THE CONTROL SYSTEMS OF

ORGANIZATIONS

CHAPTER 6(2)

WHAT IS CONTROL?
CONTROL
THE PROCESS OF MONITORING ACTIVITIES
TO ENSURE THAT THEY ARE BEING
ACCOMPLISHED AS PLANNED AND OF
CORRECTING ANY SIGNIFICANT DEVIATIONS
THE PURPOSE OF CONTROL
TO ENSURE THAT ACTIVITIES ARE
COMPLETED IN WAYS THAT LEAD TO
ACCOMPLISHMENT OF ORGANIZATIONAL
GOALS

15-2

WHY IS CONTROL IMPORTANT?

HOW THE ORGANISATION IS PERFOMED AND HOW TO IMPROVE
DETERMINING THE QUALITY OF GOODS AND SERVICES BECAUSE
IT GIVES MANAGERS FEEDBACK ON PRODUCT QUALITY.
CONSISTENTLY MONITORS THE QUALITY OF GOODS AND
SERVICES SO THAT THEY CAN MAKE CONTINUOUS
IMPROVEMENTS
MONITORING EMPLOYEE BEHAVIOR CAN HELP MANAGERS FIND
WAYS TO INCREASE EMPLOYEES PERFORMANCE LEVELS.
RAISE THE LEVEL OF INNOVATION THROUGH APPROPRIATE
15-3
CONTROL SYSTEMS TO ENCOURAGE RISK TAKING.

THE PLANNINGCONTROLLING LINK

Planning
Goals
Objectives
Strategies
Controlling

Plans
Organizing

Standards

Structure

Measurements

Human
Resource
Management

Comparison
Actions

Leading
Motivation
Leadership
Communication
Individual and
Group Behaviour

15-4

THE CONTROL PROCESS

THE PROCESS OF CONTROL
1. ESTABLISH THE STANDARD PERFORMANCE
2. MEASURING ACTUAL PERFORMANCE
3. COMPARING ACTUAL PERFORMANCE AGAINST A STANDARD
4. EVALUATE THE RESULT AND TAKE CORRECTIVE ACTION IF THE
STANDARD IS

NOT BEING ACHIEVED

15-5

HOW AND WHAT WE MEASURE

HOW: SOURCES OF
INFORMATION
PERSONAL
OBSERVATIONS
STATISTICAL REPORTS
ORAL REPORTS
WRITTEN REPORTS

15-6

WHAT: CONTROL
CRITERIA
EMPLOYEES
SATISFACTION
TURNOVER
ABSENTEEISM

BUDGETS
COSTS
OUTPUT
SALES

TAKING MANAGERIAL ACTION

COURSES OF ACTION
DOING NOTHING
ONLY IF DEVIATION IS INSIGNIFICANT
CORRECTING ACTUAL (CURRENT)
PERFORMANCE
IMMEDIATE OR BASIC CORRECTIVE ACTION
REVISING THE STANDARD
DETERMINE WHETHER THE STANDARD IS
REALISTIC, FAIR, AND ACHIEVABLE
15-7

MANAGERIAL DECISIONS IN THE CONTROL PROCESS

Is
standard
being
attained?

Y es

Is
variance
acceptable?

Y es

Compare
actual
performance
with standard

Do nothing

No

Goals

Standard

Measure
actual
performance

Do nothing

No
Is
standard
acceptable?

Y es

Identify
cause of
variation

No

Revise
standard
15-8

Correct
performance

CONTROLLING FOR ORGANIZATIONAL

PERFORMANCE

WHAT IS PERFORMANCE?
THE END RESULT OF AN ACTIVITY
WHAT IS ORGANIZATIONAL PERFORMANCE?
THE ACCUMULATED END RESULTS OF ALL OF THE
ORGANIZATIONS WORK PROCESSES AND ACTIVITIES
DESIGNING STRATEGIES, WORK PROCESSES, AND
WORK ACTIVITIES
COORDINATING THE WORK OF EMPLOYEES

15-9

ORGANIZATIONAL PERFORMANCE
MEASURES
ORGANIZATIONAL PRODUCTIVITY
THE OVERALL OUTPUT OF GOODS AND/OR
SERVICES DIVIDED BY THE INPUTS NEEDED
TO GENERATE THAT OUTPUT
ULTIMATELY, A MEASURE OF HOW
EFFICIENTLY EMPLOYEES DO THEIR WORK

15-10

ORGANIZATIONAL PERFORMANCE
MEASURES

ORGANIZATIONAL EFFECTIVENESS

MEASURING HOW APPROPRIATE ORGANIZATIONAL

GOALS ARE AND HOW WELL THE ORGANIZATION IS
ACHIEVING ITS GOALS
IS ORGANIZATION EFFICIENT IN ACQUIRING
SCARCE AND VALUED RESOURCES
IS ORGANIZATION EFFICIENT IN CONVERTING
INPUTS TO OUTPUTS?

15-11

ORGANIZATIONAL PERFORMANCE
MEASURES
INDUSTRY RANKINGS
MANY DIFFERENT LISTS EXIST TO RANK
ORGANIZATIONS. SOME EXAMPLES:
REPORT ON BUSINESS MAGAZINES TOP 1000;
CANADAS POWER BOOK
REPORT ON BUSINESS MAGAZINES 50 BEST
COMPANIES TO WORK FOR IN CANADA
PROFITS 100: CANADAS FASTEST GROWING
COMPANIES
15-12

TOOLS FOR CONTROLLING

ORGANIZATIONAL PERFORMANCE
FEEDFORWARD CONTROL
PREVENTS ANTICIPATED PROBLEMS BEFORE THEY OCCUR
BUILDING IN QUALITY THROUGH DESIGN
REQUIRING SUPPLIERS CONFORM TO ISO 9002
CONCURRENT(SIMULTANEOUS) CONTROL
MONITORING WHILE ACTIVITY IS IN PROGRESS
DIRECT SUPERVISION: MANAGEMENT BY WALKING
AROUND
15-13

TOOLS FOR CONTROLLING

ORGANIZATIONAL PERFORMANCE
FEEDBACK CONTROL
TAKES PLACE AFTER AN ACTIVITY IS DONE
CORRECTIVE ACTION IS AFTER-THE-FACT,
WHEN THE PROBLEM HAS ALREADY
OCCURRED
ADVANTAGES
FEEDBACK 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

15-14

TYPES OF CONTROL

15-15

Input

Processes

Output

Feedforward
Control

Concurrent
Control

Feedback
Control

Anticipates
problems

Corrects
problems as
they happen

Corrects
problems after
they occur

3 ORGANIZATIONAL CONTROL
SYSTEMS
Output
Control

Behavior
Control

Culture or Clan
Control

Financial Measures or performance

Goals
Operating budgets
Direct supervision
Management by Objective (MBO)
Rules & Standard Operating Procedures
Values
Norms
Socialization

OUTPUT CONTROL SYSTEMS

FINANCIAL CONTROLS ARE OBJECTIVE AND ALLOW

COMPARISON TO OTHER FIRMS.
PROFIT RATIOS--MEASURES HOW EFFICIENTLY
MANAGERS CONVERT RESOURCES INTO PROFITS.
RETURN ON INVESTMENT (ROI) IS THE MOST COMMON.
LIQUIDITY RATIOS -- MEASURE HOW WELL MANAGERS
PROTECT RESOURCES TO MEET SHORT TERM DEBT.
CURRENT & QUICK RATIOS.
LEVERAGE RATIOS -- SHOW HOW MUCH DEBT IS USED
TO FINANCE OPERATIONS.
DEBT-TO-ASSET & TIMES-COVERED RATIOS.
ACTIVITY RATIOS -- MEASURES HOW MANAGERS CREATE
VALUE FROM ASSETS.
INVENTORY TURNOVER, DAYS SALES OUTSTANDING.

OUTPUT CONTROL SYSTEMS

ORGANIZATIONAL GOALS: AFTER CORPORATE FINANCIAL

GOALS ARE SET, EACH DIVISION IS GIVEN SPECIFIC GOALS
THAT MUST BE MET TO ATTAIN THE OVERALL GOALS.
GOALS AND THUS OUTPUT CONTROLS, WILL BE SET FOR
EACH AREA OF THE FIRM.
GOALS ARE SPECIFIC & DIFFICULT (NOT IMPOSSIBLE) TO
ACHIEVE.
GOAL SETTING IS A MANAGEMENT SKILL DEVELOPED
OVER TIME.
OPERATING BUDGETS: A BLUEPRINT SHOWING HOW
MANAGERS CAN USE RESOURCES.
MANAGERS ARE EVALUATED BY HOW WELL THEY MEET
GOALS AND STAY IN BUDGET.
EACH DIVISION IS OFTEN EVALUATED ON ITS OWN
BUDGETS FOR COST, REVENUE OR PROFIT.

OUTPUT CONTROL PROBLEMS

MANAGERS MUST CREATE OUTPUT STANDARDS THAT

MOTIVATE AT ALL LEVELS.
BE CAREFUL OF CREATING SHORT-TERM GOALS THAT
MOTIVATE MANAGERS TO FORGET THE FUTURE.
IT IS EASY TO CUT COSTS BY DROPPING R&D NOW
BUT IT LEADS TO FUTURE DISASTER.
IF STANDARDS ARE TOO HIGH, WORKERS MAY
FOLLOW UNETHICAL BEHAVIOR TO ATTAIN THEM.
INCREASE SALES REGARDLESS OF ISSUES. THIS
CAN BE DONE BY SKIPPING SAFE PRODUCTION
STEPS.

BEHAVIOR CONTROL SYSTEMS

A) DIRECT SUPERVISION: MANAGERS

ACTIVELY MONITOR AND OBSERVE, TEACH,
AND CORRECT SUBORDINATES
B) MANAGEMENT BY OBJECTIVES
C) BUREAUCRATIC CONTROL - RULES AND
SOPS) THAT SHAPE THE BEHAVIOUR OF
DIVISIONS, FUNCTIONS, AND INDIVIDUALS.

MANAGEMENT BY OBJECTIVES

MANAGEMENT BY OBJECTIVES (MBO):

EVALUATES WORKERS BY ATTAINMENT OF SPECIFIC
OBJECTIVES.
GOALS ARE SET AT EACH LEVEL OF THE FIRM.
GOAL SETTING IS PARTICIPATORY WITH MANAGER
AND WORKER.
REVIEWS HELD LOOKING AT PROGRESS TOWARD
GOALS.
PAY RAISES AND PROMOTIONS ARE TIED TO
GOAL ATTAINMENT.
TEAMS ARE ALSO MEASURED IN THIS WAY WITH
GOALS AND PERFORMANCE MEASURED FOR THE
TEAM.

BUREAUCRATIC CONTROL

CONTROL THROUGH A SYSTEM OF RULES AND STANDARD

OPERATING PROCEDURES (SOPS) THAT SHAPE THE
BEHAVIOR OF DIVISIONS, FUNCTIONS, AND INDIVIDUALS.
RULES AND SOPS TELL THE WORKER WHAT TO DO.
STANDARDIZED ACTIONS SO OUTCOMES ARE
PREDICTABLE.
STILL NEED OUTPUT CONTROL TO CORRECT
MISTAKES.

PROBLEMS OF BUREAUCRATIC CONTROL:

RULES EASIER TO MAKE THAN DELETE.
FIRM CAN BECOME TOO STANDARDIZED AND NOT
FLEXIBLE.
BEST USED FOR ROUTINE PROBLEMS.

ORGANIZATIONS CULTURE/CLAN CONTROL

WHAT IS ORGANIZATIONAL CULTURE?
A SYSTEM OF SHARED MEANING AND BELIEFS HELD BY
ORGANIZATIONAL MEMBERS THAT DETERMINES, LARGE
DEGREE, HOW EMPLOYEES ACT.
THE WAY WE DO THINGS AROUND HERE
values and norms that specify appropriate and inappropriate
behaviors and so determine the way its members behave.

2-23

VALUES AND NORMS

ORGANIZATIONAL VALUES AND NORMS INFORM

WORKERS ABOUT WHAT GOALS THEY SHOULD PERUSE
AND HOW THEY SHOULD BEHAVE TO REACH THESE GOALS.

SOCIALISATION - SOCIALISATION IS THE PROCESS THAT

HELPS NEW EMPLOYEES ADAPT TO THE ORGANISATIONS
CULTURE. THIS IS WHEN THE ORGANISATION SEEKS TO
MOULD THE OUTSIDER INTO AN EMPLOYEE.

QUALITIES OF AN EFFECTIVE CONTROL

SYSTEM
INFORMATION QUALITY
CONTROL SYSTEM INFORMATION MUST BE ACCURATE AND UP TO DATE.
THE BEST CONTROLS GET THEIR INFORMATION FROM OPERATIONS
GENERATE IT, SUCH AS SALES FIGURES BASED ON INVOICES
TO EVALUATE PROBLEMS AND TAKE CORRECTIVE ACTION, THE
INFORMATION MUST BE RECENT.
CONTROL SYSTEMS CAN SUPPLY DATA IN REAL TIME, BUT SYSTEMS STILL
HAVE TO PROCESS A LOT OF FINANCIAL DATA, LEADING TO DELAYS.

QUALITIES OF AN EFFECTIVE CONTROL SYSTEM

FLEXIBILITY
AN EFFECTIVE CONTROL SYSTEM IS HIGHLY FLEXIBLE.
THIS MEANS IT HAS OVERALL DATA ACQUISITION AND DATA PROCESSING
CAPABILITIES THAT MANAGEMENT CAN ADAPT TO CHANGING CONDITIONS.
IF THE DATA COLLECTED FROM ONE SOURCE ARE NO LONGER REFLECTIVE
OF THE ACTUAL SITUATION, MANAGEMENT MUST BE ABLE TO IDENTIFY
OTHER, BETTER SOURCES OF DATA AND ADAPT THE SYSTEM TO REPORT
THOSE.
MUST ADAPT TO ACCEPT NEW BUSINESS PROCESSES THAT ALLOW
MANAGEMENT CONTROLS IN THE NEW AREA OF ACTIVITY.

QUALITIES OF AN EFFECTIVE CONTROL SYSTEM

OBJECTIVITY
MANAGERS MUST BE ABLE TO MAKE DECISIONS AND ACT ON THE BASIS OF
CONTROL SYSTEM RESULTS.
THE INFORMATION IN A CONTROL SYSTEM SHOULD BE UNDERSTANDABLE
AND BE SEEN AS OBJECTIVE BY THE INDIVIDUALS WHO USE IT. A DIFFICULTTO UNDERSTAND CONTROL SYSTEM WILL CAUSE UNNECESSARY MISTAKES
AND CONFUSION OR FRUSTRATION AMONG EMPLOYEES.
CONTROL SYSTEMS ARE MOST EFFECTIVE WHEN THEIR RESULTS GIVE AN
INDICATION OF THE KIND OF CORRECTIVE ACTION THAT IS NECESSARY

QUALITIES OF AN EFFECTIVE CONTROL SYSTEM

ECONOMICS
THE COST OF IMPLEMENTING A CONTROL SYSTEM SHOULD BE LESS THAN,
OR AT MOST EQUAL TO, THE BENEFITS DERIVED FROM THE CONTROL
SYSTEM.
ACCEPTED BY ORGANIZATION MEMBERS.
FOR A CONTROL SYSTEM TO BE ACCEPTED BY ORGANIZATION MEMBERS, THE
CONTROLS MUST BE RELATED TO MEANINGFUL AND ACCEPTED GOALS.