session 10 organization control
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MANAGING ORGANIZATIONS
Session 10: Control Systems in Organizations
PGP 2010-12 Section B
Term 1:June-September 2010
Sourav Mukherji Associate Professor of Organization & Strategy
Indian Institute of Management Bangalore, India
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POST MID TERM REVIEW:
RECAPITULATING WHAT WE SET OUT TO DO2
DEPENDENCY ONENVIRONMENT
STRATEGY
IMPACT OFTECHNOLOGY
STRUCTURE & PROCESSES
1. Centralization
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CULTUREPOWER POLITICS
SIZE ANDGROWTH
.
3. Specialization4. Coordination5. Control systems6. Learning7. Decision Making8. Change management
Remaining sessions will be focusedon some critical organizationalprocesses and their relationshipswith structure
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CONTROLS ARE FUNDAMENTAL TO ORGANIZATION DESIGN3
Organizations are means to achieve “principal’s” (one or a few individuals) goal throughthe efforts of many “agents” . For agents, the organizational objective might be meansto other objectives, not all of which would be aligned to the organizational objective.
PRINCIPAL
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Organizational control systems try to achieve organizational objectives despitepartial convergence between the goals of the principal and the agents
AGENT
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CONTROL SYSTEMS OPERATE AT ALL LEVELS IN THE SOCIETY
What are the control systems deployed within the class at IIM
Bangalore ? What are the control systems deployed at the
hostel? How are they different ? Why ?
What are the control systems that are deployed over faculty
members at IIMB?
What are the control systems a mother would deploy if she
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Will the systems change over a period of time ? Why? What are the control systems that society imposes on
individuals? Why are they necessary?
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THERE ARE TWO WAYS TO DEAL WITH THE P-A PROBLEM5
1. Live with the goal divergence andtry to achieve objectives despitegoal-incongruence
PRINCIPAL
2. Increase goal-congruence
PRINCIPAL
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• Direct supervision• Rules and regulations• Financial incentives and penalties
related to rule adherence orperformance targets
• Recruitment, socialization• Inspiration, motivation• Peer pressure, mentoring
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DEVISING CONTROL SYSTEMS FOR A GROWING ORGANIZATION
VFM pharmaceuticals is an entrepreneurial organization that has
seen high growth in the first two years since inception. It has now
decided to get more process oriented and abandon its earlier
generalist structure. The senior management has divided the
organization into three divisions – sales, product development andsupport services (comprising finance and accounting, human
resource management and administration).
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different divisions?Should these systems be uniform or should they be different?
What are the characteristics on which these would depend?
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HighBehaviour
TASK
PROGRAMMABILITY
• Process• Hierarchy
Behaviour /
Output
Output control is closeto market based control
Needs little or nogoal congruence
Risky for agents under
TASK CHARACTERISTICS DETERMINE
APPROPRIATENESS OF CONTROL SYSTEMS
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Low High
Low
Clan Output
OUTPUT MEASURABILITY
• Recruitment
• Socialization
or absence of information
Clan or cultural control ismost difficult toimplement but can bethe most effective
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ORGANIZATIONS SEEK BALANCE BETWEEN
EMPOWERMENT AND CONTROL8
Organizationalobjective
Risks to beavoided
Core values
BoundarySystems
Belief System
Culture
control
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Criticalperformancevariable
Strategicuncertainties
DiagnosticControlSystems
InteractiveControlSystems
Output & Process control
Direct supervision
Increasing uncertainty
Source: Control in an Age of Empowerment,R Simons, Harvard Business Review, 1995
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No single measure can provide a clear performance target
Financial Perspective • Cash flow
• Sales growth• Market share• ROE / ROCE
Internal Business •
Innovation & Learning •
How do we look to shareholders ?
What must we excel at ?
EVALUATING ORGANIZATIONS: THE BALANCED SCORECARD
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Customer Perspective • Service levels
• Customer satisfaction• Repeat customers• Reference customers
• Target vs. actual• New product launch• Exploiting opportunity
• Improvement onexisting products
• New product sales
How do customers see us ?
Can we continue to
improve & create value?
Source: The Balanced Scorecard: Measures that Drive Performance,R S Kaplan & D P Norton Harvard Business Review, 1992