assignment
faisal91
chapter_11.pptChapter 11
Organizational Control
Organizational Control
- Monitoring the efficiency and effectiveness of activities necessary for achieving org. goals.
- Anticipating future events
- Responding to opportunities & threats
- Evaluating strategy & structure
- Keeping employees motivated
Control Systems
- Formal feedback systems that provide information about org. performance
- Effective control system:
- Provides an accurate picture of org. performance
- Provides info. in a timely manner
- Is flexible enough to allow managers to respond to unexpected events
- Revolutionized by IT
Three Types of Control
Feedforward Control
- Input stage
- Anticipate problems before they occur
- Examples:
- Monitor changes in trends
- Coordinate with suppliers
Concurrent Control
- Immediate feedback about how efficiently inputs are being turned into outputs
- Allows for problems to be corrected as they arise
- Total Quality Management
Feedback Control
- Provides information regarding customer’s reactions
- Example:
- Number of customer returns
- Number of complaints
The Control Process
- Step 1: Establish Performance Standards
- Thousands to choose from
- Must be consistent with company strategy
- Overemphasis on any one can have negative consequences
The Control Process
- Step 2: Measure Actual Performance
- Measure outputs of behaviors
- Easier to measure
- More objective
- Measure behaviors themselves
- Routine are easy to measure
- Non-routine are hard to measure
The Control Process
- Step 3: Compare actual performance against standards.
- Three possibilities
- Higher
- Lower
- Same as performance standard
The Control Process
- Step 4: Evaluate and take corrective action
- If performance was unacceptable:
- Changes in the way resources are used are needed
- Technology, training, structure, motivation, etc.
Three Control Systems
Financial Measures of Performance
- Profit Ratios – How efficiently resources are used to generate profits
- Return on Investment
- Net Income Before Taxes / Total Assets
- Gross Profit Margin
- (Sales – COGS) / Sales
- Liquidity Ratios – How easily short term obligations can be met.
- Current Ratio
- Current assets / current liabilities
- Quick Ratio
- (Current assets – inventory) / current liabilities
Financial Measures of Performance
- Leverage Ratios – how much debt vs. equity was used to buy org. resources
- Debt-to-Assets Ratio
- Debt / Assets
- Times-covered Ratio
- EBIT / Interest Expenses
Financial Measures of Performance
- Asset Activity Ratios – How efficiently are org. resources being used
- Inventory Turnover
- COGS / Inventory
- Days Sales Outstanding
- Accounts Receivable / Average Daily Sales
Financial Measures of Performance
Organizational Goals
- Too low
- Not motivating
- Too High
- Discouraging…not motivating
- Stretch Goals
- Appropriately Challenging
Operating Budgets
- Plan for how managers intend to used org. resources in order to create org. performance
- Resources are divided up and allocated down the hierarchy
- Managers are evaluated by their ability to meet budget
- Revenue, cost control, profitability
Problems with Output Control
- Tendency to focus on short-term
- High standards might promote unethical behavior
Behavior Control
- Direct Supervision
- Management by Objectives (MBO)
- Bureaucratic Control
Direct Supervision
- Managers actively monitor subordinates
- Teach appropriate behaviors
- Intervene when corrective action is needed
- Can be effective
- Problems with Direct Supervision
- Expensive
- Can decrease motivation
- Not feasible/appropriate in all circumstances
Management by Objectives
- Control system based on subordinate’s ability to meet goals & performance objectives
- Specific goals are set at each level of the firm.
- Goal setting is participatory
- Periodic reviews of subordinates’ progress toward goals are held
- pay raises and promotions are tied to goal attainment
Bureaucratic Control
- Control by a system of rules & SOPs.
- Tells workers what to do (standardized actions) so outcomes are predictable.
- There is still a need for output control to correct mistakes.
- Best used for routine problems in stable environments.
Problems with Bureaucratic Control
- Easy to have too many rules
- Too much “red tape”
- People will blindly follow rules
- Too standardized
- No ability to learn
- No ability to innovate
Organizational Culture
- A shared set of values, beliefs, & assumptions
- Employees internalize organizational values
- Creates an internalized control system
- Eliminates the need for externally imposed controls
- Works in situations where behavior & output control don’t
- Can be created to focus on long-term performance
Organizational Change
- Fundamental tension between 2 control forces:
- To standardize & make performance predictable
- To be responsive to changes / flexible
- Because environments are dynamic,
- The highest performing companies are those that are able to constantly change
- Four step process
Assessing the Need for Change
- Recognizing that there is a problem
- Scanning external environment & internal controls systems
- Identifying its source
- Organizational Diagnosis
Deciding on the Change to Make
- What is the ideal future state
- Strategy, structure, technology, etc.
- Identify sources of resistance to change
- Fear of ambiguity
- Fear that they will not be successful after change
- Can be overcome through participation & adequate information
Implementing the Change
- Top-Down
- Top managers decide & tell people what to do
- Quick
- Bottom-Up
- Group / Participatory process
- More gradual
- Better chance for buy-in
Evaluating Change
- Use output controls & behavior controls
- Benchmarking
