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Lecture 10

Foundation of
Control

Chapter 8
Control, Change, and
Entrepreneurship

Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objectives
1. Define organizational control, and identify the main
output and behaviour controls managers use to
coordinate and motivate employees.
2. Describe the four steps in the control process and
the way it operates over time.
3. Explain the role of clan control or organizational
culture in creating an effective organizational
architecture.
4. Discuss the qualities of a good control system.
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What is Organizational Control?


Controlling
Process where managers monitor and regulate
how efficiently and effectively an organization and
its members are performing the activities
necessary to achieve organizational goals

Control Systems

Formal, target-setting, monitoring, evaluation and


feedback systems that provide managers with
information about how well the organizations
strategy and structure are working
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Three Types of Control

Figure 8.1

Control that allows


managers to anticipate
problems before they
arise

Control that gives managers


immediate feedback on
how efficiently inputs are
being transformed into
outputs so that managers
can correct problems as
they arise

Control that gives managers


information about
customers reactions to
goods and services so that
corrective action can be
taken if necessary

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The Control Process


Figure 8.2

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Three Organizational Control Systems


Figure 8.3

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Output Control
Use of goals or output performance standards
that will best measure efficiency, quality,
innovation, and responsiveness to customers

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Output Control:
Financial Measures of Performance
Financial information used to evaluate the
overall organizational performance, e.g.:
Measures of how efficiently managers convert
resources into profits, i.e. return on investment
(ROI).
Measures of how much percentage profit a
company is earning on sales, i.e. operating margin
Measures of how efficiently managers turn
inventory over so that excessive inventory is not
carried, i.e. inventory turnover

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Output Control:
Organizational Goals
Goals should be specific and difficult
Stretch goals
goals that challenge and stretch managers ability
but are not out of reach and do not require an
impossibly high expenditure of managerial time
and energy.

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Output Control:
Organizational Goals
Organization-Wide Goal Setting

Figure 8.4

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Output Control:
Operating Budgets
Operating Budget
A blueprint that states how managers
intend to allocate and use the
resources they control to attain organizational
goals effectively and efficiently
Budget for expenses, revenues and/or profit

Lower-level managers are evaluated for their ability


to stay within the budget and to make the best use
of available resources
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Effective Output Control


Three components are the essence of effective
output control

Objective financial measures


Challenging goals and performance standards
Appropriate operating budgets

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Problems with Output Control


Managers must create output standards that
motivate at all levels.

Standards should not cause managers to behave


in inappropriate ways to achieve organizational
goals

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Behaviour Control
Used to keep employees on track and make
organizational structures work

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Behaviour Control:
Direct Supervision
Done by managers who:
Actively monitor and observe the behaviour of
their subordinates
Teach subordinates the behaviours that are
appropriate and inappropriate
Intervene to take corrective action as
needed

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Behaviour Control:
Direct Supervision
Drawbacks:
Expensive
Can demotivate subordinates
More complex a job is, the more difficult it is for
a manager to evaluate how well a subordinate is
performing

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Behaviour Control:
Management by Objectives
A goal-setting process in which managers and

subordinates negotiate specific goals and


objectives for the subordinate to achieve and
then periodically evaluate their attainment of
those goals
Steps in MBO
1. Specific goals and objectives are established at each
level of the organization
2. Managers and their subordinates together determine
the subordinates goals
3. Managers and their subordinates periodically review
the subordinates progress toward meeting goals
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Bureaucratic Control
Control of behaviour by means of a
comprehensive system of rules and standard
operating procedures.
Rules and SOPs guide behaviour and specify
what employees are to do when they confront a
problem that needs a solution
Standardized behaviour leads to standardized
outputs

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Bureaucratic Control
Problems with Bureaucratic Control
Rules easier to make than discarding them,
leading to bureaucratic red tape and slowing
organizational reaction times to problems
Firms become too standardized and lose
flexibility to learn, to create new ideas, and to
solve new problems

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Organizational Culture/Clan Control


Organizational Culture
The shared set of beliefs, expectations, values,
norms, and work routines that influences how
members of an organization interact with one
another and work together to achieve
organizational goals

Clan Control

Control exerted on individuals and groups in an


organization by shared values, norms, standards
of behaviour, and expectations
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Adaptive vs. Inert Culture


Adaptive Culture
Culture whose values
and norms help an
organization to build
momentum and to
grow and change as
needed to achieve its
goals and be effective

Inert Culture
Culture that leads to
values and norms
that fail to motivate
or inspire employees
Leads to stagnation
and often failure over
time

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Adaptive Culture
Emphasize long-term employment relationship
Develop long-term career paths for employees
Heavily invest in training and development

Link rewards directly to employees performance and


to the company performance as a whole
Employee stock ownership plans (ESOPs)

Emphasize entrepreneurship and respect employees


Allow the use of organizational structures, e.g. crossfunctional team structure, that empower employees
to make decisions and motivate them to succeed
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Inert Culture
Short-term employment
Minimal investment in employees who perform
simple, routine tasks
Employees are not often rewarded based on their
performance
Employees are content to be told what to do
Employees have little incentive or motivation to
perform beyond minimum work requirement
Emphasize close supervision and hierarchical
authority
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Control Systems
A good control system should:
be flexible so managers can respond as needed
provide accurate information about the organization
provide information in a timely manner

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Reference
McGraw-Hill Education (2014). BUS10306
Management customized text, Chapter 10.

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