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Control
Control is essential for the attainment of any management objective
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Control has been called one of the Siamese twins of management. The other twin is planning. Some means of control are necessary because once managers form plans and strategies, they must ensure that the plans are carried out. This means making sure that other people are doing what needs to be done and not doing inappropriate things. If plans are not carried out properly, management must take steps to correct the problem. This is the primary control function of management.
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Managers can apply three broad strategies for achieving organizational control
Bureaucratic control is the use of rules, regulations, and formal authority to guide performance
Market Control involves the use of pricing mechanisms to regulate activities in organizations as though they were economic transactions
Clan control I based on the idea that employees may share the values, expectations, and goals of the organization and act in accordance with them
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A typical bureaucratic control system has four major steps
Setting performance standards
Taking corrective action
There are three approaches to bureaucratic control
Feed forward Control takes place before operations begin and includes policies, procedures, and rules designed to ensure that planned activities are carried out properly
Concurrent control takes place while plans are being carried out and includes directing, monitoring, and fine-tuning activities
Feedback control focuses on the use of information about results to correct deviations from the acceptable standard after they arise
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Management Audits
Management audits are an evaluation of the effectiveness and efficiency of various systems within an organization
Management audits may be
External – this occurs when one organization evaluates another organization
Internal – these are a periodic assessment of a company’s own planning, organizing, leading, and controlling processes
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Budgetary Controls
Budgetary control is the process of finding out what’s being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences
This is one of the most widely recognized and commonly used methods of managerial control
It is commonly called budgeting
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Budgetary Control
Budgetary control begins with an estimate of sales and expected income
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Budgetary control proceeds through several stages. Establishing expectancies starts with the broad plan for the company and the estimate of sales, and it ends with budget approval and publication. The budgetary operations stage, then, deals with finding out what is being accomplished and comparing the results with expectancies. The last stage, as in any control process, involves taking corrective action when necessary. Although practices differ widely, a member of top management often serves as the chief coordinator for formulating and using the budget. Usually the chief financial officer (CFO) has these duties. He or she needs to be less concerned with the details than with resolving conflicting interests, recommending adjustments when needed, and giving official sanction to the budgetary procedures.
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Types of Budgets –spc3m
Sales budget - Usually data for the sales budget are prepared by month, sales area, and product
Production budget - The production budget commonly is expressed in physical units
Cost budget - The cost budget is used for areas of the organization that gain expenses but no revenue, such as human resources and other support departments
Cash budget - The cash budget shows the estimated receipts and expenditures, the amount of working capital available, the extent to which outside financing may be required, and the periods and amounts of cash available
Capital budget - The capital budget is used for the cost of fixed assets like plant and equipment
Master budget - The master budget includes all the major activities of the business
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Two financial statements that help control overall organizational performance are:
Balance sheet shows the financial picture of a company at a given time
Profit and loss statement is an itemized financial statement of the income and expenses of a company’s operations
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Although ratios provide both performance standards and indicators of what has occurred, exclusive reliance on financial ratios can have negative consequences. Because ratios usually are expressed in compressed time horizons (monthly, quarterly, or yearly), they often cause management myopia—managers focus on short-term earnings and profits at the expense of their longer-term strategic obligations. Control systems using long-term (e.g., three- to six-year) performance targets can reduce management myopia and focus attention further into the future.
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The Downside of Bureaucratic Control
A control system cannot be effective without consideration of how people will react to it. Three types of responses
Rigid bureaucratic behavior occurs when control systems prompt employees to stay out of trouble by following the rules rather than doing the right thing
Tactical behavior leads to ineffective behavior because employees try to beat the system
Resistance to control occurs because
Control systems uncover mistakes, threaten job security and status, and decrease autonomy
Control systems can change expertise and power structures
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So far you have learned about control from a mechanical viewpoint. But organizations are not strictly mechanical; they are composed of people. While control systems are used to constrain people’s behavior and make their future behavior predictable, people are not machines that automatically fall into line as the designers of control systems intend. In fact, control systems can lead to dysfunctional behavior.
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Five characteristics of effective control systems
They are based on valid performance standards
They communicate sufficient information to employees
They are acceptable to employees
They use multiple approaches
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Market Control
Market controls involve the use of economic forces and the pricing mechanisms that accompany them to regulate performance
System is based on the principle that as output from an individual, department, or business unit creates value to other people, a price can be negotiated for its exchange
Two effects of this occur
Price becomes an indicator of the value of the product or service
Price competition has the effect of controlling productivity and performance
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Market Controls
At the corporate level market controls are used to regulate independent business units
At the business unit level market controls are used to regulate exchanges among departments and functions
Transfer price is the price charged by one unit for a product or service provided to another unit within the organization
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Market Controls
Market controls are used at the individual level to determine wage levels for the skills that employees possess.
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Clan Control: The Role of Empowerment and Culture
Managers are discovering that control systems based solely on bureaucratic and market mechanisms are insufficient for directing today’s workforce because
Employee’s jobs have changed
The nature of management has changed
The employment relationship has changed
Because of this empowerment has become a necessary aspect of a manager’s repertoire of control
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Clan control involves creating relationships built on mutual respect and encouraging each individual to take responsibility for his or her actions
Employees work within a guiding framework of values, and they are expected to use good judgment
The emphasis in an empowered organization is on satisfying customers, not on pleasing the boss