16 Control Copyright 2016 Cengage Learning All Rights

16 Control Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES 1 Describe the basic control process 2 Discuss the various methods that managers can use to maintain control 3 Describe the behaviors, processes, and outcomes that today’s managers are choosing to control in their organizations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 2

Control Process • Standards • Basic control process begins with the establishment of clear standards of performance • Good standard enables goal achievement • Companies determine standards by: • Listening to customers’ comments, complaints, and suggestions • Benchmarking: Identifying outstanding practices, processes, and standards in other companies and adapting them Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 3

Control Process • Corrective action • Involves identifying performance deviations • Analyze those deviations, and develop and implement programs to correct them • Dynamic, cybernetic process • Cybernetic: Process of steering or keeping on course • Entire process is repeated again in an endless feedback loop to maintain performance levels Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 4

Exhibit 16. 1 Cybernetic Control Process Source: Reprinted from Business Horizons, June 1972, H. Koontz and R. W. Bradspies, “Managing through Feedforward Control: A Future Directed View, ” pp. 25– 36, Copyright © 1972, with permission from Elsevier. Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 5

Control Process Feedback control • Gathers information about performance deficiencies after they occur • Used to correct or prevent performance deficiencies Concurrent control • Gathers information about performance deficiencies as they occur • Eliminates the delay between performance and feedback about the performance Feedforward control • Gathers information about performance deficiencies before they occur • Seeks to prevent or minimize performance deficiencies before they happen Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 6

Control Process • Control isn’t always worthwhile or possible • Control loss: Occurs when behavior and work procedures do not conform to standards • Careful assessment of regulation costs determine whether control is worthwhile • Cybernetic feasibility: Extent to which it is possible to implement each step in the control process Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 7

Control Methods Bureaucratic control Objective control Concertive control Normative control Self-control (self management) Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 8

Factors to Control • Successful companies find a balance that comes from doing three or four things right • • Balanced scorecard approach to control Budgets, cash flows, and economic value added Customer defections Waste and pollution Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 9

Balanced Scorecard • Measurement of organizational performance in finances, customers, internal operations, innovation, and learning • Forces managers to set specific goals and measure performance • Minimizes the chances of suboptimization • Suboptimization: Performance improvement in one part of an organization at the expense of decreased performance in another part Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 10

Financial and Customer Perspective • Controlling financial performance focuses on accounting tools • Cash flow analysis, balance sheets, income statements, financial ratios, and budgets • Economic value added (EVA): Amount by which company profits exceed the cost of capital in a given year Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 11

Financial and Customer Perspective • Controlling customer defections have a great effect on profits • Customer defection: Performance in which companies identify which customers are likely to leave and measure the rate at which they are leaving Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 12

Internal Perspective • Quality is defined and measured in three ways • Excellence, value, and conformance to expectations • Way in which a company defines quality affects methods and measures that workers use to control quality Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 13

Exhibit 16. 5 Advantages and Disadvantages of Different Measures of Quality Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 14

Innovation and Learning Perspective • Involves controlling waste and pollution • Strategies for waste prevention and reduction • Good housekeeping • Material/product substitution • Process modification Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 15

SUMMARY • Control is a regulatory process of establishing standards to achieve goals, comparing actual performance against the standards, and taking corrective action • Balanced scorecard encourages managers to look beyond traditional financial measures • Traditional approach to controlling financial performance focuses on accounting tools Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 16

KEY TERMS • • • Control Standards Benchmarking Cybernetic Feedback control Concurrent control Feedforward control Control loss Regulation costs Cybernetic feasibility Bureaucratic control Objective control Behavior control Output control Normative control Concertive control Self-control (selfmanagement) • Balanced scorecard • Suboptimization • • Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 17

KEY TERMS Cash flow analysis Balance sheets Income statements Financial ratios Budgets Economic value added (EVA) • Customer defections • Value • • • Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 18

Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 19