presentation chapter 11.ppt - notes for...

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CHAPTER 11

Organizational Control & Change

LEARNING OBJECTIVES

Define organizationalorganizational controlcontrol, and describe the four steps of thelcontrol process.

Identify the mainmain outputoutput controlscontrols, and discuss their advantages anddisadvantages as means of coordinating and motivatingemployees.

Identify the mainmain behaviorbehavior controlscontrols, and discuss their advantagesand disadvantages as means of coordinating and motivating

MGT-101 Yiannos Rossides2

and disadvantages as means of coordinating and motivatingemployees.

Discuss the relationship between organizational control andchange, and explain why managing change is a vital managementtask.

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1. What is Organizational Control?

• Controlling is the process through which managersmonitor and regulate how efficiently and effectivelyorganizations are performing the necessary activities toachieve organizational goals.

• Managers must monitor and evaluate: Is the firm efficiently converting inputs into outputs?

Are units of inputs and outputs measured accurately?

Is product quality improving?


Is the firm’s quality competitive with other firms?

Are employees responsive to customers? Are customers satisfied with the services offered?

Are our managers innovative in outlook? Does the control system encourage risk-taking?

2. Control Systems

• Control systems are formal, target-setting,monitoring evaluation and feedback systems thatmonitoring, evaluation and feedback systems thatprovide managers with information about how wellthe organization’s strategy and structure areworking.

• A good control system should: be flexible so managers can respond as needed


be flexible so managers can respond as needed.

provide accurate information about the organization.

provide information in a timely manner.

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Fig. 11-1 Three types of Control


2. Control Systems

• Types of Control• Feedforward Controls

Used in the input stage of the process Managers can anticipate problems before they arise. Managers can give rigorous specifications to suppliers to avoid quality

problems with inputs.• Concurrent Controls

Give immediate feedback on how inputs are converted into outputs Allows managers to correct problems as they arise


g p y Managers can see that a machine is becoming out of alignment and fix it.

• Feedback Controls Provide after-the-fact information managers can use in the future

Customers’ reactions to products are used to take corrective action in thefuture.

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Fig. 11-2 Four Steps of the Control Process


3. The Control Process

1. Establish standards, goals, or targets against which performance is tobe evaluated. Managers at each organizational level need to set their own standards. Standards must be consistent with the organization’s strategy (i.e., for a low

cost strategy, standards should be focused closely on reducing costs).2. Measure actual performance

Managers can measure outputs resulting from worker behavior or they canmeasure the behavior themselves. The more non-routine the task, the harder it is to measure

performance or output causing managers to measure an employee’s


performance or output, causing managers to measure an employee sbehavior (e.g., that an employee comes to work on time) rather thanthe employee’s output.

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3. The Control Process

3. Compare actual performance against chosenp p gstandards.Managers must decide if performance actually deviates, often, several

problems combine creating low performance.

4. Evaluate result and take corrective action.Standards have been set too high or too low.


Workers may need additional training or equipment. This step is often hard since the environment is constantly changing.

Fig. 11-3 Three Organizational Control Systems


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4. Output Control

A. Financial Controls Profit Ratios

measure how efficiently managers are using the organization’s resources to generatey g g g gprofits

Return on Investment (ROI) most commonly used financial performance measure organization’s net income before taxes divided by its total assets

Operating margin calculated by dividing a companies operating profit by sales revenue Provides managers with information about how efficiently an organization is utilizing its

resources Liquidity ratios


Measures of how well managers protect resources to meet short term debt—current andquick ratios.

Leverage ratios Measures of how much debt is used to finance operations—debt-to-asset and times-

covered ratios. Activity ratios

Measures of how efficiently managers are creating value from assets—inventoryturnover, days sales outstanding ratios.

4. Output Control

B. Organizational Goalsg Each division within the firm is given specific goals that

must be met in order to attain overall organizationalgoals. Goals should be specific and difficult, but not impossible, to

achieve (stretch goals).


Goal setting and establishing output controls are managementskills that are developed over time.

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Fig. 11-4 Organizationwide Goal Setting


4. Output Control

C. Operating Budgets Bl i t t t h i t d t ll t d Blueprints state how managers intend to allocate and use

the resources they control to attain organizational goalseffectively and efficiently. Each division is evaluated on its own budgets for cost, revenue

or profit.

Managers are evaluated by how well they meet goals for


Managers are evaluated by how well they meet goals forcontrolling costs, generating revenues, or maximizing profitswhile staying within their budgets.

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Effective Output Control1 Objective financial measures

4. Output Control

1. Objective financial measures2. Challenging goals and performance standards3. Appropriate operating budgets Problems with output control• Managers must create output standards that

motivate at all levels


motivate at all levels• Should not cause managers to behave in

inappropriate ways to achieve organizationalgoals

5. Behavior Control

A. Direct Supervision M h di tl t h d l d Managers who directly manage can teach, reward, lead

by example, and take corrective action as needed. Can be very expensive since only a few workers can be

personally managed by one manager and many managers areneeded.

Close supervision demotivates workers who desire lessscrutiny and more autonomy causing them to avoid


scrutiny and more autonomy, causing them to avoidresponsibility.

Direct supervision is difficult to do effectively in complex jobsettings.

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B. Management by Objectives (MBO) A goal setting process in which managers and

5. Behavior Control

A goal-setting process in which managers andsubordinates negotiate specific goals and objectives forthe subordinate to achieve and then periodically evaluatetheir attainment of those goals. Specific goals are set at each level of the firm. Goal setting is participatory with manager and worker


Periodic reviews of subordinates’ progress toward goals are held(pay raises and promotions are tied to goal attainment).

Teams are also measured in this way with goals andperformance measured for the team.

C. Bureaucratic Control

5. Behavior Control

Control through a system of rules and standard operatingprocedures (SOPs) that shapes the behavior of divisions,functions, and individuals. Rules and SOPs tell the worker what to do (standardized

actions) so outcomes are predictable.

There is still a need for output control to correct mistakes


There is still a need for output control to correct mistakes.

Bureaucratic control is best used for routine problems in stableenvironments.

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6. Organizational Change

Movement of an organization away from itst t t d t d d i dpresent state and toward some desired

future state to increase its efficiency andeffectiveness


Organizational Change


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Lewin’s Force-Field Theory of ChangeTh id i t f f i i f th


• There are a wide variety of forces arising from theway an organization operates, from its structure,culture, and control systems that makeorganizations resistant to change

• To get an organization to change, managers mustfind a way to increase the forces for change


find a way to increase the forces for change,reduce resistance to change, or do bothsimultaneously

Lewin’s Force-Field Theory of Change


Figure 11.6

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Evolutionary and Revolutionary Change• Evolutionary change


• Evolutionary change gradual, incremental, and narrowly focused constant attempt to improve, adapt, and adjust strategy and

structure incrementally to accommodate changes in theenvironment

• Revolutionary changeR id d ti d b dl f d


Rapid, dramatic, and broadly focused Involves a bold attempt to quickly find ways to be effective Likely to result in a radical shift in ways of doing things, new goals,

and a new structure for the organization

Steps in the Organizational Change

Process


Figure 11.7

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Implementing the Change


• Top Down ChangeA fast, revolutionary approach to change in which top

managers identify what needs to be changed and thenmove quickly to implement the changes throughout theorganization.

Bottom p change


• Bottom-up changeA gradual or evolutionary approach to change in which

managers at all levels work together to develop a detailedplan for change.

Evaluating the Change• Benchmarking


The process of comparing one company’s performance onspecific dimensions with the performance of other, high-performing organizations.

Review Questions1. Within an organization, the control process normally

progresses through four steps Briefly state and discuss


progresses through four steps. Briefly state and discusseach of these steps and provide an example wherenecessary to support your answer

2. Define and discuss the methods for behavior control usingexamples where appropriate to support your answer.

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