Essentials of Contemporary Management

Chapter

Organizing: Control and Culture

Learning Objectives
After studying the chapter, you should be able to:
Define organizational control, and describe the four steps of the control process. Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees. Identify the main behavior controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees. Explain the role of organizational culture in creating an effective organizational architecture.
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What Is Control?
Controlling
The process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals.

Involves monitoring and evaluating organizational strategy and structure to assess whether there is a need for change to improve the firms competitive performance.

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Organizational Control
Managers must monitor and evaluate:
Is the firm efficiently converting inputs into outputs? Are units of inputs and outputs measured accurately? Is product quality improving? Is the firms quality competitive with other firms? Are employees responsive to customers? Are customers satisfied with the services offered? Are our managers innovative in outlook? Does the control system encourage risk-taking?
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Control Systems and IT

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. 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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Three Types of Control

Figure 10.1

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Types of Control
Feedforward Controls

Used in the input stage of the process. Anticipates problems before they arise. Example: Giving rigorous specifications to suppliers to avoid quality problems with inputs.

Concurrent Controls
Give immediate feedback on how inputs are converted into outputs. Allows correction of problems as they arise Managers can see that a machine is becoming out of alignment and adjust/fix it.
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Types of Control (contd)

Feedback Controls
Provide after-the-fact information managers can use in the future.

Customers reactions to products are used to take corrective action in the future.

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Control Process Steps

Figure 8.2

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The Control Process

1. Establish standards, goals, or targets against which performance is to be evaluated.
Managers at each organizational level need to set their own standards.

Standards must be consistent with the organizations strategy (i.e., for a low cost strategy, standards should be focused closely on reducing costs).

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The Control Process

2. Measure actual performance
Managers can measure outputs resulting from worker behavior or they can measure the behavior themselves. The more non-routine the task, the harder it is to measure performance or output, causing managers to measure an employees behavior (e.g., that an employee comes to work on time) rather than the employees output.

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The Control Process

3. Compare actual performance against chosen standards.
Managers must decide if performance actually deviates, often, several problems combine creating low performance.

4. Evaluate result and take corrective action.

Standards have been set too high or too low. Workers may need additional training or equipment. This step is often hard since the environment is constantly changing.
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Three Organizational Control Systems

Figure 8.3

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Financial Measures of Performance

Financial Controls
Profit ratios How efficiently managers convert resources into profitsreturn on investment (ROI). Liquidity ratios How well managers protect resources to meet short term debtcurrent and quick ratios.

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Financial Performance Measures

Profit Ratios

Net profit before taxes Return on investment Total assets Sales revenues - cost of goods sold Gross profit margin Sales revenues
Liquidity Ratios

Current assets Current ratio Current liabilitie s

Current assets - inventory Quick ratio Current liabilities
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Financial Measures (contd)

Financial Controls (contd)
Leverage ratios How much debt is used to finance operations debt-to-asset and times-covered ratios. Activity ratios How efficiently managers are creating value from assetsinventory turnover, days sales outstanding ratios.

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Financial Performance Measures (contd)

Leverage Ratios

Total debts Debts - to - assets ratio Total assets

Profit before interest and taxes Times - covered ratio Total interest charges
Activity Ratios Cost of goods sold Inventory turnover Inventory

Accounts receivable Days sales outstandin g Total Sales 300

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Output Control
Organizational Goals
Each division within the firm is given specific goals that must be met in order to attain overall organizational goals. Goals should be specific and difficult, but not impossible, to achieve (stretch goals). Goal setting and establishing output controls are management skills that are developed over time.

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Organization-Wide Goal Setting

Figure 10.4

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Output Control (contd)

Operating Budgets
Blueprints that state how managers intend to allocate and use the resources they control to attain organizational goals effectively and efficiently.

Each division is evaluated on its own budgets for cost, revenue or profit.
Managers are evaluated by how well they meet goals for controlling costs, generating revenues, or maximizing profits while staying within their budgets.
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Problems with Output Control

Managers must create output standards that motivate at all levels.
They must be careful not to create short-term goals that motivate managers to ignore the future. Example: Cutting costs by curtailing research and development (R&D) now may lead to a loss of competitiveness in the future. If standards are set too high, workers may engage unethical behaviors to attain them. Example: Attempting to increase output regardless of product quality issues caused by omitting steps in the production process.
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Behavior Control
Direct Supervision
Managers who directly manage can teach, reward, lead by example, and take corrective action as needed. Can be very expensive since only a few workers can be personally managed by one manager and many managers are needed. Close supervision demotivates workers who desire less scrutiny and more autonomy, causing them to avoid responsibility. Direct supervision is difficult to do effectively in complex job settings.
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Management by Objectives
Management by Objectives (MBO)
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. Specific goals are set at each level of the firm. Pay raises and promotions are tied to goal attainment. Teams are also measured with goals and performance measured for the team.
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Rules and Standard Operating Procedures

Bureaucratic Control
Control through a system of rules and standard operating procedures (SOPs) that shapes the behavior of divisions, functions, and individuals. Rules and SOPs tell the worker what to do (standardized actions) so outcomes are predictable. There is still a need for output control to correct mistakes. Bureaucratic control is best used for routine problems in stable environments.

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Rules and Standard Operating Procedures (contd)

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 solve to new problems.

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Organizational Culture
Organizational Culture
The set of internalized values, norms, standards of behavior, and common expectations that control the ways in which individuals and groups in an organization interact with each other and work to achieve organizational goals.

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Clan Control
Clan Control
The control through the development of an internal system of values and norms.

Both culture and clan control accept the norms and values as their own and then work within them.
Examples: Work dress styles, normal working hours, pride taken in work. These methods provide control where output and behavioral control does not work. Strong culture and clan control help worker to focus on 831 the organization and enhance its performance.

Factors Creating A Strong Organizational Culture

Figure 8.5

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Values and Norms

Values
Beliefs and ideas about the kinds of goals members of a society should pursue and about the kinds and modes of behavior people should use to achieve those goals.

Norms
Unwritten, informal rules or guidelines that prescribe appropriate behavior in particular situations.

Having norms and values that are suited to the organizations environment is important.
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Creating Organizational Culture

Values of the Founder
Initial values are critical as founders hire their first set of managers. Founders are likely hire those who share their vision which evolves eventually into the culture of the firm.

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Creating Organizational Culture (contd)

Socialization
Organizational Socialization The process by which newcomers learn an organizations values and norms and acquire the work behaviors necessary to perform jobs effectively. Newcomers learn not only because they have to but because they want to in order to fit in. Organizational behavior, expectations, and background are included in socialization.
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Creating Organizational Culture (contd)

Ceremonies and Rites
Formal events that focus on important incidents: Rite of passage : denoting employees entrance into the firm with the formal presentation of a name badge.

Rite of integration : building common bonds with annual office parties and outings or celebrations for meeting organizational performance goals.
Rites of enhancement : enhancing worker commitment to values through promotion ceremonies and awards dinners. 837

Creating Organizational Culture (contd)

Stories and Language
Organizations repeat the stories of founders or significant events in the firms history to communicate the values and norms for behaviors that are valued by the organization. Show workers how to act and what to avoid. Stories often have a hero that workers can mimic. Many firms have unique dress codes and use jargon in their internal communications that only their employees understand.
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Culture and Managerial Action

Culture affects the functions of management.
Planning In innovative firms, the culture will encourage all managers to participate. In slow moving firms, the focus will be on the formal process rather than the decision. Organizing Creative firms have organic, flexible structures that are most likely very flat with delegated, decentralized authority.

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Culture and Managerial Action (contd)

Culture affects the functions of management (contd)
Leading Flexible, open organizations encourage leading by example; top managers take risks and trust lower managers. Controlling Innovative firms choose types of controls that match their structure and foster new ideas and organizational cooperation.

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