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MGT 3370 Chapter 16

Control
-a regulatory process of establishing standards to achieve organizational goals, comparing actual performance against the standards, and taking corrective action when necessary to restore performance to those standards
-it is achieved when behavior and work procedures conform to standards and when company goals are accomplished
The Control process
1) begins when managers set goals –> companies then establish clear standards of performance that must be met to accomplish those goals
2) involves a comparison of performance to those standards
3) takes corrective action to repair performance deficiencies
4) is a dynamic, cybernetic process
5) consists of 3 basic methods
Standards
a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory
Criteria for developing good standards
1) must enable goal achievement
2) determining standards through listening to customers’ comments, complaints, and suggestions or by observing competitors
3) can be determined by benchmarking other companies
Benchmarking
the process of identifying outstanding practices, processes, and standards in other companies and adapting them to your company
Process of setting standards by benchmarking
1) determine what to benchmark
2) identify the the companies against which to benchmark your standards
3) collect data to determine other companies’ performance standards
The quality of the comparison of actual performance to performance standards depends on…
the measurement and information systems a company uses to keep track of performance –> the better the system, the easier it is for companies to track their progress and identify problems that need to be fixed
After comparing performance to standards, the next step of the control process is
to identify performance deviations, analyze those deviations, and then develop and implement programs to correct them
cybernetic
the process of steering or keeping on course
control is a continuous, dynamic, cybernetic process because
-continuous: managers must repeat the process over and over again in an endless feedback loop
-dynamic: control is not a one-time achievement or result and continues over time
-cybernetic: requires daily, weekly, and monthly attention from managers to maintain performance levels at the standard
3 basic control methods
1) Feedback control
2) Concurrent control
3) Feedforward control
Feedback control
-a mechanism for gathering information about performance deficiencies *after* they occur
-improves both individual and organizational performance
-downside= feedback comes after the fact
Concurrent control
-a mechanism for gathering information about performance deficiencies *as* they occur
-attempts to eliminate or shorten the delay between performance and feedback about the performance
Feedforward control
-a mechanism for gathering information about performance deficiencies *before* they occur
-monitors inputs rather than outputs
-seeks to prevent or minimize performance deficiencies before they happen
Control loss
-occurs when behavior and work procedures do not conform to standards
-prevents organizations from achieving their goals
-corrective action should be taken if it occurs, but sometimes implementing control is not worthwhile or possible
2 factors to determine whether control is worthwhile
regulation costs and cybernetic feasibility
regulation costs
-whether the costs and unintended consequences of control exceed its benefits
-if a control process costs more than it benefits, it may not be worthwhile
cybernetic feasibility
-the extent to which it is possible to implement each of the three steps in the control process
-if one or more steps cannot be implemented, then maintaining effective control may be difficult or impossible
Methods of Control
1) Bureaucratic Control
2) Objective Control
3) Normative Control
4) Concertive Control
5) Self Control
Bureaucratic Control
-*top-down control*
-the use of hierarchical authority to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures
Characteristics of bureaucratic control
-most employees argue that managers emphasize punishment for noncompliance much more than rewards for compliance
-managers often emphasize following the rules above all else
-due to their rule- and policy-driven decision making, they are highly resistant to change and slow to respond to customers and competitors–>”iron cage”
Objective Control
the use of observable measures of employee behavior or output to assess performance and influence behavior
-focuses on observing and measuring worker behavior or output
2 kinds of objective control
1) behavior control
2) output control
Behavior control
-regulating behaviors and actions that workers perform on the job
-basic assumption= if you do the right things every day, then those things should lead to goal achievement
-regulates, guides, and measures how workers behave on the job
-management is responsible for monitoring and rewarding or punishing workers for exhibiting desired or undesired behaviors
Output control
-the regulation of workers’ results or outputs through rewards and incentives
-measures results of workers efforts
-gives managers and workers the freedom to behave as they see fit as long as they accomplish pre-specified, measurable results
3 things must occur for output control to lead to improved business results
1) must be reliable, fair, and accurate
2) employees and managers must believe that they can produce the desired results– if they don’t then the output controls won’t affect their behavior
3) the rewards or incentives tied to output control measures must truly be dependent on achieving established standards of performance
Normative Control
-the regulation of workers’ behavior and decisions through widely shared organizational values and beliefs
2 ways normative controls are created
1) companies are very careful about who they hire–> screen potential applicants on not only abilities but on their attitudes and beliefs as well
2) managers and employees learn what they should and should not do by observing experienced employees and by listening to the stories they tell about the company
Concertive Control
-the regulation of workers’ behavior and decisions through work group values and beliefs
-arise when companies give work groups complete autonomy and responsibility for task completion
2 phases highly autonomous work groups evolve through as they develop concertive control
1) group members learn to work with each other, supervise each other’s work, and develop the values and beliefs that will guide and control their behavior
2) the emergence and formalization of objective rules to guide and control behavior
Why do autonomous work group members feel strongly about following values and beliefs
because they develop them themselves
why can concertive control lead to even more stress for workers to conform to expectations than bureaucratic control?
-under bureaucratic most workers only have to worry about pleasing the boss–> under concertive their behavior has to satisfy the rest of their team members
-team members must make sure that their team members adhere to team values and rules
Self Control
-a control system in which managers and workers control their own behavior by setting their own goals, monitoring their own progress, rewarding or punishing themselves for achieving or for not achieving their self-set goals, and constructing positive thought patterns that remind them of the importance of their goals and their ability to accomplish them
Characteristics of self-control
-managers and workers control their own behavior
-leaders and managers provide workers with clear boundaries within which they may guide and control their own goals and behaviors
-leaders and managers teach others the skills they need to maximize and monitor their own work effectiveness
Balanced Scorecard
-measurement of organizational performance in four equally important areas: finances (How do we look to shareholders?), customers (how do customers see us?), internal operations (at what must we excel?), and innovation and learning (can we continue to improve and create value?)
advantages of balanced scorecard over traditional control processes that rely solely on financial measures
1) it forces managers at each level of the company to set specific goals and measure performance in each of the four areas
2) it minimizes the chances of suboptimization
Suboptimization
-performance improvement in one part of the organization but only at the expense of decreased performance in other parts
The traditional approach to controlling financial performance
-focuses on accounting tools such as cash flow analysis, balance sheets, income statements, financial ratios, and budgets–>must be used together when assessing a company’s financial performance
Cash flow analysis
a type of analysis that predicts how changes in a business will affect its ability to take in more cash than it pays out
Balance Sheets
accounting statements that provide a snapshot of a company’s financial position at a particular time (but not the future)
Income statements
-also called profit and loss statements
-accounting statements that show what has happened to an organization’s income, expenses, and net profit over a period of time
Financial ratios
calculations typically used to track a business’s liquidity (cash), efficiency, and profitability over time compared to other businesses in its industry
Budgets
-quantitative plans through which managers decide how to allocate available money to best accomplish company goals
-used to project costs and revenues, prioritize and control spending, and ensure that expenses don’t exceed available funds and revenues
Economic Value Added (EVA)
-the amount by which company profits (revenues, minus expenses, minus taxes) exceed the cost of capital in a given year
-not the same thing as profits
-based on the idea that capital is necessary to run a business and that capital comes at a cost
most common costs of capital are?
-the interest paid on long-term bank loans used to buy resources
-the interest paid to bondholders
-and the dividends and growth in stock value that accrue to shareholders
EVA is positive when…
company profits (revenues – expenses – taxes) exceed the cost of capital in a given year
Importance/Characteristics of EVA
1) because it includes the cost of capital, it shows whether a business, division, department, profit center, or product is really paying for itself –> key is to ensure that managers and employees can see how their choices and behaviors affect the company’s EVA
2) becauase EVA can easily be determined for subsets of a company, it makes managers and workers at all levels pay much closer attention to their segment of the business –> motivates managers and workers to think like small-business owners
3) does not specify what should or should not be done to improve performance –> encourages managers and workers to be creative in looking for ways to improve EVA performance
The more that EVA exceeds the total dollar cost of capital…
the better a company has used investors’ money that year
why are customer satisfaction surveys misleadingly positive?
-misleadingly positive b/c most customers are reluctant to talk about their problems because they don’t know who to complain to or think that complaining will not do any good
-sometimes even very satisfied customers will leave to do business with competitors
customer defections
-a performance assessment in which companies identify which customers are leaving and measure the rate at which they are leaving
-closely monitoring customer defections and retention has a great effect on profits
Why study customer defections
-Maintain a new customer cost ten times as much as keeping a current one
-customers who have left are much more likely than current customers to tell you what you are doing wrong
-companies that understand why customers leave cannot only take steps to fix ongoing problems but can also identify which customers are likely to leave and can make changes to prevent them from leaving
The internal perspective
-consists of the processes, decisions, and actions that managers and workers make within the organization
-focuses on the internal processes and systems that add value to the organization
-no matter what area a company chooses, the key is to excel in that area
-usually leads managers to focus on quality
Quality is typically defined and measured in 3 ways
1) excellence
2) value
3) conformance to expectations
excellence
-when the company defines its quality goal as excellence, managers must try to produce a product or service of unsurpassed performance and features
Value
-the customer perception that the product quality is excellent for the price offered
-when a company emphasizes value as its quality goal, managers must simultaneously control excellence, price, durability, and any other features of a product or service that customers strongly associate with value
conformance to specifications
-when a company defines its quality goal as conformance to specifications, employees must base decisions and actions on whether services and products measure up to the standard
-measuring whether products and services are “in spec” is relatively easy
-usually associated with manufacturing but can be used equally well to control quality on non-manufacturing jobs
The Innovation and Learning Perspective
-involves continuous improvement in ongoing products and services, as well as relearning and redesigning the processes by which products and services are created
4 levels of waste minimization
1) waste prevention and reduction
2) recycle and reuse
3) waste treatment
4) waste disposal
what level of waste minimization produces the smallest minimization of waste? Which level produces the largest?
-Smallest: waste disposal
-Largest: waste prevention and reduction
goals of waste prevention and reduction
-prevent waste and pollution before they occur or to reduce them when they do occur
3 stages of waste prevention and reduction
1) good housekeeping: performing regularly scheduled preventive maintenance for offices, plants, and equipment
2) material/product substitution: replacing toxic or hazardous materials with less harmful materials
3) Process modification: changing steps or procedures to eliminate or reduce waste
goals of recycle and reuse
-wastes are reduced by reusing materials as long as possible or by collecting materials for on- or off- site recycling
design for disassembly
-growing trend in recycling where products are designed from the start for easy disassembly, recycling, and reuse once they are no longer usable
waste treatment
-companies use biological, chemical, or other processes to turn potentially harmful waste into harmless compounds or useful by-products
waste disposal
-wastes that cannot be prevented, reduced, recycled, reused, or treated should be safely disposed of in processing plants or in environmentally secure landfills that prevent leakage and contamination of soil and underground water supplies

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