CHAPTER SUMMARY – CHAPTER 18

What Is Control and Why Is It Important?

ü      Define control.

ü      Contrast the three approaches to designing control systems.

ü      Discuss the reasons why control is important.

ü      Explain the planning-controlling link.

            Controlling is the process of monitoring, comparing, and correcting work performance.

            The market control approach emphasizes the use of external market mechanisms to establish the control standards. The bureaucratic control approach emphasizes organizational authority and relies on administrative rules, regulations, procedures, and policies. The clan control approach uses shared values, norms, traditions, rituals, beliefs, and other aspects of the organization’s culture (the clan) to control employee behavior. (See Exhibit 18-1.)

            Control is important for three reasons. It’s how managers know whether goals and plans are on target. It’s also beneficial for empowering employees. And it’s used to protect the organization and its assets.

            Planning and controlling are linked because through controlling, managers are able to determine whether the goals and plans established in the planning phase are actually being accomplished. (See Exhibit 18-2.) 

The Control Process

ü      Describe the three steps in the control process.

ü      Explain why what is measured is more critical than how it’s measured.

ü      Explain the three courses of action managers can take in controlling.

            The three steps in the control process are measuring actual performance, comparing actual performance to standards, and taking any necessary managerial action. (See Exhibits 18-3 and 18-7.)

            “What” is measured is more critical than “how” it’s measured since selecting the wrong criteria to measure can create serious problems. Also, people in the organization will attempt to excel at what is being measured. (See Exhibit 18-4.)

            The three possible courses of action include doing nothing, correcting actual performance (immediate corrective action or basic corrective action), or revising the standard.

Controlling for Organizational Performance

ü      Define organizational performance.

ü      Describe the most frequently used measures of organizational performance.

            Organizational performance is the accumulated end results of all the organization’s work activities.

            The most frequently used measures of organizational performance include organizational productivity (overall output of goods or services produced divided by the inputs needed to generate that output), organizational effectiveness (how appropriate organizational goals are and how well the organization is achieving those goals), and industry rankings (see Exhibit 18-8), which are comparisons of companies within industries on various measures.

Tools for Controlling Organizational Performance

ü      Contrast feedforward, concurrent, and feedback controls.

ü      Explain the types of financial and information controls managers can use.

ü      Describe how balanced scorecards and benchmarking are used in controlling.

            Feedforward controls are controls that prevent anticipated problems since they’re used before the actual work activity. Concurrent controls are controls that are used while a work activity is in progress. Feedback controls are controls that are used after the actual work activity has been completed. (See Exhibit 18-9.)

            Managers can use the traditional financial controls including budgets and ratio analysis. (See Exhibit 18-10.) They could also use other financial controls such as economic value added and market value added. Information controls that managers could use include a management information system and data and information security.

            A balanced scorecard is a performance measurement tool that looks at four areas that contribute to a company’s performance – financial, customers, internal processes, and people/innovation/growth assets. Benchmarking – the search for best practices – can be a useful control tool for identifying specific performance gaps and potential areas of improvement.

Contemporary Issues in Control

ü      Describe how managers may have to adjust controls for cross-cultural differences.

ü      Discuss the types of workplace concerns managers face and how they can address those concerns.

ü      Explain why control is important to customer interactions.

ü      Explain what corporate governance is and how it’s changing.

            Because of differences in culture and the challenges associated with long-distance managing, managers may use more formal techniques and rely more on information technology. Another challenge is comparability of data.

            Three main workplace concerns face managers: workplace privacy, employee theft, and workplace violence. Managers need to monitor workplaces because of potential lost work productivity, to reduce the potential risk of being sued for creating a hostile work environment, and to ensure that company secrets aren’t being leaked. Employee theft and workplace violence can be deterred or reduced by approaching it from the perspective of feedforward, concurrent, and feedback controls. (See Exhibits 18-13 and 18-15.)

            Control is important for customer interactions because organizations want to create long-term and mutually beneficial relationships with their customers.

            Corporate governance is the system used to govern a corporation so that the interests of corporate owners are protected. Two areas of corporate governance reform involve the role of the board of directors and the organization’s financial reporting. (See Exhibits 18-17 and 18-18.)