L E A R N I N G O U T L I N E Follow this Learning Outline as you read and study this chapter.What Is Control and Why Is It Important?Define control.Contrast the three approaches to designing control systems.Discuss the reasons why control is important.Explain the planning-controlling link.The Control ProcessDescribe the three steps in the control process.Explain why what is measured is more critical than how its measured.Explain the three courses of action managers can take in controlling.

L E A R N I N G O U T L I N E (contd) Follow this Learning Outline as you read and study this chapter.Controlling Organizational PerformanceDefine organizational performance.Describe the most frequently used measures of organizational performance.Tools for Organizational PerformanceContrast feedforward, concurrent, and feedback controls.Explain the types of financial and information controls managers can use.Describe how balanced scorecards and benchmarking are used in controlling.

L E A R N I N G O U T L I N E (contd) Follow this Learning Outline as you read and study this chapter.Contemporary Issues in ControlDescribe how managers may have to adjust controls for cross-cultural differences.Discuss the types of workplace concerns managers face and how they can address those concerns.Explain why control is important to customer interactions.Discuss what corporate governance is and how its changing.

What Is Control?ControlThe process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations.The Purpose of ControlTo ensure that activities are completed in ways that lead to accomplishment of organizational goals.

Designing Control SystemsMarket ControlEmphasizes the use of external market mechanisms to establish the standards used in the control system.External measures: price competition and relative market shareBureaucratic ControlEmphasizes organizational authority and relies on rules, regulations, procedures, and policies.Clan ControlRegulates behavior by shared values, norms, traditions, rituals, and beliefs of the firms culture.

Why Is Control Important?As the final link in management functions:PlanningControls let managers know whether their goals and plans are on target and what future actions to take.Empowering employeesControl systems provide managers with information and feedback on employee performance.Protecting the workplaceControls enhance physical security and help minimize workplace disruptions.

The PlanningControlling LinkExhibit 18.2

The Control ProcessThe Process of ControlMeasuring actual performance.Comparing actual performance against a standard.Taking action to correct deviations or inadequate standards.

The Control ProcessExhibit 18.3

Measuring: How and What We MeasureSources of InformationPersonal observationStatistical reportsOral reportsWritten reportsControl CriteriaEmployeesSatisfactionTurnoverAbsenteeismBudgetsCostsOutputSales

Common Sources of Information for Measuring PerformanceExhibit 18.4

ComparingDetermining the degree of variation between actual performance and the standard.Significance of variation is determined by:The acceptable range of variation from the standard (forecast or budget).The size (large or small) and direction (over or under) of the variation from the standard (forecast or budget).

Defining the Acceptable Range of VariationExhibit 18.5

Sales Performance Figures for July, Eastern States DistributorsExhibit 18.6

Taking Managerial ActionCourses of ActionDoing nothingOnly if deviation is judged to be insignificant.Correcting actual (current) performanceImmediate corrective action to correct the problem at once.Basic corrective action to locate and to correct the source of the deviation.Corrective ActionsChange strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees

Taking Managerial Action (contd)Courses of Action (contd)Revising the standardExamining the standard to ascertain whether or not the standard is realistic, fair, and achievable.Upholding the validity of the standard.Resetting goals that were initially set too low or too high.

Managerial Decisions in the Control ProcessExhibit 18.7

Controlling for Organizational PerformanceWhat Is Performance?The end result of an activityWhat Is Organizational Performance?The accumulated end results of all of the organizations work processes and activitiesDesigning strategies, work processes, and work activities.Coordinating the work of employees

Organizational Performance Measures Organizational ProductivityProductivity: the overall output of goods and/or services divided by the inputs needed to generate that output.Output: sales revenuesInputs: costs of resources (materials, labor expense, and facilities)Ultimately, a measure of how efficiently employees do their work.

Organizational Performance Measures Organizational EffectivenessMeasuring how appropriate organizational goals are and how well the organization is achieving its goals.Systems resource modelThe ability of the organization to exploit its environment in acquiring scarce and valued resources.The process modelThe efficiency of an organizations transformation process in converting inputs to outputs.The multiple constituencies modelThe effectiveness of the organization in meeting each constituencies needs.

Organizational Effectiveness MeasuresIndustry rankings on:ProfitsReturn on revenueReturn on shareholders equityGrowth in profitsRevenues per employeeRevenues per dollar of assetsRevenues per dollar of equityCorporate Culture AuditsCompensation and benefits surveysCustomer satisfaction surveys

Popular Industry and Company RankingsExhibit 18.8

Tools for Controlling Organizational PerformanceFeedforward ControlA control that prevents anticipated problems before actual occurrences of the problem.Building in quality through design.Requiring suppliers conform to ISO 9002.Concurrent ControlA control that takes place while the monitored activity is in progress.Direct supervision: management by walking around.

Tools for Controlling Organizational Performance (contd)Feedback ControlA control that takes place after an activity is done.Corrective action is after-the-fact, when the problem has already occurred.Advantages of feedback controlsFeedback provides managers with information on the effectiveness of their planning efforts.Feedback enhances employee motivation by providing them with information on how well they are doing.

Types of ControlExhibit 18.9

Tools for Controlling Organizational Performance: Financial ControlsTraditional ControlsRatio analysisLiquidityLeverageActivityProfitabilityBudget AnalysisQuantitative standardsDeviationsOther MeasuresEconomic Value Added (EVA)Market Value Added (MVA)

Popular Financial RatiosExhibit 18.10a

Popular Financial RatiosExhibit 18.10b

Tools for Controlling Organizational Performance: Financial Controls (contd)Other MeasuresEconomic Value Added (EVA)How much value is created by what a company does with its assets, less any capital investments in those assets: the rate of return earned over and above the cost of capital.The choice is to use less capital or invest in high-return projects.

Tools for Controlling Organizational Performance: Financial Controls (contd)Other Measures (contd)Market Value Added (MVA)The value that the stock market places on a firms past and expected capital investment projectsIf the firms market value (its stock and debt) exceeds the value of its invest capital (its equity and retained earnings), then managers have created wealth.

Controlling Organizational PerformanceBalanced ScorecardA measurement tool that uses goals set by managers in four areas to measure a companys performance:Financial, customer, internal processes, and people/innovation/growth assets

Information ControlsManagement Information Systems (MIS)A system used to provide management with needed information on a regular basis.Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names).Information: data that has been analyzed and organized such that it has value and relevance to managers.

Benchmarking of Best PracticesBenchmarkingThe search for the best practices among competitors or noncompetitors that lead to their superior performance.Benchmark: the standard of excellence against which to measure and compare.A control tool for identifying and measuring specific performance gaps and areas for improvement.

Steps to Successfully Implement an Internal Benchmarking Best Practices ProgramConnect best practices to strategies and goals.Identify best practices throughout the organization.Develop best practices reward and recognition systems.Communicate best practices throughout the organization.Create a best practices knowledge-sharing system.Nurture best practices on an ongoing basis.Exhibit 18.11

Contemporary Issues in ControlCross-Cultural IssuesThe use of technology to increase direct corporate control of local operationsLegal constraints on corrective actions in foreign countriesDifficulty with the comparability of data collected from operations in different countries

Contemporary Issues in Control (contd)Workplace ConcernsWorkplace privacy versus workplace monitoring:E-mail, telephone, computer, and Internet usageProductivity, harassment, security, confidentiality, intellectual property protectionEmployee theftThe unauthorized taking of company property by employees for their personal use.Workplace violenceAnger, rage, and violence in the workplace is affecting employee productivity.

Types of Workplace Monitoring by EmployersExhibit 18.12Internet use 54.7%Telephone use 44.0%E-mail messages 38.1%Computer files 30.8%Job performance using video cameras 14.6%Phone conversations 11.5%Voice mail messages 6.8%Source: Based on S. McElvoy, E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy? Communications and the Law, June 2002, p. 69.

Control Measures for Employee Theft or FraudExhibit 18.13Sources: Based on A.H. Bell and D.M. Smith. Protecting the Company Against Theft and Fraud, Workforce Online (www.workforce.com) December 3, 2000; J.D. Hansen. To Catch a Thief, Journal of Accountancy, March 2000, pp. 4346; and J. Greenberg, The Cognitive Geometry of Employee Theft, in Dysfunctional Behavior in Organizations: Nonviolent and Deviant Behavior, eds. S.B. Bacharach, A. OLeary-Kelly, J.M. Collins, and R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 14793.

Workplace ViolenceExhibit 18.14Witnessed yelling or other verbal abuse42%Yelled at co-workers themselves29%Cried over work-related issues23%Seen someone purposely damage machines or furniture14%Seen physical violence in the workplace10%Struck a co-worker2%Source: Integra Realty Resources, October-November Survey of Adults 18 and Over, in Desk Rage. BusinessWeek, November 20, 2000, p. 12.

Control Measures for Deterring or Reducing Workplace ViolenceExhibit 18.15Sources: Based on M. Gorkin, Five Strategies and Structures for Reducing Workplace Violence, Workforce Online (www.workforce.com). December 3, 2000; Investigating Workplace Violence: Where Do You Start? Workforce Online (www.forceforce.com), December 3, 2000; Ten Tips on Recognizing and Minimizing Violence, Workforce Online (www.workforce.com), December 3, 2000; and Points to Cover in a Workplace Violence Policy, Workforce Online (www.workforce.com), December 3, 2000.

Contemporary Issues in Control (contd)Customer InteractionsService profit chainThe service sequence from employees to customers to profit: service capability affects service value which impacts on customer satisfaction that, in turn, leads to customer loyalty in the form of repeat business (profit).Corporate GovernanceThe system used to govern a corporation so that the interests of the corporate owners are protected.Changes in the role of boards of directorsIncreased scrutiny of financial reporting

The Service Profit ChainExhibit 18.16