Control, Change, and

Entrepreneurship
Chapter 8

1
Learning Objectives (1 of 2)
•8-1. Define organizational control
•8-2. Describe the four steps in the control process and the way it operates
over time.
•8-3. Identify the main output controls.
•8-4. Identify the main behavior controls.
•8-4. Explain how organizational culture or clan control creates an effective
organizational architecture.
•8-5. Discuss the relationship between organizational control and change.
•8-6. Understand the role of entrepreneurship in the control and change
process.
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What Is Organizational Control?
• Controlling
Process where managers monitor and regulate how efficiently and
effectively an organization and its members are performing the
activities necessary to achieve organizational goals

• Control Systems
Formal, target-setting, monitoring, evaluation and feedback systems
that provide managers with information about how well the
organization’s strategy and structure are working
Topics for Discussion (1 of 5)
• What is the relationship between organizing and controlling?
[LO 8-1]
Control Systems
• A good control system should:

• Be flexible so managers can respond as needed

• Provide accurate information about the organization

• Provide information in a timely manner

 Three Types of Control
• Figure 8.1

• Jump to Appendix 1 long image

description.
Types of Control
• Feedforward Control
Control that allows managers to anticipate problems before they arise
• Concurrent Control
Give managers immediate feedback on how efficiently inputs are being
transformed into outputs so that managers can correct problems as they
arise
• Feedback Control
Control that gives managers information about customers’
reactions to goods and services so that corrective action can be
taken if necessary
Four Steps in Organizational Control
• Figure 8.2

• Jump to Appendix 2 for long image

description.
Topics for Discussion (2 of 5)
• What kind of controls would you expect to find most used in
(a) a hospital, (b) the navy, (c) a city police force? Why? [LO
8-1, 8-2, 8-3]
Three Organizational Control Systems
• Figure 8.3
Type of control Mechanisms of control

Output control Financial measures of performance

Organizational goals
Operating budgets

Behavior control Direct supervision

Management by objectives
Rules and standard operating procedures

Organizational culture/clan Values

control Norms
Socialization
Financial Measures of Performance (1 of 2)
• Profit Ratios
• Measures of how efficiently managers convert resources into profits
• Return on investment (ROI)
• Liquidity Ratios
Measures of how well managers protect resources to meet short term debt—
current and quick ratios

• Jump to Appendix 3 for long image description.

 Financial Measures of Performance (2 of 2)
• Leverage Ratios
Measures of how much debt or equity is used to finance operations—debt-to-
asset and times-covered ratios
• Activity Ratios
Measures of how efficiently managers are creating value from assets—
inventory turnover, days sales outstanding ratios.

• Jump to Appendix 4 long image descriptions.

Organizational Goals
• Goals should be specific and difficult but attainable.
• Stretch Goals
Goals that challenge and stretch managers’ ability but are not out of
reach and do not require an impossibly high expenditure of
managerial time and energy
Organization-Wide Goal Setting
• Figure 8.4

• Jump to Appendix 5 for long image description.

Operating Budgets
• Operating Budget
A blueprint that states how managers
intend to allocate and use the resources they control to attain organizational
goals effectively and efficiently
• Lower-level managers are evaluated for their ability to stay within the budget and
to make the best use of available resources

• Three components are the essence of effective output control.

• Objective financial measures
• Challenging goals and performance standards
• Appropriate operating budgets
Problems with Output Control
• Managers must create output standards that motivate at all levels.
• Standards should not cause managers to behave in inappropriate
ways to achieve organizational goals.
Behavior Control
• Direct Supervision involves managers who:
• Actively monitor and observe the behavior of their subordinates
• Teach subordinates the behaviors that are appropriate and inappropriate
• Intervene to take corrective action as needed

• Bureaucratic Control
Control of behavior by means of a comprehensive system of rules and standard
operating procedures

• Management by Objectives (MBO)

A goal-setting process in which managers and each of his or her subordinates negotiate specific
goals and objectives for the subordinate to achieve and then periodically evaluate the extent to
which the subordinate is achieving those goals
Management by Objectives
1. Specific goals and objectives are established at each level of the
organization.
2. Managers and their subordinates together determine the
subordinates’ goals.
3. Managers and their subordinates periodically review the
subordinates’ progress toward meeting goals.
Topics for Discussion (3 of 5)
• How do output control and behavior control differ? [LO 8-1
8-2, 8-3]
Bureaucratic Control
• Problems with Bureaucratic Control
• Rules easier to make than to discard, leading to bureaucratic “red
tape” and slowing organizational reaction times to problems
• Loss of flexibility, new ideas, and creative problem solving
Organizational Culture and Clan Control (1 of
2)
• Organizational Culture
The shared set of beliefs, expectations, values, norms, and
work routines that influences how members of an
organization relate to one another and work together to
achieve organizational goals

• Clan Control
Control exerted on individuals and groups in an
organization by shared values, norms, standards of
behavior, and expectations
Topics for Discussion (4 of 5)
• What is organizational culture, and how does it affect the
way employees behave? [LO 8-4]
Adaptive vs. Inert Culture
• Adaptive Culture
Culture whose values and norms help an organization to build
momentum and to grow and change as needed to achieve its goals
and be effective
• Inert Culture
• Culture that leads to values and norms that fail to motivate or inspire
employees
• Leads to stagnation and often failure over time
Organizational Control and Change
• Figure 8.5
Organizational Change (1 of 5)
• Organization Change
Movement of an organization away from its present state and
toward some desired future state to increase its efficiency and
effectiveness

• Organizational Learning
• Process through which managers try to increase organizational
members’ abilities to understand and appropriately respond to
changing conditions
• Impetus for change
• Can help members make decisions about changes
Four Steps in the Organizational Change Process

• Figure 8.6

• Jump to Appendix 6 for long image

description.
Organizational Change (3 of 5)
• Top-Down Change
A fast, revolutionary approach to change in which top managers identify what
needs to be changed, decide what to do, and then move quickly to implement
changes throughout the organization

• Bottom-Up Change
A gradual or evolutionary approach to change in which managers at all
levels work together to develop a detailed plan for change

• Benchmarking
Process of comparing one company’s performance on specific
dimensions with the performance of other high performing
organizations

• Copyright Chip Somodevilla/Getty Images

Topics for Discussion (5 of 5)
• Why is it important for managers to involve subordinates in
the control process? [LO 8-3, 8-4]
Entrepreneurship, Control, and Change (1 of
3)
• Entrepreneurs
People who notice opportunities and take responsibility for mobilizing the
resources necessary to produce new and improved goods and services

• Intrapreneurs
Employees of existing organizations who notice opportunities for
product or service improvements and are responsible for managing
the development process

• Entrepreneurship
Mobilization of resources to take advantage of an opportunity to
provide customers with new or improved goods and services

• Copyright David Paul Morris/Bloomberg/Getty Images

BE A MANAGER
• What kind of output controls will best facilitate positive interactions
both within the teams and among the teams?
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