Chapter Sixteen Organizational Control Processes 2013 Cengage Learning

Chapter Sixteen Organizational Control Processes © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

Chapter Objectives Identify three types of control and the components common to all control systems. Discuss organizational control from a strategic perspective. Identify the four key elements of a crisis management program. Identify five types of product quality. Explain how providing a service differs from manufacturing a product and identify the five servicequality dimensions. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

Chapter Objectives (cont’d) Define total quality management (TQM) and specify the four basic TQM principles. Describe at least three of the seven TQM process improvement tools. Explain how Deming’s PDCA cycle can improve the overall management process. Specify and discuss at least four of Deming’s famous 14 points. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

Fundamentals of Organizational Control Taking preventive or corrective action to keep things on track Checking, testing, regulating, verifying, or adjusting Objectives are yardsticks for measuring actual performance. Purpose of the control function To get the job done despite environmental, organizational, and behavioral obstacles and uncertainties © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

Types of Controls Feedforward Control The active anticipation and prevention of problems, rather than passive reaction Concurrent Control Monitoring and adjusting ongoing activities and processes Feedback Control Checking a completed activity and learning from mistakes © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

Figure 16. 1: Three Types of Control © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

Organizational Control Subsystems Strategic plans Long-range plans Annual operating budgets Statistical reports Performance appraisals Policies and procedures The organization’s culture © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

Components of Organizational Control Systems Objectives Measurable reference points (targets) for corrective action Standards Guideposts on the way to achieving objectives Benchmarking: Identifying, studying, and building upon the best practices of organizational role models © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

Evaluation-Reward Systems Goals of System To measure and reward individual and team contributions to attaining organizational objectives To shape effort-reward expectancies in order to motivate better performance © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

Strategic Control Strategic planning and strategic control go hand in hand. Top-level strategy sets and/or determines objectives through the organization. Control measures of activities and results are translated up the organizational pyramid. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

Figure 16. 2: The Performance Pyramid for Strategic Control © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

Identifying Control Problems Executive Reality Checks Top managers periodically work at lower-level jobs to become more aware of operations. Internal Audits Independent appraisals of organizational operations and systems are conducted to assess effectiveness and efficiency. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

Identifying Control Problems (cont’d) Symptoms of Inadequate Control An unexplained decline in revenues or profits A degradation of service (customer complaints) Employee dissatisfaction Cash shortages caused by bloated inventories or delinquent accounts receivable Idle facilities or personnel Disorganized operations Excess costs Evidence of waste and inefficiency (scrap, rework) © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

Crisis Management Organizational Crisis A low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by the belief that decisions must be made swiftly © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

Crisis Management (cont’d) Crisis Management Anticipating and preparing for events that could damage the organization Crisis management is intertwined with strategic control. Managers should think about the unthinkable and expect the unexpected. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

Figure 16. 3: Key Elements of a Crisis Management Program © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

Developing a Crisis Management Program Conduct a crisis audit seeking out trouble spots and vulnerabilities. Formulate contingency plans that specify early warning signals, actions to be taken, and consequences of those actions. Create crisis management teams with specific skills to deal with a crisis. Perfect the program through serious practice and rehearsals. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

Table 16. 1: An Organizational Crisis Can Come in Many Different Forms © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

The Quality Challenge Defining Quality “Conformance to requirements” (Crosby) A subjective response by customers to the adequacy of product or service quality in meeting their expectations/needs/requirements There is a national trophy for quality in the United States that means prestige and lots of free media exposure for winners: the Malcolm Baldrige National Quality Award. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

Five Types of Product Quality Transcendent Quality Inherent value or innate excellence apparent to the individual Product-Based Quality The presence or absence of a given product attribute User-Based Quality The ability of the product to meet the user’s expectations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

Five Types of Product Quality (cont’d) Manufacturing-Based Quality How well the product conforms to its design specification or blueprint Value-Based Quality How much value each customer separately attributes to the product in calculating his/her personal costbenefit ratio © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21

Unique Challenges for Service Providers Strategic Service Challenge To anticipate and exceed customer’s expectations Distinctive service characteristics Customers participate directly in the production process. Services are consumed immediately and cannot be stored. Services are provided where and when the customer desires. Services tend to be labor-intensive. Services are intangible. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

Unique Challenges for Service Providers (cont’d) Defining Service Quality Five service quality dimensions (RATER) Reliability (most important) Assurance Tangibles Empathy Responsiveness © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23

Total Quality Management (TQM) Creating an organizational culture committed to the continuous improvement of skills, teamwork, processes, product and service quality, and customer satisfaction Four Principles of TQM Do it right the first time. Be customer-centered. Make continuous improvement a way of life. Build teamwork and empowerment. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24

Total Quality Management (TQM) Do It Right the First Time Designing and building quality into the product Be Customer-Centered Internal customers: Anyone in the organization who cannot do a good job unless you do a good job Customer-centered: Satisfying customers’ needs by anticipating, listening, and responding © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25

Total Quality Management (TQM) �Make Continuous Improvement a Way of Life � Kaizen: A Japanese word meaning continuous improvement (quality is an endless journey) � Involves the search for actual or potential trouble spots � Avenues for Continuous Improvement �Improved and more consistent product and service quality �Faster cycle times �Greater flexibility �Lower costs and less waste © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26

Total Quality Management (TQM) Build Teamwork and Empowerment Adequate training Access to information and tools Involvement in key decisions Fair rewards for results Teamwork Suggestion systems QC circles and self-managed teams Teamwork and cross-functional teams © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27

The Seven Basic TQM Process Improvement Tools Flow Chart A graphic display of a sequence of activities and decisions Cause-and-Effect Analysis A fishbone diagram that helps visualize important cause-and-effect relationships Pareto Analysis (80/20 Analysis) A bar chart indicating which problem needs the most attention © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28

The Seven Basic TQM Process Improvement Tools (cont’d) Control Chart Visual aid showing acceptable and unacceptable variations from the norm for repetitive operations Histogram A bar chart indicating deviations from a standard bellshaped curve Scatter Diagram A plot of relationships between two variables Run Chart A trend chart for tracking a variable over time © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29

Figure 16. 4: Everyone Benefits from Improved Quality © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30

Deming Management Application of W. Edwards Deming’s ideas to revitalize productive systems to make them more responsive to the customer, more democratic, and less wasteful Challenges the concept of scientific management Principles of Deming Management Quality improvement drives the entire economy. The customer always comes first. Don’t blame the person; fix the system. Plan-Do-Check-Act (PDCA cycle). © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31

Figure 16. 5: Deming’s PDCA Cycle © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32

Deming’s 14 Points Constant purpose New philosophy Give up on quality by inspection Avoid the constant search for lowest-cost suppliers Seek continuous improvement Train everybody Provide real leadership Drive fear out of the workplace Promote teamwork Avoid slogans and targets Get rid of numerical quotas Remove barriers that stifle pride in workmanship Education and selfimprovement are key “The transformation is everyone’s job” © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33

Summary �Feedforward control is preventive in nature, whereas feedback control is based on the evaluation of past performance. �Strategic control involves the downward translation of objectives and the upward translation of performance measures. �The four elements of a crisis management program are anticipate, plan, staff, and practice. �Five types of product quality are transcendent, productbased, user-based, manufacturing-based, and value-based. �Service providers face a unique set of challenges. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34

Summary (cont’d) �TQM involves creating a culture dedicated to customer-centered, employee-driven continuous improvement. �Seven basic TQM process improvement tools are flow charts, fishbone diagrams, Pareto analysis, control charts, histograms, scatter diagrams, and run charts. �Deming’s plan-do-check-act (PDCA) cycle forces managers to make decisions and take actions on the basis of observed and carefully measured data. �Deming formulated 14 points that urge managers to seek continuous improvement through extensive training, leadership, teamwork, and self-improvement. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35

Terms to Understand �Control �Feedforward control �Concurrent control �Feedback control �Benchmarking �Executive reality check �Internal auditing �Crisis management �Contingency plan �Quality �Total quality management (TQM) �Internal customers �Customer-centered �Kaizen �Flow chart �Fishbone diagram �Pareto analysis �Control chart �Histogram �Scatter diagram �Run chart �Deming management �PDCA cycle © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36