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Management, 2e by Chuck Williams South-Western/Thompson Learning Copyright © After discussing this section you should be able to: Learning Objectives Basics of Control 1.describe the basic control process 2.be able to answer the question: Is control necessary or possible?
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Chapter 7Chapter 7
Control
2
Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
What Would What Would YouYou Do? Do? Movie theaters have changed greatly in the last
20 years Should Regal build its own megaplexes? What resources would be needed for this
expansion? Would fast expansion threaten their business
model?
3
Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
After discussing this section you should be able to:
Learning ObjectivesLearning ObjectivesBasics of ControlBasics of Control
1. describe the basic control process2. be able to answer the question: Is
control necessary or possible?
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
The Control ProcessThe Control Process
Compare actual to desired performance
Establish clear standards
Take corrective action, if needed
Is a dynamic process
Consists of three basic methods
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Setting StandardsSetting Standards
Determine what should be benchmarkedIdentify companies against which to
benchmark standardsCollect data on other companies’
performance standards
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Cybernetic Control ProcessCybernetic Control Process
ActualPerformance
MeasurePerformance
Comparewith
Standard
IdentifyDeviations
DesiredPerformance
ImplementProgram
forCorrections
DevelopProgram
forCorrections
AnalyzeDeviations
Adapted from Exhibit 7.1
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Basic Control MethodsBasic Control Methods
Feedback controlgather information about performance
deficiencies after they occurConcurrent control
gather information about performance deficiencies as they occur
Feedforward controlgather information about performance
deficiencies before they occur
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Is Control Necessary or Possible?Is Control Necessary or Possible?
What should be doneif more control is
necessary but not possible?
Is more control necessary?
Is more control possible?
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Is More Control Necessary?Is More Control Necessary?
Degree of dependencethe extent to which a company needs a
particular resource to accomplish its goals
Resource flowthe extent to which a company has
easy access to critical resources
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Is More Control Possible?Is More Control Possible?
Cost of controldirect costs of the controlunintended costs
Cybernetic feasibilitythe extent to which it is possible to
implement each step in the control process
if a step cannot be implemented, then control may not be possible
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Quasi-Control: When Control Isn’t Quasi-Control: When Control Isn’t PossiblePossibleReducing dependence
choose to abandon or change goalswhen control over a critical resource is
not possibleRestructure dependence
exchange dependence on one critical resource for dependence on another
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Is Control Necessary or Possible?Is Control Necessary or Possible?
Dependencesufficientlyhigh?
Expectedresourceflowsunacceptable?
Cyberneticsfeasible?
Regulationcostacceptable?
Goodsfixed?
Response:
RegulateDependence
RestructureDependence
ReduceDependence
Do Nothing
yes yes yes yes
yesno
no nono
no
Adapted from Exhibit 7.3
S.G. Green & M.A. Welsh, “Cybernetics and Dependence:Reframing the Control Concept, “ Academy of Management Review, 13 (1988): 287-301
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
After discussing this section you should be able to:
Learning ObjectivesLearning ObjectivesHow and What to ControlHow and What to Control
3. discuss the various methods that managers can use to maintain control
4. describe the behaviors, processes, and outcomes that managers are choosing to control in today’s organizations
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Blast From The PastBlast From The PastFrom 1870 to the Present—Five Eras of From 1870 to the Present—Five Eras of Management ControlManagement Control
Industrial Betterment, 1870-1900Scientific Management, 1900-1922Human Relations, 1925-1955Systems Rationalism, 1955-1980Organizational Culture and Quality, 1980-
Present
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Control MethodsControl MethodsBureaucratic
Objective
Normative
Concertive
Self-Control
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
BureaucraticBureaucratic
Top-down controlUse rewards and punishment to influence
employee behaviorsUse polices and rules to control
employeesOften inefficient and resistant to change
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
ObjectiveObjective
The use of observable measuresBehavioral control
regulate employee behaviors and actionsmanagers monitor and shape employee
behaviorsOutput control
measure employee outputsfocus is on outcomes not behaviors
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Normative ControlNormative Control
Company values and beliefs guide employee behavior and decisions
Cultural norms not rules, guide employees
Created by:careful selection of employeesrole-modeling and retelling of stories
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Concertive ControlsConcertive Controls
Employees are guided by the beliefs of work groups
Autonomous work groupsoperate without managersgroup members control processes,
output, and behaviors
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Self-ControlSelf-Control
Employees control their own behaviorEmployees make decisions within well-
established boundariesManagement and employees set goals
and monitor their own progress
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
What to ControlWhat to Control
Balanced Scorecard
Financial Perspective
Customer Perspective
Internal Business Perspective
Innovation & Learning Perspective
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Example of a Balanced ScorecardExample of a Balanced Scorecard
Financial•EVA•Ratios and Budgets
Innovation/Learning•Waste minimization•Time to market
Customer•Defections•Partnerships
Internal Business•Quality•Productivity
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Balanced ScorecardBalanced Scorecard
Managers look beyond traditional financial measures
Managers set specific goals in each of four areas
Helps minimize the chances of suboptimization
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Controlling Economic Value AddedControlling Economic Value Added(Financial Perspective)(Financial Perspective)
The amount by which profits exceed the cost of capital in a given year
Important because:shows if a profit center is paying for
itselffocuses attention on specific
departmentsencourages creative ways to improve
organizational performance
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Basic Accounting ToolsBasic Accounting Tools Basic Cash Flow
Analysis StepsForecast salesProject changes in
anticipated cash flows
Project anticipated cash outflows
Project net cash flows by combining anticipated cash inflows and outflows
Parts of a Basic Balance SheetAssets
Current assets Fixed assets
Liabilities Current liabilities Long-term liabilities
Owner’s equity Stock Additional paid in
capital Retained earnings
Adapted from Exhibit 7.6
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Basic Accounting Tools Basic Accounting Tools (cont’d)(cont’d) Basic Income Statement
SALES REVENUE- sales returns and allowances+other income=NET REVENUE- cost of goods sold=GROSS PROFIT- total operating expenses=INCOME FROM OPERATIONS- interest expense=PRETAX INCOME- income tax=NET INCOME
Adapted from Exhibit 7.6
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Common Financial RatiosCommon Financial Ratios
Liquidity Ratios•Current Ratio•Quick Ratio
Profitability Ratios•Gross Profit Margin•Return on Equity
Leverage Ratios•Debt to Equity•Debt Coverage
Efficiency Ratios•Inventory Turnover•Average Collections Period
Adapted from Exhibit 7.7
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Common Kinds of BudgetsCommon Kinds of Budgets
Revenue
Expense
Profit
Cash
Capital Expenditure
Variable
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Been There, Done ThatBeen There, Done ThatEVA at Armstrong World IndustriesEVA at Armstrong World Industries
It allows them to more closely align them with shareholders’ interests
Augments traditional measuresReinforced with long-term incentives
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Controlling Customer DefectionsControlling Customer Defections(Customer Perspective)(Customer Perspective)
The rate by which customers are leaving the company
Don’t rely completely on customer satisfaction surveys
Easier to retain a customer, than get new ones
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Controlling QualityControlling Quality(Internal Business Perspective)(Internal Business Perspective)
Internal perspectiveQuality is usually measured three ways:
excellencevalueconformance to expectations
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Controlling Waste and PollutionControlling Waste and Pollution(Innovation & Learning Perspective)(Innovation & Learning Perspective)
Often an over-looked areaThree strategies for waste prevention and
reductiongood housekeepingmaterial/product substitutionprocess modification
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
Four Levels of Waste MinimizationFour Levels of Waste Minimization
Waste Disposal
Waste Treatment
Recycle & Reuse
WastePrevention
& Reduction
Adapted from Exhibit 7.14
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Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003
What What ReallyReally Happened? Happened?Regal built 111 new theatersLate to the megaplex market, competitors
already had the best locationsRegal uses its information system to
control costs, but that may not be enoughLosses and debt are mounting