,divisions, or products and then actual figures are measured against budgeted figures atdifferent time intervals throughout the budgeted period.



22/30

CHAPTER EIGHT


7. Ask the same manager or a different manager to list the main forms of output control and

behavior control that he or she uses to monitor and evaluate employee behavior. (LO1)

Examples of output control systems include: financial controls, organizational goals andoperating budgets. Examples of behavior control systems include: direct supervisionmonitoring progress toward goals and bureaucratic control.

8. Interview some employees of an organization and ask them about the organizationsvalues, norms, socialization practices, ceremonies and rites, and special language and

stories. Referring to this information, describe the organizations culture. (LO3)

Bloomberg Financial Markets in Princeton New Jersey has a very unique culture. There are

no offices or internal walls so that everyone is able to see everyone else at all times. Dress isvery casual as is conversation. The company provides lunch to all employees as well assnacks and soft drinks throughout the day. This encourages employees to not take a very longtime for lunch with some employees even eating at their desks. Besides fresh air there is noreason for employees to leave the building. By 5:30 most of the employees are gone and notmany work more than 40 hours a week. Employees are encouraged to spend timefamiliarizing themselves with the many features of the Bloomberg terminal, which providesan abundance of financial information on stocks, bonds and mutual funds. This affords theemployees leisurely time to explore a wide array of information offered on the Bloomberg.Since employees are free to roam throughout the building, a very social atmosphere exists.Many of the younger employees socialize outside of work, playing together on softball teams

and taking ski vacations.

9. Interview an entrepreneur to learn how he or she organized a new venture. (LO4)

Answers to this question will vary, depending upon the entrepreneur interviewed, the size ofhis or her business, and the industry in which it competes. In general, however, organizationwithin the entrepreneurial venture must be addressed at both the macro and a micro level.The macro-level involves the structuring of the business itself, while the micro-level isconcerned with day-to-day operational issues.



23/30

CHAPTER EIGHT


At the macro level, the task of organizing begins with the development of a business plan. Abusiness plan is a well researched, written document that outlines the objectives of the

business and strategies to be used to achieve objectives. It serves not only as a strategicplanning document, but also as a road map to guide daily operations, and a sales tool whenattempting to attract financial investors. A well written business plan is typically organized byfunctional area - it will include a marketing plan, human resources plan, operations plan, anda financial plan. The human resources section of the business plan will contain anorganizational chart outlining the chain of command. In this section the entrepreneuraddresses other organizational structure issues, such as decentralization, line vs. staffpositions, duties of key personnel, delegation of authority, etc.At the micro level, an organized approach to resource deployment of resources is critical sincethe most immediate goal of start-ups is to achieve break-even status and from there, begingenerating profits. Effective organization of time is critical, since entrepreneurs always have

too much to do and priorities often shift. Also, effective organization of both human andfinancial resources presents an ongoing challenge since both are sorely needed to fuel growth,but at the same time, must be tightly controlled to avoid cash flow problems. Inefficiency orwaste within an entrepreneurial venture can lead to financial disaster.

AACSB standards 1, 3, 10

Notes for Building Management Skills

Understanding Controlling(LO1, 2)

1. At what levels does control takes place in this organization?

Control can take place at the corporate, divisional, functional, and individual levels.

2. Which output performance standards (such as financial measures and organizationalgoals) do managers use most often to evaluate performance at each level?

Performance standards include financial measures (such as ratios), organizational goals, andoperating budgets. Refer to the answer to question #3 in Management in Action for examplesof these standards.

3. Does the organization have a management by objectives system in place? If it does,

describe it. If it does not, speculate about why not.



24/30

CHAPTER EIGHT


Management by objectives (MBO) is a system of evaluating subordinates by their ability toachieve specific organizational goals or performance standards and to meet operating budgets.

Without measuring whether goals or standards are met, it is pointless to establish thembecause one would never now if they were achieved. A management by objectives systeminvolves the following steps:

Specific goals and objectives are established at each level of the organization.

All levels of employees participate in the goal setting is a process.

Periodic reviews are made of progress toward meeting goals.4. How important is behavior control in this organization? For example, how much ofmanagers time is spent directly supervising employees? How formalized is the organization?

Do employees receive a book of rules to instruct them about how to perform their jobs?

Behavior control systems are use to enable managers to keep their subordinates on track and

make their organizational structures work as they are designed to. Direct supervision is usedwhen managers actively monitor and observe the behavior of their subordinates, teachsubordinates the kinds of behaviors that are appropriate and inappropriate, and intervene totake corrective action as needed. It is a very effective way of motivating employees but thereare certain problems associated with direct supervision. First, it is very expensive becauseeach manager can only personally manage a small number of subordinates effectively.Second, it can demotivate subordinates if they feel that they are under close scrutiny or are notfree to make their own decisions. Third, for many jobs direct supervision is not feasible orpossible, such as complex jobs and responsibilities that can only be measured over longperiods of time.

In some industries it is imperative that a set or book of rules exists. Other industries, however,rely on employees creativity in devising more effective and efficient ways to accomplishtasks and design products. In this case a very formalized environment with a rule book tofollow would not be beneficial for success.

5. What kind of culture does the organization have? What are the values and norms? Doemployees tell any particular stories that reveal the organizations norms and values? Whateffect does the organizational culture have on the way employees behave or treat customers?

There are many different types of organizational culture. One example would be a veryconservative culture that is filled with many unwritten rules that are followed by the

employees. This might include a dress code, where men and women where dark, conservativesuits with white shirts, and men wear wing-tipped shoes and do not wear flashy ties. In thisorganization one must work upwards of 70 hours a week including Saturdays in order tosucceed.



25/30

CHAPTER EIGHT


In the organization, the values and norms inform employees about what goals they shouldpursue and how they should behave to reach those goals. An example is an organization

where values create an environment where creativity and innovation are encouraged. Normsare in place that allow employees to experiment with new ideas in an attempt to create newways of doing things or creating new products.

The culture can have a significant impact on how employees treat customers. For example, ina retail store, employees might be encouraged or required to approach customers in a friendlymanner and offer assistance before the customer is able to pose a question. Also, somecultures practice the rule that the customer is always right so that even if the employeedisagrees with the customer, they must behave in a manner that indicates that the customer isright in their conviction.6. Based on this analysis, do you think there is a fit between the organizations control

systems and its culture? What is the nature of this fit? How could it be improved?

If there is not a good fit between the organizations control system and culture, it should bevery apparent. There will most likely be a break down somewhere in the system whereemployees are not reaching the standards or are very unhappy in their positions.


Managing Ethically (LO1)

1. Either by yourself or in a group, think about the ethical implications of organizationsmonitoring and collecting information about their subordinates. What kind ofinformation is it ethical to collect or not to collect? Why? Should managers and

organizations inform subordinates they are collecting such information?

Nearly three-quarters of all large companies that responded to a survey conducted by theAmerican Management Association said that they actively record and review at least one ofthe following: employees phone calls, e-mail, Internet connections, or computer files.Reasons given by companies for engaging in these practices include prevention of personaluse or abuse of company resources, prevention or investigation of corporate espionage ortheft, cooperation with law enforcement officials in investigations, and resolution of technical

problems, or other special circumstances.



26/30

CHAPTER EIGHT


Because their objective is to protect the companys best interests, employers feel that theirbehavior is both legal and ethical. Ideally, companies should only collect information that is

job specific. From a pragmatic viewpoint, however, when scanning messages that movethrough a companys server, it may be difficult to distinguish in advance an employeesprofessional from personal correspondence.

Often employees are unaware that their telephone and/or computer communications are notconfidential. Therefore, if an organization regards all communications sent or received duringwork hours and using company equipment as corporate property, this should be formallystated as a policy. Again, the most ethical approach is to use monitoring only when theorganization has good grounds for suspecting that there is abuse.

2. Similarly, some organizational cultures like those of Arthur Andersen, the accountingfirm, and Enron seem to have developed norms and values that caused their members

to behave in unethical ways. When and why does a strong norm that encourages highperformance become one that can cause people to act unethically? How can

organizations prevent their values and norms from becoming too strong?

Enrons corporate culture seemed to exemplify risk taking, aggressive growth andentrepreneurial creativity, which are all positive values. However, these values were notbalanced by a genuine concern for corporate integrity, customer needs, and shareholder value.Many believe that this lack of balance, combined with Enrons creation of a yes culture thatsquelched any internal complaints or negative feedback, resulted in norms that encouragedoverwhelming pressure to conform and an abuse of power.

Hard-charging, aggressive cultural norms must always be tempered with a sense of moralityand integrity. Careful monitoring and preservation of this delicate balance will help acompany avoid ethical breaches.

AACSB standards 1, 2, 3, 6, 7

Notes for Small Group Breakout Exercise

How Best to Control the Sales Force? (LO 1, 2)

1. Design the control system that you think will best motivate salespeople to achievethese goals.



27/30

CHAPTER EIGHT


A control system that would motivate salespeople to achieve set goals may include:

Meeting with their supervisor regularly to set and agree upon the level of sales they

should strive to achieve each month, quarter, and year. Determining how many cold calls they should conduct or the number of new

customers they should contact during a specific period.

Maintaining records for all clients and potential clients that they have visited or madecontact with.

Preparing brief summaries of the results of these contacts to be submitted regularly totheir supervisor.

Holding meetings between salespeople and supervisors on a regular basis to determineif the salesperson is achieving their goals and if they are having any problems.

2. What relative importance do you put on (1) output control, (2) behavior control, and(3) organizational culture in this design?

All three types of control systems are important in this design. An examples of output controlis the establishment of sales goals to be reached during a specific period. Behavior controlsare found in the system by the presence of prescribed behaviors that should be performed bythe salespeople. These include: the amount of time that they should spend seeking newbusiness and the required submission of client logs. Organization culture is underlying in thisdesign since the setting of goals by both the supervisor and salesperson shows thatmanagement values the opinions and the abilities of their employees. The dictation of goals tothe salesperson would signal to them that their input is not valued in this organization.


Be the Manager (LO1, 2)

1. What kind of outputs controls will best facilitate positive interactions both within theteams and between the teams?

Managers and each team should be given organizational goals that are challenging and requirethem to stretch.

2. What kind of behavior controls will best facilitate positive interactions both within theteams and between the teams?

With the MBO approach, everyone has knowledge of what is going on, what is expected ofthe teams and of individuals, and managers and employees buy into their goals because theyare part of the decision process.



28/30

CHAPTER EIGHT


3. How would you go about helping managers develop a culture to promote high teamperformance?

A brainstorming session (including employees) could be used to generate ideas for ways todevelop a culture that is conducive to achieving goals. Corporate values and norms should beclearly articulated by the leadership, and various methods of fostering the internalization ofthose values and norms by employees should be developed.

AACSB standards 1, 2, 3, 6, 7

BUSINESS WEEK CASES IN THE NEWS

Case Synopsis: Cracking the Whip at Wyeth

When Robert Ruffolo was appointed executive Vice President for R&D at Wyeth, he wasgiven the mandate of shaking up the drug makers mediocre performance in that division. Hiscontroversial changes included establishing quotas for how many compounds must bechurned out by company scientists. Bonuses were held hostage to managers meeting of theirquota. Wyeths problems are reflective of those plaguing its industry. New drug developmentis down 47% from its peak during the late 1990s. Ruffolo wants to bring greater efficiency tothe innovation process by instilling tougher discipline as a means of increasing productivity.Although his approach has critics, analysts say that Wyeths pipeline has shown majorimprovement.

Questions:

1. What kinds of control systems tend to be used to measure the performance of R&Dscientists?

It seems that in the past, behavior controls were used to measure their performance. Ascientist was considered a good performer as long as he or she engaged in appropriatescientific inquiry. Engagement in such activities was more important than quantity of outputfrom it.



29/30

CHAPTER EIGHT


2. What kind of control system did Ruffolo institute? What are the various parts ormeasures of the control system he instituted?

The review process he initiated is an example of concurrent control. Under this reviewprocess, a value is determined for every project in the pipline, based on a host of factors.During an annual review, these ratings are used to decide which projects are given highpriority, low priority, or are discontinued. Establishing a quota for number of new compoundsdeveloped is an example of output control.

3. What are the pros and cons of his system? Does it seem to be working?

The criticisms of Ruffolos use of output control are: 1) increased anxiety level amongscientists, 2) encouraging scientists to overlook problems with some compounds in orderto make their numbers, and 3) encouraging scientists to focus on those projects that are the

safest gambles. However, it appears that the use of such controls has resulted is helpingthe organization to achieve its objectives. Wyeths pipeline has improved, with a numberof potentially hot-selling products likely to hit the market within the next few years.

Prior to the introduction of Ruffolos review system, which is an example of a concurrentcontrol system, drugs with the least chance of paying often ended up with the mostresources. The new rigor imposed by this system forced scientists to terminate troubledprojects earlier in the transformation process, thus saving time and money.

AACSB standards: 1, 3, 9, 12, 13

Chapter 8 Video Case Teaching Note

Johnson & Johnson: Creating a Global Learning Organization

Teaching Objective: Observe how a large, decentralized global company uses an innovativesolution to meet the challenge of providing training and employee development.

Video Summary: This video illustrates how J&J is able to control and enhance training anddevelopment in its highly decentralized organization. With Internet technology, the companycreated an e-University that provides learning across its 230 independent business units.Employees of the various companies are able to tap into each others areas of expertise, share

ideas, and contribute to a diversity of thought while the separate businesses retain theautonomy typically associated with decentralization.



30/30

CHAPTER EIGHT


Questions:

1. Why is eUniversity a valuable learning tool for the Johnson & Johnson organization?

eUniversity created a way for J&J to provide training and development opportunities for thehundreds of thousands of employees of its 230 companies worldwide. The Web-based systemprovides programs from corporate headquarters, various J&J companies, and outside vendors.The system helps J&J retain and take advantage of the independence of its separate units andcapture their diversity of thought. The cross-fertilization of knowledge gives employees notonly an opportunity to learn and plan personal and professional development but also a careercompetitive advantage.

2. How does eUniversity manage to operate in a decentralized environment?

J&J wanted to support learning without losing the advantages of a decentralized company.eUniversity accomplished this by consolidating disparate learning technologies into a singlelearning system. The system uses Internet technology to leverage and integrate existingfunctional, regional, and operating company-specific learning and development systems.

3. What are the benefits, both expected and unexpected, of eUniversity?

J&J managers expected the platform to provide learning opportunities critical to employeetraining and professional development, one of the values expressed in the J&J Credo. Theyalso expected that the employee training and development enhanced by eUniversity would

help J&J sustain its competitive advantage. There were also unexpected benefits.Management didnt anticipate how much learning employees would gain from peers in otheroperating units. Also, smaller companies gained previously unavailable access to the bestlearning experiences from other companies and from outside vendors. Finally, employeeinteraction through eUniversity fostered a new opportunity to discuss the J&J Credo.

chapter 08 im

Documents