Chapter 6

What is the Control Function of Management?

The controlling function of management generally means organizational control. That is, its a
process by which an organization (through its managers) influences its sub-units and members in
the process of attaining organizational goals and objectives. 

Because organizations develop standards and goals, controlling necessarily ensures that individual,
group, and organizational performance does not deviate from standards. 

Controlling should not be viewed as negative - such as manipulative of an individuals personality,

values, attitudes, or emotions. Rather, managers simply make certain employee activities are
consistent with achieving organizational goals and objectives. 

Monitoring and Controlling Performance

Controlling concerns monitoring and influencing several types of performance:

 Individual - Performance of individual duties - measured by efficiency and

effectiveness.
 Group - Performance of group activities - measured by efficiency and effectiveness -
but also to determine whether interactivity reaches the level of team function.
 Organizational - This concerns economic (financial, operational), social, and
environmental (non-financial) goals and objectives.

As such, managers at all levels of the organization are involved in the controlling process. 

Controls are generally considered to be part of a system or process to make certain processes and
rules are followed and results are being obtained. 

The effect of controls, when properly designed, is to improve company performance. 

What is the Process for Management Control?

Controlling consists of the following steps:

Performance Standards
The first step is to establish performance standards. These standards should be in the form of goals
and objectives. These should flow from the organizations mission and vision. The standards should
be capable of assessment - specific and measurable.

Measure Performance

The next step is to measure performance. The method for measuring performance will vary based
on what type of performance is being measured. When measuring performance based upon types of
metrics:

 Leading Indicator - This type of metric serves to predict the direction of the
company in terms of performance.
 Pacing Indicator - This type of metric shows with the company is on track to meet
its identified standards.
 Lagging Indicator - This type of metric demonstrates where performance has failed
to meet expectations.

Compare Actual Performance Against Standards

The next step is comparing the levels of performance against expectations. A common form of
comparison is an audit - the examination and verification of records and supporting documents.
Two common forms of audit include:

 Budget Audit - A budget audit provides information about where the organization is
with respect to what was planned or budgeted for.
 Performance Audits - A performance audit might try to determine whether the
figures reported are a reflection of actual performance.

To the extent that they serve as leading, lagging, and pacing performance metrics, they enable
managers to take corrective action on any deviations from goals before too much damage has been
done.

Corrective Action

The next step is to take necessary corrective action when performance deviates negatively from
performance objectives. Corrective action can involve motivating performance or adjusting
standards. This necessarily requires a clear understanding of what gave rise to the deviations from
standards

Controlling across various organizational units or functions can become extremely complex. 

What is a Management Performance System?

Organizations increasingly employ performance management systems to implement the

Management Control Process. 

Some of the most commonly known Management Performance Systems include: 

 Management by Objectives, and 

 The Balanced Scorecard. 

Some other common approaches include: 

 Performance Prism, 
 Activity-Based Management, 
 Strategic Cost Management, 
 Quality Assurance, and 
 Lean Control. 

Advantages and Disadvantages of Organizational Controls 

Organizational controls provide numerous advantages:

 Tracking - Firms can track whether they are meeting goals and objectives in
accordance with the organizations strategy.
 External Stakeholders - It provides assurance to third-party stakeholders that control
systems are in place.

The primary disadvantages include:

 Costs - Theists of these types of control are the accounting and operational costs of
implementation.
  Cultural Costs - Often, control systems can create stress, animosity, competition, and
confrontation within the organization.
 Chapter 8: Systems Concepts in management

The term system is derived from the Greek word systema, which means an organized
relationship among functioning units or components. A system exists because it is
designed to achieve one or more objectives. We come into daily contact with the
transportation system, the telephone system etc. Similarly we talk of the business
system and of the organization as a system consisting of interrelated departments such
as production, sales, personnel.

There are more than a hundred definitions of the word system but most seem to have a
common thread that suggests that a system is an orderly grouping of interdependent
components linked together according to a plan to achieve a specific objective. The
word component may refer to physical parts or a subsystem in a multilevel structure.
The components may be simple or complex, basic or advanced. They may be a single
computer with a keyboard, memory and printer or a series of intelligent terminals
linked to a mainframe. In either case each component is part of the total system and
has to do its share to work for the system to achieve the intended goal. This
orientation requires an orderly grouping of the components for design for a successful
system.

The study of systems concept, has three basic implications:

1. A system must be designed to achieve a predetermined objective.

2. Interrelationship and interdependence must exist among the components.
3. The objectives of the organization as a whole have higher priority that the
objectives of its subsystems.

Characteristics of a System

Here are some important characteristics that are present in all systems: organization,
interaction, inter dependences, interaction and central objective.

 Organization: Organization implies structure and order. It is the arrangement of

components that helps to achieve objectives. In the design of a business system, for
example, the hierarchical relationship starting with president on top and leading downward
to the blue-collar workers represents the organization structure. Such an arrangement
portrays a system subsystem relationship, defines the authority structure, specifies the
formal flow of communication and formalizes the chain of command. Likewise a computer
system is designed around an input device, a central processing unit, and output device and
one or more storage units.
 Interaction: Interaction refers to the manner in which each component functions with
other components of the system. In an organization, for example, purchasing must interact
with production, advertising with sales, and payroll with personnel. In a computer system
the central processing unit must intract with input device to solve a problem. In turn, the
main memory holds programs and data that the arithmetic unit uses for computation. The
interrelationship between these components enables the computer to perform.
 Interdependence: Interdependence means that parts of the organization or computer
system depend on one another. They are coordinated and linked together according to a
plan. Our subsystem depends on the input of another subsystem for proper functioning i.e.
the output of one subsystem is the required input for another subsystem. This
interdependence is crucial in systems work.
 Integration: Integration refers to the holism of systems. Synthesis follows
analysis to achieve the central objective of the organization. Integration is concerned with
how a system is tied together. It is more than sharing a physical part or location. It means
that parts of the system work together within the system even though each part performs a
unique function.
 Central Objective: The last characteristics of a system is its central objective.
Objective may be real or stated. Although a stated objective may be the real objective, it is
not uncommon for an organization to state one objective and operate to achieve another.
The important point is that users must known the central objective of a computer
application early in the analysis for a successful design and conversion.

8.1 : Elements of Systems ; Here comment briefly on the mission , vision

and objectives of the organization

Elements of a System
Elements of a System

The important elements of a system are;

 Output and Inputs

 Processor(s)
 Control
 Feedback
 Environment
 Boundaries and Interface

Outputs and Inputs

A major objective of a system is to produce an output that has value to its user.
Whatever the nature of the output, it must be within the line with the explanations of
the intended user. Inputs are the elements that enter the system for processing. Output
is the outcome of processing. A system feeds on input to produce output in much the
same way that a business brings in human financial, and material resources to produce
goods and services. It is important to point out here that determining the output is a
first step in specifying the nature, amount and regularity of the input needed to
operate a system. For example in systems analysis, the first concern is to determine
the user’s requirements of a proposed commuter system — that is specification of the
output that the computer is expected to provide for meeting user requirements. Input
and processing design follow:
Processor(s)

The processor is the element of a system that involves the actual transformation of
input into output. It is the operational component of the system. Processor may
modify the input totally or personally, depending on the specifications of the output.
This means that as the output specifications change so does the processing. In some
cases, input is also modified to enable the processor to handle the transformation.

Control

The control element guides the system. It is the decision — making sub-system that
controls the pattern of activities governing input, processing and output. In an
organizational context, management as a decision making body controls the inflow
handling and outflow of activities that affects the welfare of the business. Output
specification determine, what and how much input is needed to keep the system in
balance.

In system analysis, knowing the attitudes of the individuals who control the area for
which a computer is being considered can make a difference between the success and
the failure of the installation. Management support is required for securing control
and supporting the objective of the proposed change.

Feedback

Control in a dynamic system is achieved by feedback. Feedback measures output

against standard in some form. After the output is compared against performance
standards, changes can result in the input or processing and consequently, the output.

Feedback may be positive or negative, routine or informational. Positive feedback

reinforces the performance provides the controller with information for action. In
system analysis, feedback is important in different ways. During analysis, the user
may specify that the problems in a given application, and justify the need for change.
Another form of feedback comes after the system is implemented. The user informs
the analyst about the performance of the new installation. This feedback often results
in enhancements to meet the user’s requirements.

Environment

The environment is the “super system” within which an organization operates. It is the
source of external elements that unhinge on the system. In fact, it often determines
how a system must function. The organization’s environment, consisting of vendors,
competitions and others, may provide constraints and consequently influence the
actual performance of the business.

Boundaries and Interface

A system should be defined by its boundaries — the limits that identify its
components, processes and interrelationships and interfaces with another system. For
example, a teller system in a commercial bank is restricted to the deposits,
withdrawals and related activities of customers checking and savings accounts. It may
exclude mortgage foreclosures, trust activities and the like.

Each system has boundaries that determine its sphere of influence and control.
Although in an integrated banking computer system design, a customer who has a
mortgage and a checking account with the same bank may write a check through the
“teller system” to pay the premium that is latter processed by the “mortgage loan
system”. Recently system design has been successful in allowing the automatic
transfer of funds from the bank account to pay bills and other obligations to creditors,
regardless of distance or location. This means that in systems analysis, knowledge of
the boundaries of given system is crucial in determining the nature of its interface
with other system for successful design.

8.2 :Types of Systems: Here describe stakeholders having relationships with the
organization

Types of Systems
Systems have been classified in different ways. Common classifications are:

1. Physical or abstract systems

2. Open or closed systems
3. Deterministic or probabilistic systems
4. Man-made information systems

Physical or Abstract Systems: Physical systems are tangible entities that may be
static or dynamic in operation. Abstract systems are conceptual or non-physical
entities which may be as straightforward as formulas of relationships among sets of
variables or models – the abstract conceptualization of physical situations.

Open or Closed Systems: An open system continually interacts with its

environments. It receives inputs from and delivers output to the outside. An
information system belongs to this category, since it must adapt to the changing
demands of the user. In contrast, a closed system is isolated from environmental
influences. In reality completely closed systems are rare.

Deterministic or Probabilistic Systems: A deterministic system is one in which the

occurrence of all events is perfectly predictable. If we get the description of the
system state at a particular time, the next state can be easily predicted. An example of
such a system is a numerically controlled machine tool. Probabilistic system is one in
which the occurrence of events cannot be perfectly predicted. An example of such a
system is a warehouse and its contents.

Man-made Information Systems: It is generally believed that information reduces

uncertainty about a state or event. For example, information that the wind is calm
reduces the uncertainty that a trip by boat will be enjoyable. An information system is
the basis for interaction between the user and the analyst. It determines the nature of
relationship among decision makers. In fact, it may be viewed as a decision centre for
personnel at all levels. From this basis, an information system may be defined as a set
of devices, procedures and operating systems designed around user-based criteria to
produce information and communicate it to the user for planning, control and
performance. Many practitioners fail to recognise that a business has several
information systems; each is designed for a specific purpose.

The major information systems are:

 formal information systems

 informal information systems
 computer based information systems

A Formal information system is based on the organisation represented by the

organization chart. The chart is a map of positions and their authority relationships,
indicated by boxes and connected by straight lines. It is concerned with the pattern of
authority, communication and work flow.

An Informal information system is an employee-based system designed to meet

personnel and vocational needs and to help in the solution of work-related problems.
It also funnels information upward through indirect channels. In this way, it is
considered to be a useful system because it works within the framework of the
business and its stated policies.

Third category of information system depends mainly on the computer for handling
business applications. Systems analysts develop several different types of information
systems to meet a variety of business needs.   There is a class of systems known
collectively as Computer Based Information Systems.   As we have different types of
transportation systems such as highway systems, railway systems and airline systems,
computer based information systems are of too many types. They are classified as:

 Transaction Processing Systems (TPS)

 Management Information Systems (MIS)
 Decision Support Systems (DSS)
 Office Automation Systems (OAS)

8.3 : Systems Thinking: Here mention efforts made by the organization to create
relationships with stakeholders existing outside the organization

Systems Thinking in Management:

Definition, Theory & Model
Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

System thinking is an essential component of the decision-making process within an

organization's management team. Explore the definition of systems thinking in
management, learn about its underlying theory and model, and find out what the
benefits of systems thinking are for a learning organization. Updated: 09/07/2021

Why Is System Thinking Important?

The world of business today is complex and growing more complex every day.
Managers must contend with technological innovation along with an ever-growing
global economy in which events on one end of the globe will affect your company.
Making effective decisions is much more difficult in this brave new world, and
systems thinking provides a model of decision-making that helps organizations
effectively deal with change and adapt. It is a component of a learning organization,
which is an organization that facilitates learning throughout the organization to
transform itself and adapt.

Systems Thinking Defined

System thinking is a method of critical thinking by which you analyze the

relationships between the system's parts in order to understand a situation for better
decision-making. In simpler terms, you look at a lot of the trees, other plants and
critters living around the trees, the weather, and how all these parts fit together in
order to figure out the forest.

What Is a System?

First, we should begin by defining a system. A system is a set of parts that interact
and affect each other, thereby creating a larger whole of a complex thing.

Let's start with a simple example from nature: the Earth. Our planet is a very complex
system consisting of atmosphere, water, mountains, plains, jungles, plants, insects,
animals, humans, and our technological wonders, just to name a few. A scientist may
look at many interactions of these parts in researching climate change. General
patterns may be found in these interactions that may help explain the system and find
solutions to the problems by changing the patterns of interaction between the parts.

Now, let's apply the idea of a system to business. We'll start small and work our way
up. A business is a system consisting of many parts: employees, management, capital,
equipment, and products, among others. Your business and your competitors
comprise a system, which we may call an industry. Different industries - along with
consumers, governments, and non-governmental organizations - make up our
economic system. It can get even more complex, but we'll stop here.

8.3.1.: The building blocks of systems thinking: Here mention the various offices that
make up internal environment of the organization
Four building blocks of systems
thinking
April 12, 2022

By Derek Cabrera and Laura Cabrera

1. Derek Cabrera (biography)

2. Laura Cabrera (biography)

Systems thinking itself is a complex adaptive system. Supported by empirical

evidence, DSRP theory describes 4 simple rules that dynamically combine to explain
the complexity of physical, natural, and social systems. Awareness of these patterns
can help us to solve many societal and environmental problems.

We briefly present DSRP theory which describes four universal patterns and their
underlying elements—identity (i) and other (o) for Distinctions (D), part (p) and
whole (w) for Systems (S), action (a) and reaction (r) for Relationships (R), and point
(ρ) and view (v) for Perspectives (P).

We describe these four building blocks and show how they can be mixed and
matched. We conclude with some additional key aspects of the theory.

The Building Blocks

Distinctions (Identity-Other)
An essential element of systems thinking is making distinctions (identity-other)
between and among things and ideas. How we draw or define the boundaries of an
idea or a system of ideas is an essential aspect of understanding. Whenever we draw a
boundary to define a thing, that same boundary defines what is not the thing (the
“other”). Systems thinkers consciously use distinctions to challenge existing norms,
labels, and definitions, and to identify biases in the way information is structured.

Systems (Part-Whole)
Systems thinkers organize things and ideas into part-whole systems to make meaning.
They know that changing the way ideas are organized changes meaning itself. The act
of thinking is defined by splitting things up or lumping them together. Systems
thinkers constantly consider context by asking “What is this a part of?” in order to see
how things fit into larger wholes than is the norm.

Relationships (Action-Reaction)
Systems thinkers identify relationships (action-reaction) between and among things
and ideas. We cannot understand much about anything, including a system, without
understanding how parts and wholes are related. Relationships come in all types:
causal, correlation, direct/indirect, etc., Systems thinkers use relationships to show
dynamical interactions between things and ideas, including feedback loops to show
reciprocal relations.
Perspectives (Point-View)
Systems thinkers look at ideas from different perspectives (point-view) and
understand that every time we make a distinction (including identifying relationships
and systems), we are always doing so from a particular perspective. Systems thinkers
use perspectives to rethink distinctions, relationships, and/or systems. They move
beyond human or animal perspectives (i.e., “perspectives with eyes”) by taking
conceptual perspectives (i.e., seeing a phenomenon from the perspective of an idea or
thing).

8.3.2: System dynamics: Here express how the organization adapts to changes made in the
changing environment

System Dynamics complements systems thinking by quantifying interactions and develops a

time-dependent view of how the system behaves. The approach focuses on building
computer models that represent and simulate complex problems in which behavior changes.
These models bring to light less visible relationships, dynamic complexity, delays, and
unintended consequences of interactions.

The System Dynamics Approach

System Dynamics is a computer-aided approach for strategy and policy design.

The main goal is to help people make better decisions when confronted with
complex, dynamic systems. The approach provides methods and tools to model and
analyzes dynamic systems. Model results can be used to communicate essential
findings to help everyone understand the system’s behavior. 

It uses simulation modeling based on feedback systems theory that complements

systems thinking approaches. It applies to dynamic problems arising in complex
social, managerial, economic, or ecological systems. It can be applied to social,
managerial, economic, ecological, and physiological systems.

8.3.: Deepening systemic Appreciation: Here mention the strong and weak sides of
management of the organization, and explain also external factors that provide
opportunities or seriously threaten managerial activities of the organization

Discuss

The systems concept of management.

Discuss the systems concept of management. Visualize your organization as a system and
list the critical sub-systems within it. Explain the interrelationship between these sub-
systems, which interlink them.

Answer. Organizations have major subsystems, such as departments, programs, divisions,

teams, etc. Each of these subsystems has a way of doing things to, along with other
subsystems, achieve the overall goals of the organization. Often, these systems and
processes are define by plans, policies and procedures.
The systems approach to management is based on general system theory – the theory that
says that to understand fully the operation of an entity, the entity must be viewed as a
system. The systems approach to management attempts to view the organization as a
unified, purposeful system composed of interrelated parts. Rather than dealing separately
with the various parts of an organization, the systems approach gives managers a way of
looking at an organization as a whole and as a part of larger, external environment.

From the systems perspective, management should focus on efficiency and effectiveness in
each part of the organization, with the understanding that actions taken in one part of the
organization affect other parts of the organization. For example, implementing a strategy in
the production department of a company will likely affect other aspects of the company
such as marketing, finance, and personnel. Each part is tightly linked to other
organizational parts; no single part of an organization exists and operates in isolation from
the others. Thus, in their day-to-day activities, managers must view the organization as a
dynamic whole and try to anticipate the unintended as well as the intended impacts of their
decisions.

The approach also views the organization as linked to the external environment.
Organizational effectiveness, even survival, depends on the organization interactions with
its environment. The enterprise receives inputs, transforms them, and exports the output to
the external environment. The very basic model is shown below:

Any business or other organization must be described by an open-system model that

includes interactions between the enterprise and its external environment.

Input and Claimants

The inputs from the external environment may include people, capital, and managerial
skills, as well as technical knowledge and skills. In addition, various groups of people will
make demands on the enterprise. For example, employees want higher pay, more benefits,
and job security. On the other hand, consumers demand safe and reliable products at
reasonable prices. Suppliers want assurance that their products will be bought.
Stockholders want not only a high return on their investment but also security for their
enterprise. Federal, state, and local government depend on taxes paid by the enterprise, but
also expect the enterprise to comply with their laws. Similarly, the community demands
that enterprise be “good citizens”, providing the maximum number of jobs with a minimum
of pollution. Other claimants to the enterprise may include financial institutions and labor
unions; even competitors have a legitimate claim for fair play. It is clear that many of these
claims are incongruent, and it’s the manager’s job to integrate the legitimate objectives of
the claimants.

The Managerial Transformation Process

It is the task of managers to transform the inputs, in an effective and efficient manner, into
outputs. Of course, the transformation process can be viewed from different perspectives.
Thus, one can focus on such diverse enterprise functions as finance, production, personnel,
and marketing. The most comprehensive and useful approach for discussing the job of
managers is to use the managerial functions of planning, organizing, staffing, leading, and
controlling as a framework for organizing managerial knowledge.

The Communication System

Communication is essential to all phases of the managerial process for two reasons. First, it
integrates the managerial functions. For example, the objectives set in planning are
communicated so that the appropriate organization structure can be devised.
Communication is essential in the selection, appraisal, and training of managers to fill the
roles in this structure. Similarly, effective leadership and the creation of an environment
conducive to motivation depend on communication. Moreover, it is through
communication that one determines whether events and performance conform to plans.
Thus, it is communications that makes managing possible.

The second purpose of the communication system is to link the enterprise with its external
environment, where many of the claimants are. For example, one should never forget that
the customer, who is the reason for the existence of virtually all businesses, it is outside a
company. It is through the communication system that the needs of customers are
identified; this knowledge enables the firm to provide products and services at a profit.
Similarly, it is through an effective communication system that the organization becomes
aware of competition and other potential threats and constraining factors.

External Variables
Effective managers will regularly scan the external environment. While it is true that
managers may have little or no power to change the external environment, they have no
alternative but to respond to it.

Outputs
It is the task of managers to secure and utilize inputs to the enterprise, to transform them
through the managerial functions- with due consideration for external variables- to outputs.

Although the kinds of outputs will vary with the enterprise, they usually include many of
the following: products, services, profits, satisfaction, and integration of the goals of
various claimants to the enterprise.

The organization must indeed provide many “satisfactions” if it hopes to retain and elicit
contributions from its members. Contributions from its members. It must contribute to the
satisfaction not only basic material needs (for example, employees’ needs to earn money
for food and shelter or to have job security)but also of needs for affiliation, acceptance,
esteem, and perhaps even self-actualization so that one can use his or her potential at the
workplace.

Another output is goal integration. The different claimants to the enterprise have very
divergent- and often directly opposing objectives. It is the task of managers to resolve
conflicts and integrate these aims.

Reenergizing the system

Finally, it is important to notice that in the systems model of operational management some
of the outputs become inputs again. Thus, the satisfaction of employees becomes an
important human input. Similarly, profits the surplus of income over costs, are reinvested
in cash and capital goods, such as machinery, equipment, buildings, and inventory.

Each organization has numerous subsystems, as well. Each subsystem has its own
boundaries of sorts, and includes various inputs, processes, outputs and outcomes geared to
accomplish an overall goal for the subsystem. Common examples of subsystems are
departments, programs, projects, teams, processes to produce products or services, etc.
Organizations are made up of people -- who are also systems of systems of systems -- and
on it goes. Subsystems are organized in an hierarchy needed to accomplish the overall goal
of the overall system.

The organizational system is defined by, e.g., its legal documents (articles of incorporation,
by laws, roles of officers, etc.), mission, goals and strategies, policies and procedures,
operating manuals, etc. The organization is depicted by its organizational charts, job
descriptions, marketing materials, etc. The organizational system is also maintained or
controlled by policies and procedures, budgets, information management systems, quality
management systems, performance review systems, etc.

EXAMPLE: ZENITH COMPUTERS

As a computer manufacturer, Zenith computers is an open system that actively interacts
with its environment. Active interaction means that Zenith both obtains resources from and
provides resources to its environment. For example, in order to function, Zenith must
obtain inputs from the environment. The company needs motivated and skilled employees
with the ability to design and manufacture innovative, high-quality personal and business
computers. Zenith obtains this resource from the environment- specifically from the
graduating classes of universities nationwide, from competitors, and from other
organizations.

Financial resources (money) are inputs needed to build manufacturing facilities, to fund
Zenith R & D efforts, and to meet any number of other expenses. Zenith obtains funds
from the environment – from banks, other lending institutions and from people who buy
shares of Zenith’s stock. Raw material (e.g., computer parts) is obtained from outside
suppliers in the environment. Information about the latest computer product technology
and about the latest products developed by Zenith’s competitors is also needed.
Information is obtained from the environment; that is, from research journals, computer
conferences, and other external contacts.

These inputs are employed, used, coordinated, and managed in a transformation process
that produces output- in this case, personal and business computers. However, the
company’s task is not complete. Zenith provides this resource (output) to the environment
by delivering its computers to retail outlets for sale to customers. Does the company
survive? Only of the customer reacts to Zenith’s computers and decides to purchase the
product. The customer’s decision to buy or look for alternatives (for an IBM, HP, or HCL)
provides Zenith with the feedback.

If the feedback is positive (customer buy Zenith computers), the environment provides a
critical input to Zenith - cash that the company used to obtain inputs from the environment,
such as quality employees, materials, and knowledge. Negative feedback provides Zenith
with a second problem. Regardless, Zenith must closely monitor feedback and act upon it
(e.g., changing a failing product’s design or features based on customer response). As an
open system in a dynamic environment, Zenith cannot afford to ignore the environment.
Neglecting developments in the environment (e.g., technological innovations, competitors’
moves) will, over time, doom the company.