mgt assignment basic elements of control in rganization

8/13/2019 Mgt Assignment Basic Elements of Control in Rganization

1/31

Basic Elementsof Control

c h a p t e r20LE ARN I N G O B J E C T I V E SAfter studying this chapter, you shouldbe able to:1. Explain the purpose of control, identifydifferent types of control, anddescribe the steps in the controlprocess.2. dentify and explain the three formsof operations control.

!. "escribe budgets and other tools forfinancial control.#. dentify and distinguish bet$eent$o opposing forms of structuralcontrol.%. "iscuss the relationship bet$eenstrategy and control, including internationalstrategic control.&. dentify characteristics of effecti'econtrol, $hy people resist control,and ho$ managers can o'ercomethis resistance.Jamie Dimon, CEO of J. P.Morgan Chase, isusing a variety of control measures to reduce

costs and boost profits at the company.

( ) * + + - * ( ) * +Chasing Dimons Dream for J. P. Morgan Chaseaste !ill hurt our customers. Cars, phones,clubs, per"s#!hat$s that got to do !ith customers%&/AE "-, CE, . 3. )A- CA*E

amie "imon, a ne$ BA, and industry 'eteran *andy 4eill spent 12 yearstransforming Citigroup, through ac5uisitions, into the largest financial corporationin the 6nited *tates. +he relationship e'entually soured, though, and"imon $as fired. e then re'itali7ed Ban8 ne before selling it to . 3. organChase in 200#. ne year later, he $as CE of . 3. organ Chase, no$ the thirdlargest6.*. ban8. "imon9s dream is to surpass his former employer, $hich hasre'enues %0 percent greater than Chase9s.

Specially prepared for d03371341 on 21 Apr, 2010

! 3A)+ * ' (he Controlling Process;et "imon isn9t . +he cash $ill then finance ne$'entures ranging from more A+ machines to the creation of ne$ products.4ith additional re'enues and impro'ed fundamentals, stoc8 price should rise,freeing further funds for ne$ gro$th. (inally, "imon $ants to build a Citi?li8efinancial empire, merging $ith firms to


2/31

A large organi7ation @can get arrogant and full of hubris and lose focus, li8ethe )oman Empire, according to "imon. . 3. organ Chase had high sales,but $as spending much more than frugal Ban8 ne, leading to ho?hum profits.Also, the company "imon inherited under$ent multiple mergers $ith littleattempt at integration, resulting in a collection of incompatible systems.)esults from different di'isions $ere combined, so @strong businesses $eresubsidi7ing $ea8 ones, but the numbers didn9t


3/31

on trac8. neffecti'e control, on the other hand, can result in a lac8 of focus, $ea8direction, and poor o'erall performance.As $e discuss in Chapter 1, control is one of the four basic managerial functionsthat pro'ide the organi7ing frame$or8 for this boo8. +his is the first of three chaptersde'oted to this important area. n the first section of the chapter $e explain thepurpose of control. 4e then loo8 at types of control and the steps in the controlprocess. +he rest of the chapter examines the four le'els of control that most

organi7ationsmust employ to remain effecti'e: operations, financial, structural, andstrategic control. 4e conclude by discussing the characteristics of effecti'e control,noting $hy some people resist control and describing $hat organi7ations can do too'ercome this resistance. +he remaining t$o chapters in this part focus on managingoperations and managing information.

The Na"#re of Con"ro$Control is the regulation of organi7ational acti'ities so that some targeted elementof performance remains $ithin acceptable limits. 4ithout this regulation, organi7ationsha'e no indication of ho$ $ell they are performing in relation to their goals.Control, li8e a ship9s rudder, 8eeps the organi7ation mo'ing in the proper direction.At any point in time, it compares $here the organi7ation is in terms of performancefinancial, producti'e, or other$iseF to $here it is supposed to be. Gi8e a rudder,

control pro'ides an organi7ation $ith a mechanism for ad


4/31

errors may accumulate and become 'ery serious. (or example, 4histler Corporation,a large radar detector manufacturer, $as once faced $ith such rapidly escalatingdemand that 5uality essentially became irrele'ant. +he defect rate rose from #percent to H percent to 1% percent and e'entually reached 2% percent. ne day, amanager reali7ed that 100 of the firm9s 2%0 employees $ere spending all their timefixing defecti'e units and that =2 million $orth of in'entory $as a$aiting repair.Adapt to en'ironmental change Gimit the accumulation of error

Control helps the organi7ationCope $ith organi7ational complexity inimi7e costs(igure 20.1+E 36)3*E ( C-+)GControl is one of the four basicmanagement functions in organi*ations.(he control function, in turn,has four basic purposes. Properlydesigned control systems can fulfilleach of these purposes.


CA3+E) 20 ' )asic Elements of Control *ad the company ade5uately controlled 5uality as it responded to increaseddemand, the problem $ould ne'er ha'e reached such proportions. *imilarly, (leet$ood

Enterprises, a large manufacturer of recreational 'ehicles, suffered becauseits managers did not ade5uately address se'eral small accounting and productionproblems years ago. As these small problems gre$ into large ones, the firm struggled$ith ho$ to correct them.%Co&ing +i"h Organi,a"iona$ Com&$e-i" 4hen a firm purchases only one ra$material, produces one product, has a simple organi7ation design, and en


5/31

in'entory management stoc8ing neither too fe$ nor too many units in in'entoryF,5uality control maintaining appropriate le'els of output 5ualityF, and e5uipment controlsupplying the necessary facilities and machineryF. Control of human resourcesincludes selection and placement, training and de'elopment, performance appraisal,and compensation. Control of information resources includes sales and mar8etingforecasting, en'ironmental analysis, public relations, production scheduling, andeconomic forecasting.I (inancial control in'ol'es managing the organi7ation9s debt so

@)ight no$, e'erything loo8s .K. in terms ofmeeting our entry?into?ser'ice dates forthe LBoeingM >I>. But as you 8no$, ne$ airplanes

are really hard to do.ichael Bair, Boeing Nice 3resident)usinessee",une 1H, 200&, p. #0F


/ 3A)+ * ' (he Controlling Processthat it does not become excessi'e, ensuring that the firm al$ays has enough cash onhand to meet its obligations but does not ha'e excess cash in a chec8ing account, andensuring that recei'ables are collected and bills are paid on a timely basis.n many $ays, the control of financial resources is the most important area,because financial resources are related to the control of all the other resources in anorgani7ation. +oo much in'entory leads to storage costsD poor selection of personnelleads to termination and rehiring expensesD inaccurate sales forecasts lead todisruptions in cash flo$s and other financial effects. (inancial issues tend to per'ademost control?related acti'ities.+he crisis in the 6.*. airline industry precipitated by the terrorist attac8s on *eptember11, an economic do$nturn that reduced business tra'el, and rising fuelcosts can be fundamentally traced bac8 to financial issues. Essentially, airline re'enuesdropped $hile their costs increased. Because of high labor costs and otherexpenses, the airlines ha'e faced ma


6/31

structural controlConcerned $ith ho$ the elements ofthe organi7ation9s structure are ser'ingtheir intended purposestrategic control(ocuses on ho$ effecti'ely the organi7ation9sstrategies are succeeding in

helping the organi7ation meet its goals(igure 20.2GENEG* ( C-+)GManagers use control at several differentlevels. (he most basic levels ofcontrol in organi*ations are strategic,structural, operations, andfinancial control. Each level must bemanaged properly if control is to bemost effective.

*trategiccontrol*tructuralcontrolperations

control(inancialcontrol


CA3+E) 20 ' )asic Elements of Control 1decide $hich types of control the organi7ation $ill use, and they implement controlsystems and ta8e actions based on the information pro'ided by control systems.+hus ultimate responsibility for control rests $ith all managers throughoutan organi7ation.ost larger organi7ations also ha'e one or more speciali7ed managerial positionscalled controller. A controller is responsible for helping line managers $iththeir control acti'ities, for coordinating the organi7ation9s o'erall control system,and for gathering and assimilating rele'ant information. any businesses that usean ?form or ?form organi7ation design ha'e se'eral controllers: one for the corporation

and one for each di'ision. +he


7/31

line managers $ith their controlacti'itiescontrol standardA target against $hich subse5uentperformance $ill be compared(igure 20.!*+E3* - +E C-+)G 3)CE**

+aving an effective control system can help ensure that an organi*ation achieves its goals.mplementing a control system, ho!ever, isa systematic process that generally proceeds through four interrelated steps.

EstablishstandardseasureperformanceCompareperformance againststandardsaintain thestatus 5uoCorrect thede'iationChange

standards"etermine needfor correcti'e action1 2 ! #


%2 3A)+ * ' (he Controlling Process2. 3reheated tortilla chips $ill not sit in the$armer more than !0 minutes before theyare ser'ed to customers or discarded.!. Empty tables $ill be cleaned $ithin % minutesafter being 'acated.*tandards established for control purposesshould be expressed in measurable terms. -otethat standard 1 abo'e has a time limit of ! minutesand an ob


8/31

$hereas buying land for a ne$ plant is less rele'ant.Meas#ring Performan)e+he second step in the control process is measuringperformance.3erformance measurement is a constant, ongoing acti'ity for mostorgani7ations. (or control to be effecti'e, performance measures must be 'alid."aily, $ee8ly, and monthly sales figures measure sales performance, and productionperformance may be expressed in terms of unit cost, product 5uality, or 'olume

produced.Employees9 performance is often measured in terms of 5uality or 5uantity ofoutput, but for many .H percent $hen the standard $as I percent close enough+he timetable for comparing performance to standards depends on a 'ariety offactors, including the importance and complexity of $hat is being controlled. (orlonger?run and higher?le'el standards, annual comparisons may be appropriate. nother circumstances, more fre5uent comparisons are necessary. (or example, a business


9/31

$ith a se'ere cash shortage may need to monitor its on?hand cash reser'es daily.Consi'ering Corre)"i(e A)"ion+he final step in the control process is determiningthe need for correcti'e action. "ecisions regarding correcti'e action dra$ hea'ily ona manager9s analytic and diagnostic s8ills. (or example, as healthcare costs ha'erisen, many firms ha'e sought $ays to 8eep their o$n expenses in chec8. *ome ha'ereduced benefitsD others ha'e opted to pass on higher costs to their employees.1%After comparing performance against control standards, one of three actions is

appropriate: maintain the status 5uo do nothingF, correct the de'iation, or changethe standards. aintaining the status 5uo is preferable $hen performance essentiallymatches the standards, but it is more li8ely that some action $ill be needed tocorrect a de'iation from the standards.*ometimes, performance that is higher than expected may also cause problemsfor organi7ations. (or example, $hen "aimlerChrysler first introduced its 3+Cruiser, demand $as so strong that customers $ere placed on $aiting lists, andmany customers $ere $illing to pay more than the suggested retail price to obtaina car. +he company $as reluctant to increase production, primarily because it 8ne$demand $ould e'entually drop. At the same time, ho$e'er, it did not $ant to alienatepotential customers. Conse5uently, the firm decided to simply reduce its ad'ertising.+his curtailed demand a bit and limited customer frustration.Changing an established standard usually is necessary if it $as set too high ortoo lo$ at the outset. +his is apparent if large numbers of employees routinely beatthe standard by a $ide margin or if no employees e'er meet the standard. Also,standards that seemed perfectly appropriate $hen they $ere established may needto be ad


10/31

accuracy of ne$s stories before they are broadcast.

S)reening Con"ro$Screening control focuses on meeting standards for product or ser'ice 5uality or5uantity during the actual transformation process itself. *creening control relieshea'ily on feedbac8 processes. (or example, in a "ell Computer assembly factory,computer system components are chec8ed periodically as each unit is beingassembled. +his is done to ensure that all the components that ha'e been assembledup to that point are $or8ing properly. +he periodic 5uality chec8s pro'idefeedbac8 to $or8ers so that they 8no$ $hat, if any, correcti'e actions to ta8e.Because they are useful in identifying the cause of problems, screening controlstend to be used more often than other forms of control.ore and more companies are adopting screening controls because they are aneffecti'e $ay to promote employee participation and catch problems early in theo'erall transformation process. (or example, Corning adopted screening controlsfor use in manufacturing tele'ision glass. n the past, finished tele'ision screens$ere inspected only after they $ere finished. 6nfortunately, o'er # percent of them$ere later returned by customers because of defects. -o$ the glass screens areinspected at each step in the production process, rather than at the end, and thereturn rate from customers has dropped to .0! percent.

Pos"a)"ion Con"ro$

Postaction control focuses on the outputs of the organi7ation after the transformationprocess is complete. Corning9s old system $as postaction control/final inspectionafter the product $as completed. Although Corning abandoned its postaction controloperations control(ocuses on the processes the organi7ationuses to transform resources intoproducts or ser'ices1inal inspections are a commonpart of postaction control systems.Maria Martine*, for e5ample, issho!n here inspecting batches ofChiuita brand bananas that havebeen gro!n on a plantation inPanama and are being prepared fore5port. 6he carefully assesses their

!eight, si*e, and appearance toensure that they meet the company$sstandards.preliminary controlAttempts to monitor the 5uality or5uantity of financial, physical, human,and information resources before theyactually become part of the system


CA3+E) 20 ' )asic Elements of Control %5system, this still may be an effecti'e method of control, primarily if a product can bemanufactured in only one or t$o steps or if the ser'ice is fairly simple and routine.Although postaction control alone may not be as effecti'e as preliminary or screeningcontrol, it can pro'ide management $ith information for future planning. (or example,

if a 5uality chec8 of finished goods indicates an unacceptably high defect rate, theproduction manager 8no$s that he or she must identify the causes and ta8e steps toeliminate them. 3ostaction control also pro'ides a basis for re$arding employees.)ecogni7ing that an employee has exceeded personal sales goals by a $ide margin, forexample, may alert the manager that a bonus or promotion is in order.ost organi7ations use more than one form of operations control. (or example,onda9s preliminary control includes hiring only 5ualified employees and specifyingstrict 5uality standards $hen ordering parts from other manufacturers. ondauses numerous screening controls in chec8ing the 5uality of components duringassembly of cars. A final inspection and test dri'e as each car rolls off the assembly


11/31

line is part of the company9s postaction control.1& ndeed, most successful organi7ationsemploy a $ide 'ariety of techni5ues to facilitate operations control.postaction controlonitors the outputs or results of theorgani7ation after the transformationprocess is complete(igure 20.#

()* ( 3E)A+-* C-+)GMost organi*ations develop multiplecontrol systems that incorporateall three basic forms of control. 1ore5ample, the publishing companythat produced this boo" screensinputs by hiring only ualifiedemployees, typesetters, and printers/preliminary control0. n addition,uality is chec"ed during the transformationprocess, such as after themanuscript is typeset /screeningcontrol0, and the outputs#printedand bound boo"s#are chec"edbefore they are shipped from thebindery /postaction control0.

3reliminary control(ocus is on inputs tothe organi7ationalsystem.nputs +ransformation utputs*creening control(ocus is on ho$inputs are beingtransformed intooutputs.3ostaction control(ocus is on outputsfrom the organi7ationalsystem.

(eedbac8screening control)elies hea'ily on feedbac8 processesduring the transformation processfinancial controlConcerned $ith the organi7ation9sfinancial resourcesDistinguish bet!een preliminary,screening, and postaction control.Describe ho! a college or university isli"ely to use each type of operationscontrol to monitor student progress.

conceptCECK

6inan)ia$ Con"ro$Financial control is the control of financial resources as they flo$ into the organi7ationre'enues, shareholder in'estmentsF, are held by the organi7ation $or8ingcapital, retained earningsF, and flo$ out of the organi7ation pay, expensesF. Businessesmust manage their finances so that re'enues are sufficient to co'er costs andstill return a profit to the firm9s o$ners. -ot?for?profit organi7ations such as uni'ersitiesha'e the same concerns: +heir re'enues from tax dollars or tuitionF mustco'er operating expenses and o'erhead. 6.*. auto ma8ers (ord and eneral otorsha'e come to reali7e that they ha'e to reduce the costs of paying employees they donot need but $hom they are obligated to 8eep due to longstanding labor agreements.


12/31

(ord has offered to co'er the full costs of a college education for certain of itsemployees if they $ill resignD , for its part, has offered lump?sum payments of'arying amounts to some of its $or8ers in return for their resignations.1> A completediscussion of financial management is beyond the scope of this boo8, but $e $illexamine the control pro'ided by budgets and other financial control tools.


%! 3A)+ * ' (he Controlling ProcessB#'ge"ar Con"ro$A budget is a plan expressed in numerical terms.1I rgani7ations establish budgetsfor $or8 groups, departments, di'isions, and the $hole organi7ation. +he usualtime period for a budget is one year, although brea8do$ns of budgets by the 5uarteror month are also common. Budgets are generally expressed in financial terms,but they may occasionally be expressed in units of output, time, or other 5uantifiablefactors. 4hen "isney launches the production of a ne$ animated cartoon feature,it creates a budget for ho$ much the mo'ie should cost. *e'eral years ago,$hen mo'ies li8e (he 7ion 8ing $ere ra8ing in hundreds of millions of dollars,"isney executi'es $ere fairly flexible about budget o'erruns. But, on the heels ofse'eral animated flops, such as9tlantis: (he 7ost Empire and (reasure Planet, thecompany had to ta8e a much harder line on budget o'erruns.1HBecause of their 5uantitati'e nature, budgets pro'ide yardstic8s for measuring

performance and facilitate comparisons across departments, bet$een le'els in theorgani7ation, and from one time period to another. Budgets ser'e four primarypurposes. +hey help managers coordinate resources and pro


13/31

operating, and nonmonetary. (hereare several different types of budgetsin each category. (o be most effective,each budget must be carefullymatched !ith the specific functionbeing controlled.

budgetA plan expressed in numerical terms


CA3+E) 20 ' )asic Elements of Control %(or years Exxon $as 'ery conser'ati'e in its capital budgeting. As a result, thefirm amassed a huge financial reser'e but $as being o'erta8en in sales by )oyal"utchQ*hell. But executi'es at Exxon $ere then able to use their reser'es to helpfinance the firm9s merger $ith obil, creating Exxonobil, and to regain thenumber?one sales position. *ince that time, the firm has become more aggressi'ein capital budgeting to stay ahead of its European ri'al.An operating budget is concerned $ith planned operations $ithin the organi7ation.t outlines $hat 5uantities of products or ser'ices the organi7ation intends tocreate and $hat resources $ill be used to create them. B creates an operatingbudget that specifies ho$ many of each model of its personal computer $ill be producedeach 5uarter.

A nonmonetary budget is simply a budget expressed in nonfinancial terms, suchas units of output, hours of direct labor, machine hours, or s5uare?foot allocations.-onmonetary budgets are most commonly used by managers at the lo$er le'els ofan organi7ation. (or example, a plant manager can schedule $or8 more effecti'ely8no$ing that he or she has I,000 labor hours to allocate in a $ee8, rather thantrying to determine ho$ to best spend =I&,#%1 in $ages in a $ee8.De(e$o&ing B#'ge"s+raditionally, budgets $ere de'eloped by top managementand the controller and then imposed on lo$er?le'el managers. Although someorgani7ationsstill follo$ this pattern, many contemporary organi7ations no$ allo$ allmanagers to participate in the budget process. As a starting point, top managementgenerally issues a call for budget re5uests, accompanied by an indication of o'erallpatterns the budgets may ta8e. (or example, if sales are expected to drop in the nextyear, managers may be told up front to prepare for cuts in operating budgets.

As (igure 20.% sho$s, the heads of each operating unit typically submit budgetre5uests to the head of their di'ision. An operating unit head might be a departmentmanager in a manufacturing or $holesaling firm or a program director in a(igure 20.%"ENEG3- B6"E+* -)A-PA+-*Most organi*ations use the samebasic process to develop budgets.Operating units are reuested tosubmit their budget reuests to divisions.(hese divisions, in turn, compileunit budgets and submit theiro!n budgets to the organi*ation. 9norgani*ational budget is then compiledfor approval by the budget

committee, controller, and CEO.perating unitbudget re5uests"i'ision budgetre5uestsrgani7ational budget 3repared by budgetcommittee Appro'ed by budgetcommittee, controller,


14/31

and CE


%% 3A)+ * ' (he Controlling Processsocial ser'ice agency. +he di'ision heads might include plant managers, regionalsales managers, or college deans. +he di'ision head integrates and consolidates thebudget re5uests from operating unit heads into one o'erall di'ision budget re5uest.A great deal of interaction among managers usually ta8es place at this stage, as thedi'ision head coordinates the budgetary needs of the 'arious departments."i'ision budget re5uests are then for$arded to a budget committee. +hebudget committee is usually composed of top managers. +he committee re'ie$sbudget re5uests from se'eral di'isions, and once again, duplications and inconsistenciesare corrected. (inally, the budget committee, the controller, and the CEre'ie$ and agree on the o'erall budget for the organi7ation, as $ell as specificbudgets for each operating unit. +hese decisions are then communicated bac8 toeach manager.S"reng"hs an' 7ea8nesses of B#'ge"ing Budgets offer a number of ad'antages,but they also ha'e $ea8nesses. n the plus side, budgets facilitate effecti'e control.3lacing dollar 'alues on operations enables managers to monitor operations betterand pinpoint problem areas. Budgets also facilitate coordination and communicationbet$een departments because they express di'erse acti'ities in a common

denominator dollarsF. Budgets help maintain records of organi7ational performanceand are a logical complement to planning. n other $ords, as managersde'elop plans, they should simultaneously consider control measures to accompanythem. rgani7ations can use budgets to lin8 plans and control by first de'elopingbudgets as part of the plan and then using those budgets as part of control.n the other hand, some managers apply budgets too rigidly. Budgets areintended to ser'e as frame$or8s, but managers sometimes fail to recogni7e thatchanging circumstances may $arrant budget ad. ost balance sheets are di'ided into current assets assets thatare relati'ely li5uid, or easily con'ertible into cashF, fixed assets assets that are

longer term in nature and less li5uidF, current liabilities debts and other obligationsthat must be paid in the near futureF, long?term liabilities payable o'er anbalance sheetGist of assets and liabilities of anorgani7ation at a specific point in timefinancial statementA profile of some aspect of an organi7ation9sfinancial circumstances


CA3+E) 20 ' )asic Elements of Control %*


15/31

extended period of timeF, and stoc8holders9 e5uity the o$ners9 claim against theassetsF.4hereas the balance sheet reflects a snapshot profile of an organi7ation9s financialposition at a single point in time, the income statement summari7es financialperformance o'er a period of time, usually one year. (or example, the income statementmight be for the period anuary 1, 200>, through "ecember !1, 200>. +heincome statement summari7es the firm9s re'enues less its expenses to report net

income profit or lossF for the period. nformation from the balance sheet andincome statement is used in computing important financial ratios.Ra"io Ana$sis (inancial ratios compare different elements of a balance sheet orincome statement to one another. Ratio analysis is the calculation of one or morefinancial ratios to assess some aspect of the financial health of an organi7ation.rgani7ations use a 'ariety of different financial ratios as part of financial control.(or example, liuidity ratios indicate ho$ li5uid easily con'erted into cashF anorgani7ation9s assets are. Debt ratios reflect ability to meet long?term financialobligations.=eturn ratios sho$ managers and in'estors ho$ much return the organi7ationis generating relati'e to its assets. Coverage ratios help estimate theorgani7ation9s ability to co'er interest expenses on borro$ed capital. Operatingratios indicate the effecti'eness of specific functional areas rather than of the totalorgani7ation. 4alt "isney is an example of a company that relies hea'ily on financialratios to 8eep its financial operations on trac8.216inan)ia$ A#'i"sAudits are independent appraisals of an organi7ation9s accounting,financial, and operational systems. +he t$o ma


16/31

systems


%/ 3A)+ * ' (he Controlling Processauditors are beginning to speciali7e in real estate, employee benefits, and pensionplan in'estments.4hereas external audits are conducted by external accountants, an internalaudit is handled by employees of the organi7ation. ts obiven that financial control relies soheavily on numbers, ho! can problemsli"e those at Enron occur%

conceptCECKbureaucratic controlA form of organi7ational control characteri7edby formal and mechanisticstructural arrangements


CA3+E) 20 ' )asic Elements of Control %1-BC tele'ision applies structural controls that reflect many elements of bureaucracy.


17/31

+he organi7ation relies on numerous rules to regulate employee tra'el,expense accounts, and other expenses. A ne$ performance appraisal system preciselyspecifies minimally acceptable le'els of performance for e'eryone. +he organi7ation9sstructure is considerably taller than those of the other ma

De)en"ra$i,e' Con"ro$Decentralized control, in contrast, is an approach to organi7ational controlcharacteri7edby informal and organic structural arrangements. As (igure 20.& sho$s, its

goal is employee commitment to the organi7ation. Accordingly, it relies hea'ily ongroup norms and a strong corporate culture, and gi'es employees the responsibility"imensionEmployee complianceoal of control approach*trict rules, formal controls,rigid hierarchy"irected to$ard minimum le'elsof acceptable performance+all structure, top?do$n influence"irected at indi'idualperformanceGimited and formalEmployee commitmentroup norms, culture, self?control

"irected to$ard enhancedperformance abo'e and beyondthe minimum(lat structure, shared influence"irected at group performanceExtended and informal3erformance expectations"egree of formalityrgani7ation design)e$ard system3articipationBureaucratic Control "ecentrali7ed Control(igure 20.&)A-PA+-AG C-+)GOrgani*ational control generally falls some!here bet!een the t!o e5tremes of bureaucratic anddecentrali*ed control. ;)C televisionuses bureaucratic control, !hereas 7evi 6trauss uses decentrali*ed control.

decentrali*ed controlAn approach to organi7ational controlbased on informal and organic structuralarrangements


*2 3A)+ * ' (he Controlling Processfor controlling themsel'es. Employees are encouraged to perform beyond minimally


18/31

acceptable le'els. rgani7ations using this approach are usually relati'ely flat. +heydirect re$ards at group performance and fa'or $idespread employee participation.Ge'i *trauss practices decentrali7ed control. +he firm9s managers use groups asthe basis for $or8 and ha'e created a culture $herein group norms help facilitatehigh performance. )e$ards are subse5uently pro'ided to the higher?performinggroups and teams. +he company9s culture also reinforces contributions to the o'erallteam effort, and employees ha'e a strong sense of loyalty to the organi7ation.

Ge'i9s has a flat structure, and po$er is $idely shared. Employee participation isencouraged in all areas of operation.2I Another company that uses this approach is*outh$est Airlines. 4hen *outh$est made the decision to @go casual, the firmresisted the temptation to de'elop dress guidelines. nstead, managers decided toallo$ employees to exercise discretion o'er their attire and to deal $ith clearlyinappropriate situations on a case?by?case basis.

S"ra"egi) Con"ro$i'en the ob'ious importance of an organi7ation9s strategy, it is also important thatthe organi7ation assess ho$ effecti'e that strategy is in helping the organi7ationmeet its goals.2H+o do this re5uires that the organi7ation integrate its strategy andcontrol systems. +his is especially true for the global organi7ation.

In"egra"ing S"ra"eg an' Con"ro$Strategic control generally focuses on fi'e

aspects of organi7ations/structure, leadership,technology, human resources, and informationand operational control systems. (orexample, an organi7ation should periodicallyexamine its structure to determine $hether itis facilitating the attainment of the strategicgoals being sought. *uppose a firm using afunctional 6?formF design has an establishedgoal of achie'ing a 20 percent sales gro$th rateper year. o$e'er, performance indicatorssho$ that it is currently gro$ing at a rate ofonly 10 percent per year. "etailed analysismight re'eal that the current structure isinhibiting gro$th in some $ay for example, by

slo$ing decision ma8ing and inhibiting inno'ationFand that a di'isional ?formF design ismore li8ely to bring about the desired gro$thby speeding decision ma8ing and promotinginno'ationF.dentify the fundamental differencesbet!een bureaucratic and decentrali*edcontrol.hat are the most obvious advantagesand disadvantages of bureaucraticversus decentrali*ed control%

conceptCECKstrategic controlControl aimed at ensuring that theorgani7ation is maintaining an effecti'ealignment $ith its en'ironment andmo'ing to$ard achie'ing its strategicgoalsntel has remained at the forefront of its industry for many years. One "eyingredient to ntel$s long?term success has been its focus on strategic control.9s part of its current strategic initiatives, ntel has opened a ne! fabricationplan in Chandler, 9ri*ona. (hese !or"ers are constructing a clean room& atthe ne! facility. /9 clean room is a sterile climate?controlled room used to


19/31

develop and manufacture delicate electronic components.0


CA3+E) 20 ' )asic Elements of Control *3n this $ay, strategic control focuses on the extent to $hich implemented strategyachie'es the organi7ation9s strategic goals. f, as outlined abo'e, one or morea'enues of implementation are inhibiting the attainment of goals, that a'enueshould be changed. Conse5uently, the firm might find it necessary to alter its structure,replace 8ey leaders, adopt ne$ technology, modify its human resources, orchange its information and operational control systems.Kohl9s department stores essentially redefined ho$ to compete effecti'ely inthe midtier retailing mar8et and $as on tra


20/31


21/31

explicit and precise this lin8age, the more effecti'e the control system is. +he best$ay to integrate planning and control is to account for control as plans de'elop. nother $ords, as goals are set during the planning process, attention should be paidto de'eloping standards that $ill reflect ho$ $ell the plan is reali7ed. anagers at+o! are strategy and control mostcommonly integrated%n !hat !ays are domestic and international

control issues similar, and in!hat !ays do they differ%

conceptCECKSpecially prepared for d03371341 on 21 Apr, 2010

CA3+E) 20 ' )asic Elements of Control *5Champion *par8 3lug Company decided to broaden their product line to include afull range of automoti'e accessories/a total of 21 ne$ products. As part of thisplan, managers decided in ad'ance $hat le'el of sales they $anted to reali7e fromeach product for each of the next fi'e years. +hey established these sales goals asstandards against $hich actual sales $ould be compared. +hus, by accounting fortheir control system as they de'eloped their plan, managers at Champion did anexcellent


22/31

reports. ne manager notes that morale at his plant is @o8ay, that grie'ances are


*! 3A)+ * ' (he Controlling Process@about $here they should be, and that turno'er is @under control. +he otherreports that absenteeism at her plant is running at # percent, that 1& grie'ancesha'e been filed this year compared $ith 2# last yearF, and that turno'er is 12 percent.+he second report $ill almost al$ays be more useful than the first. f course,managers also need to loo8 beyond the numbers $hen assessing performance. (orexample, a plant manager may be boosting producti'ity and profit margins by puttingtoo much pressure on $or8ers and using poor?5uality materials. As a result,impressi'e short?run gains may be o'ershado$ed by longer?run increases inemployee turno'er and customer complaints.

Resis"an)e "o Con"ro$anagers sometimes ma8e the mista8e of assuming that the 'alue of an effecti'econtrol system is self?e'ident to employees. +his is not al$ays so, ho$e'er. anyemployees resist control, especially if they feel o'ercontrolled, if they thin8 controlis inappropriately focused or re$ards inefficiency, or if they are uncomfortable $ithaccountability.O(er)on"ro$ ccasionally, organi7ations try to control too many things. +hisbecomes especially problematic $hen the control directly affects employee beha'ior.

An organi7ation that instructs its employees $hen to come to $or8, $here to par8,$hen to ha'e morning coffee, and $hen to lea'e for the day exerts considerable controlo'er people9s daily acti'ities. ;et many organi7ations attempt to control not onlythese but other aspects of $or8 beha'ior as $ell. f particular rele'ance in recentyears is some companies9 efforts to control their employees9 access to pri'ate e?mailand the nternet during $or8 hours. *ome companies ha'e no policies go'erningthese acti'ities, some attempt to limit it, and some attempt to forbid it altogether.!!+roubles arise $hen employees percei'e these attempts to limit their beha'ioras being unreasonable. A company that tells its employees ho$ to dress, ho$ toarrange their des8s, and ho$ to $ear their hair may meet $ith more resistance.Employees at Chrysler $ho dro'e non?Chrysler 'ehicles used to complain becausethey $ere forced to par8 in a distant par8ing lot. 3eople felt that these efforts to controltheir personal beha'ior $hat 8ind of car to dri'eF $ere excessi'e. anagerse'entually remo'ed these controls and no$ allo$ open par8ing. *ome employees

at Abercrombie T (itch argue that the firm is guilty of o'ercontrol because of itsstrict dress and grooming re5uirements/for example, no nec8laces or facial hairfor men and only natural nail polish and earrings no larger than a dime for $omen.Gi8e$ise, Enterprise )ent?A?Car has a set of !0 dress?code rules for $omen and 2&rules for men. +he firm $as recently sued by one former employee $ho $as firedbecause of the color of her hair.!#Ina&&ro&ria"e 6o)#s+he control system may be too narro$, or it may focus toomuch on 5uantifiable 'ariables and lea'e no room for analysis or interpretation. Asales standard that encourages high?pressure tactics to maximi7e short?run salesmay do so at the expense of good$ill from long?term customers. *uch a standard istoo narro$. A uni'ersity re$ard system that encourages faculty members to publishlarge numbers of articles but fails to consider the 5uality of the $or8 is alsoinappropriatelyfocused. Employees resist the intent of the control system by focusing

their efforts only at the performance indicators being used.Specially prepared for d03371341 on 21 Apr, 2010

CA3+E) 20 ' )asic Elements of Control *Re+ar's for Ineffi)ien) magine t$o operating departments that are approachingthe end of their fiscal years. "epartment 1 expects to ha'e =2%,000 of its budgetleft o'erD department 2 is already =10,000 in the red. As a result, department 1 isli8ely to ha'e its budget cut for the next year @+hey had money left, so they ob'iouslygot too much to begin $ithF, and department 2 is li8ely to get a budgetincrease @+hey ob'iously ha'en9t been getting enough moneyF. +hus department


23/31

1 is punished for being efficient, and department 2 is re$arded for being inefficient.-o $onder departments commonly hasten to deplete their budgets as the end ofthe year approachesJF As $ith inappropriate focus, people resist the intent of thiscontrol and beha'e in $ays that run counter to the organi7ation9s intent.Too M#)h A))o#n"a0i$i" Effecti'e controls allo$ managers to determine$hether employees successfully discharge their responsibilities. f standards areproperly set and performance accurately measured, managers 8no$ $hen problems

arise and $hich departments and indi'iduals are responsible. 3eople $ho donot $ant to be ans$erable for their mista8es or $ho do not $ant to $or8 as hard astheir boss might li8e therefore resist control. (or example, American Express has asystem that pro'ides daily information on ho$ many calls each of its customerser'ice representati'es handles. f one representati'e has typically $or8ed at aslo$er pace and handled fe$er calls than other representati'es, that indi'idual9sdeficient performance can no$ more easily be pinpointed.

O(er)oming Resis"an)e "o Con"ro$3erhaps the best $ay to o'ercome resistance to control is to create effecti'e controlto begin $ith. f control systems are properly integrated $ith organi7ational planningand if the controls are flexible, accurate, timely, and ob


24/31

$ith organi7ational complexity, and to minimi7ecosts. Control can focus on financial, physical, information,and human resources and includes operations,financial, structural, and strategic le'els. Control is the function of managers, the controller,and, increasingly, of operating employees.

*teps in the control process are to establish standards of expected performance to measure actual performance to compare performance to the standards to e'aluate the comparison and ta8e appropriateaction2. dentify and explain the three forms of operationscontrol. perations control focuses on the processes theorgani7ation uses to transform resources into productsor ser'ices. 3reliminary control is concerned $ith theresources that ser'e as inputs to the system. *creening control is concerned $ith the transformationprocesses used by the organi7ation. 3ostaction control is concerned $ith the outputs ofthe organi7ation. ost organi7ations need multiple control systemsbecause no one system can pro'ide ade5uate control.!. "escribe budgets and other tools for financial control. (inancial control focuses on controlling the organi7ation9sfinancial resources. +he foundation of financial control is budgets,$hich are plans expressed in numerical terms. ost organi7ations rely on financial, operating,and nonmonetary budgets. (inancial statements, 'arious 8inds of ratios,and external and internal audits are also importanttools organi7ations use as part of financialcontrol.#. dentify and distinguish bet$een t$o opposing formsof structural control. *tructural control addresses ho$ $ell an organi7ation9sstructural elements ser'e their intendedpurpose. +$o basic forms of structural control are bureaucraticand decentrali7ed control. Bureaucratic control is relati'ely formal andmechanistic. "ecentrali7ed control is informal and organic. ost organi7ations use a form of organi7ational

control some$here bet$een total bureaucratic andtotal decentrali7ed control.%. "iscuss the relationship bet$een strategy and control,including international strategic control. *trategic control focuses on ho$ effecti'ely theorgani7ation9s strategies are succeeding in helpingthe organi7ation meet its goals. +he integration of strategy and control is generallyachie'ed through organi7ation structure, leadership,technology, human resources, and information


25/31

and operational control systems. nternational strategic control is also important formultinational organi7ations. +he foundation of international strategic controlis $hether to practice centrali7ed or decentrali7edcontrol.


Building Effecti'e +ime?anagement *8illsCA3+E) 20 ' )asic Elements of Control **&. dentify characteristics of effecti'e control, $hypeople resist control, and ho$ managers can o'ercomethis resistance. ne $ay to increase the effecti'eness of control isto fully integrate planning and control. +he control system should also be as flexible, accurate,timely, and ob


26/31

or her o$n $or8 more effecti'ely. +his exercise $ill helpdemonstrate the relationship bet$een time?managements8ills and control.

:#es"ions for A&&$i)a"ionI. any organi7ations today are in'ol'ing lo$er?le'elemployees in control. i'e at least t$o examples ofspecific actions that a lo$er?le'el $or8er could do to

help his or her organi7ation better adapt to en'ironmentalchange. +hen do the same for limiting theaccumulation of error, coping $ith organi7ationalcomplexity, and minimi7ing costs.H. "escribe $ays that the top management team,midle'el managers, and operating employees canparticipate in each step of the control process. "o allparticipate e5ually in each step, or are some stepsbetter suited for personnel at one le'el Explain yourans$er.10. nter'ie$ a $or8er to determine $hich areas andle'els of control exist for him or her on the


27/31

Building Effecti'e +echnical *8illsE-er)ise O(er(ie++echnical s8ills are the s8ills necessary to accomplish orunderstand the specific 8ind of $or8 being done in anorgani7ation. +his exercise gi'es you practice in technicals8ills related to building a budget and e'aluating the

effecti'eness of a budget.E-er)ise Ba)8gro#n'Although corporate budgets are much more complicated,the steps in creating a personal budget and creating a corporatebudget are much the same. Both begin $ith estimationsof inflo$ and outflo$. +hey both compare actualresults $ith estimated results. And both end $ith thede'elopment of a plan for correcti'e action.

E-er)ise Tas81. 3repare your estimated expenditures and income forone month. +his is a budgeted amount, not theamount you actually spend. nstead, it should representa typical month or a reasonable minimum. (orexample, is =200 a reasonable amount to spend ongroceries Estimate your necessary monthly expensesfor tuition, rent, car payments, childcare, food, utilities,and so on. +hen estimate your income from allsources, such as $ages, allo$ance, loans, and fundsborro$ed on credit cards. Calculate the totals.2. 4rite do$n all of your actual expenses o'er the lastmonth. +hen $rite do$n all your actual income. fyou do not ha'e exact figures, estimate as closely asyou can. Calculate the totals.!. Compare your estimates to your actual expenses andactual income. Are there any discrepancies f so,$hat caused these discrepancies#. "id you expect to ha'e a surplus or a deficit for the

month "id you actually ha'e a deficit or a surplus4hat are your plans for ma8ing up any deficit ormanaging any surplus%. "o you regularly use a personal budget s a personalbudget li8ely to be helpful 4hy or $hy not


CA3+E) 20 ' )asic Elements of Control *1

C A 3 + E ) C G * - C A * EIS TOO M;C< CONTROL


28/31

to retail stores for the latest electronicgear, $hich "ell does notcarry. +he 3C ma8er9s customer satisfactionratings ha'e fallen andcomplaints are up. Cutthroat competitionin des8top 3Cs, $hich accountfor o'er half of "ell9s sales, has

s5uee7ed profit margins to a thin!.I percent. n (ebruary 200&, "ellannounced that expected salesgro$th for the upcoming 5uarter$ould be around > percent, a drasticdrop from last year9s 1& percent. stoo much control hurting "elln the positi'e side, "ell9s@'alue?priced business modelmeans the firm has done a good


29/31

belie'e that "ell has gone too far inits 5uest for control. *ome homeusers, $ho ma8e up the ma


30/31

same old song. t9s time for them tochange. 3erhaps "ell could affordto gi'e up a little control in exchangefor a little more creati'ity, flexibility,and customer ser'ice. 3erhaps theycan9t afford not to.CASE :;ESTIONS

1. 4hat ad'antages does "ell gainfrom its tight control system4hat disad'antages does thecompany experience2. 4hich types of operations controlsare mentioned in this casei'e examples of each type.!. Are "ell9s control systems effecti'en your opinion, $hatcould "ell do to ma8e its controlsystems more effecti'e Explainyour responses.CASE RE6ERENCESAmanda Cantrell, @"ell to et *er'ed

by A", Money,ay 1I, 200&, $$$.cnnmoney.com on ay 2!, 200&D GouiseGee, @anging 6p on "ell )usinessee",ctober 10, 200%, $$$.business$ee8.comon ay >, 200&D Gouise Gee, @t9s "ell 's. +he"ell 4ay, )usinessee", arch &, 200&,pp. &1S&2D Christopher -ull, @"ude, ;ou9reetting a "ell/E'ery (i'e *econds, )usiness2.3, "ecember 1, 200%, $$$.money.cnn.com on ay 1%, 200&.

1. 4ould you $ant to $or8 for amie "imon 4hy or$hy not2. o$ similar or dissimilar is "imon9s managementstyle to the style you might expect to ha'e as amanager!. Assume that you are a consultant hired by "imon.

e has as8ed you to candidly criti5ue his managementof . 3. organ Chase. 4hat $ould you ha'eto say#. Can you foresee a time $hen "imon might need tochange his approach to organi7ational control 4hatare the factors that might dictate such a change%. 4ould "imon9s approach to control $or8 in otherindustries 4hy or $hy not

; 6 A K E + E C A G GChasing Dimons Dream for J. P. Morgan ChaseSpecially prepared for d03371341 on 21 Apr, 2010

CA3+E) 20 ' )asic Elements of Control /31. + ( +he first step in the control process is measuring

performance.2. + ( anagers use nonmonetary budgets to 5uantifyresources, such as hours of labor andunits of output, into financial terms.!. + ( +he goal of bureaucratic control is compliance.#. + ( A timely control system is not necessarily a5uic8 control system.%. + ( Nerification procedures lo$er resistance tocontrol.&. 4hich of the follo$ing le'els of control focuses on


31/31

the processes organi7ations use to transformresources into products or ser'icesA. (inancialB. *tructuralC. perations". *trategicE. anagerial

>. 4hen performance matches the standards, a managershouldA. correct the de'iation.B. change the standards.C. lo$er employee resistance.". reduce o'erperformance.E. maintain the status 5uo.I. Bruce $or8s in a company that produces sensiti'eelectronic e5uipment. e is confident the componentshe buys to ma8e this e5uipment is of high5uality, but he 8no$s he must 8eep a close eye onthe production process itself to a'oid damagingthese components as the e5uipment is assembled.Bruce needs to emphasi7e $hich form of controlA. 3ostactionB. *creeningC. 3reliminary". anagerialE. +echnicalH. f $hat benefit to a manager is ratio analysisA. t helps the manager 8no$ $hether theorgani7ation is nondiscriminatory.B. t gi'es the manager a picture of some aspectof the financial health of the firm.C. t allo$s for an independent appraisal of theorgani7ation9s control system.". t summari7es the financial performance ofthe organi7ation o'er the past year.E. t a'oids the common trap of o'ercontrol.10. Bernadette $ants to build an effecti'e controlsystem. *he should try to include all of the follo$ingcharacteristics ECE3+A. integrated $ith planning.B. timely.C. accurate.". rigid.E. ob

mgt assignment basic elements of control in rganization

Documents