Essentials of

Contemporary
Management

Chapter
8 Organizing: Control and Culture

PowerPoint Presentation by Charlie Cook

Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.
 Learning Objectives
After studying the chapter, you should be able to:
Define organizational control, and describe the four
steps of the control process.
Identify the main output controls, and discuss their
advantages and disadvantages as means of
coordinating and motivating employees.
Identify the main behavior controls, and discuss
their advantages and disadvantages as means of
coordinating and motivating employees.
Explain the role of organizational culture in
creating an effective organizational architecture.
Copyright 2004 McGraw-Hill. All rights reserved. 82
 What Is Control?
Controlling
The process whereby managers monitor and
regulate how efficiently and effectively an
organization and its members are performing the
activities necessary to achieve organizational goals.
Involves monitoring and evaluating organizational
strategy and structure to assess whether there is a
need for change to improve the firms competitive
performance.

Copyright 2004 McGraw-Hill. All rights reserved. 83

 Organizational Control
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 firms 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?

Copyright 2004 McGraw-Hill. All rights reserved. 84

 Control Systems and IT
Control Systems
Formal, target-setting, monitoring, evaluation and
feedback systems that provide managers with
information about how well the organizations
strategy and structure are working.
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.

Copyright 2004 McGraw-Hill. All rights reserved. 85

 Three Types of Control

Figure 10.1
Copyright 2004 McGraw-Hill. All rights reserved. 86
 Types of Control
Feedforward Controls
Used in the input stage of the process.
Anticipates problems before they arise.
Example: Giving rigorous specifications to
suppliers to avoid quality problems with inputs.
Concurrent Controls
Give immediate feedback on how inputs are
converted into outputs.
Allows correction of problems as they arise
Managers can see that a machine is becoming
out of alignment and adjust/fix it.
Copyright 2004 McGraw-Hill. All rights reserved. 87
 Types of Control (contd)
Feedback Controls
Provide after-the-fact information managers can
use in the future.
Customers reactions to products are used to
take corrective action in the future.

Copyright 2004 McGraw-Hill. All rights reserved. 88

 Control Process Steps

Figure 8.2
Copyright 2004 McGraw-Hill. All rights reserved. 89
 The Control Process
1. Establish standards, goals, or targets
against which performance is to be evaluated.
Managers at each organizational level need to set
their own standards.
Standards must be consistent with the
organizations strategy (i.e., for a low cost
strategy, standards should be focused closely on
reducing costs).

Copyright 2004 McGraw-Hill. All rights reserved. 810

 The Control Process
2. Measure actual performance
Managers can measure outputs resulting from
worker behavior or they can measure the
behavior themselves.
The more non-routine the task, the harder it is
to measure performance or output, causing
managers to measure an employees behavior
(e.g., that an employee comes to work on time)
rather than the employees output.

Concentration vs. Luck

Enthusiastic vs. unexpected

Copyright 2004 McGraw-Hill. All rights reserved. 811

 The Control Process
3. Compare actual performance against chosen
standards.
Managers must decide if performance actually
deviates, often, several problems combine
creating low performance. Reward or punishment
4. Evaluate result and take corrective action.
Standards have been set too high or too low.
Workers may need additional training or
equipment. Compensation!
This step is often hard since the environment is
constantly changing.

Copyright 2004 McGraw-Hill. All rights reserved. 812

 Three Organizational Control Systems

Feedback
control

Feedforward
& concurrent
control
Social
control

Figure 8.3
Copyright 2004 McGraw-Hill. All rights reserved. 813
 Financial Measures of Performance
Financial Controls
Profit ratios
How efficiently managers convert resources into
profitsreturn on investment (ROI).
Liquidity ratios
How well managers protect resources to meet
short term debtcurrent and quick ratios.

Copyright 2004 McGraw-Hill. All rights reserved. 814

 Financial Performance Measures

Profit Ratios
Net profit before taxes
Return on investment
Total assets
Sales revenues - cost of goods sold
Gross profit margin
Sales revenues

Liquidity Ratios
Current assets
Current ratio
Current liabilitie s
Current assets - inventory
Quick ratio
Current liabilities
Copyright 2004 McGraw-Hill. All rights reserved. 815
 Financial Measures (contd)
Financial Controls (contd)
Leverage ratios
How much debt is used to finance operations
debt-to-asset and times-covered ratios.
Activity ratios
How efficiently managers are creating value from
assetsinventory turnover, days sales
outstanding ratios.

Copyright 2004 McGraw-Hill. All rights reserved. 816

 Financial Performance Measures (contd)
Leverage Ratios
Total debts
Debts - to - assets ratio
Total assets
Profit before interest and taxes
Times - covered ratio
Total interest charges

Activity Ratios
Cost of goods sold
Inventory turnover
Inventory
Accounts receivable
Days sales outstanding
Total Sales
300
Copyright 2004 McGraw-Hill. All rights reserved. 817
 Output Control
Organizational Goals
Each division within the firm is given specific goals
that must be met in order to attain overall
organizational goals.
Goals should be specific and difficult, but not
impossible, to achieve (stretch goals).
Goal setting and establishing output controls are
management skills that are developed over time.

Copyright 2004 McGraw-Hill. All rights reserved. 818

 Organization-Wide Goal Setting

Figure 10.4
Copyright 2004 McGraw-Hill. All rights reserved. 819
 Output Control (contd)
Operating Budgets
Blueprints that state how managers intend to
allocate and use the resources they control to attain
organizational goals effectively 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 controlling costs, generating revenues,
or maximizing profits while staying within their
budgets.

Copyright 2004 McGraw-Hill. All rights reserved. 820

 Problems with Output Control
Managers must create output standards that
motivate at all levels.
They must be careful not to create short-term goals
that motivate managers to ignore the future.
Example: Cutting costs by curtailing research and
development (R&D) now may lead to a loss of
competitiveness in the future.
If standards are set too high, workers may engage
unethical behaviors to attain them.
Example: Attempting to increase output regardless of
product quality issues caused by omitting steps in
the production process.
Copyright 2004 McGraw-Hill. All rights reserved. 821
 Behavior Control
Direct Supervision
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 are needed.
Close supervision demotivates workers who
desire less scrutiny and more autonomy, causing
them to avoid responsibility.
Direct supervision is difficult to do effectively in
complex job settings.
Copyright 2004 McGraw-Hill. All rights reserved. 822
 Management by Objectives
Management by Objectives (MBO)
A goal-setting process in which managers and
subordinates negotiate specific goals and objectives
for the subordinate to achieve and then periodically
evaluate their attainment of those goals.
Specific goals are set at each level of the firm.
Pay raises and promotions are tied to goal
attainment.
Teams are also measured with goals and
performance measured for the team.

Copyright 2004 McGraw-Hill. All rights reserved. 823

 Rules and Standard Operating Procedures
Bureaucratic Control
Control through a system of rules and standard
operating procedures (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.
Bureaucratic control is best used for routine
problems in stable environments.

Copyright 2004 McGraw-Hill. All rights reserved. 824

Rules and Standard Operating Procedures
(contd)
Bureaucratic Control
Problems with Bureaucratic Control
Rules easier to make than than discarding them,
leading to bureaucratic red tape and slowing
organizational reaction times to problems.
Firms become too standardized and lose
flexibility to learn, to create new ideas, and solve
to new problems.

Copyright 2004 McGraw-Hill. All rights reserved. 825

 Organizational Culture
Organizational Culture
The set of internalized values, norms, standards of
behavior, and common expectations that control
the ways in which individuals and groups in an
organization interact with each other and work to
achieve organizational goals.

Copyright 2004 McGraw-Hill. All rights reserved. 826

 Clan Control
Clan Control
The control through the development of an internal
system of values and norms.
Both culture and clan control accept the norms and
values as their own and then work within them.
Examples: Work dress styles, normal working hours,
pride taken in work.
These methods provide control where output and
behavioral control does not work.
Strong culture and clan control help worker to focus on
the organization and enhance its performance.

Copyright 2004 McGraw-Hill. All rights reserved. 827

Factors Creating A Strong Organizational Culture

Figure 8.5
Copyright 2004 McGraw-Hill. All rights reserved. 828
 Values and Norms
Values
Beliefs and ideas about the kinds of goals members
of a society should pursue and about the kinds and
modes of behavior people should use to achieve
those goals.
Norms
Unwritten, informal rules or guidelines that
prescribe appropriate behavior in particular
situations.
Having norms and values that are suited to the
organizations environment is important.
Copyright 2004 McGraw-Hill. All rights reserved. 829
 Creating Organizational Culture
Values of the Founder
Initial values are critical as founders hire their
first set of managers.
Founders are likely hire those who share their
vision which evolves eventually into the culture
of the firm.

Copyright 2004 McGraw-Hill. All rights reserved. 830

 Creating Organizational Culture (contd)
Socialization
Organizational Socialization
The process by which newcomers learn an
organizations values and norms and acquire the work
behaviors necessary to perform jobs effectively.
Newcomers learn not only because they have to but
because they want to in order to fit in.
Organizational behavior, expectations, and
background are included in socialization.

Copyright 2004 McGraw-Hill. All rights reserved. 831

 Creating Organizational Culture (contd)
Ceremonies and Rites
Formal events that focus on important incidents:
Rite of passage: denoting employees entrance into
the firm with the formal presentation of a name
badge.
Rite of integration: building common bonds with
annual office parties and outings or celebrations for
meeting organizational performance goals.
Rites of enhancement: enhancing worker
commitment to values through promotion
ceremonies and awards dinners.

Copyright 2004 McGraw-Hill. All rights reserved. 832

 Creating Organizational Culture (contd)
Stories and Language
Organizations repeat the stories of founders or
significant events in the firms history to
communicate the values and norms for behaviors
that are valued by the organization.
Show workers how to act and what to avoid.
Stories often have a hero that workers can mimic.
Many firms have unique dress codes and use
jargon in their internal communications that only
their employees understand.

Copyright 2004 McGraw-Hill. All rights reserved. 833

 Culture and Managerial Action
Innovative Culture affects the functions of
management.
Planning
In innovative firms, the culture will encourage all
managers to participate.
In slow moving firms, the focus will be on the
formal process rather than the decision.
Organizing
Creative firms have organic, flexible structures
that are most likely very flat with delegated,
decentralized authority.

Copyright 2004 McGraw-Hill. All rights reserved. 834

 Culture and Managerial Action (contd)
Culture affects the functions of management
(contd)
Leading
Flexible, open organizations encourage leading
by example; top managers take risks and trust
lower managers.
Controlling
Innovative firms choose types of controls that
match their structure and foster new ideas and
organizational cooperation.

Copyright 2004 McGraw-Hill. All rights reserved. 835

 Homework 7

GM new Saturn automobile line was a

completely new design that was built by a
specially-recruited workforce in a new factory.
To market the new car, GM set up separate
dealerships and announced the sales people
in these organizations would not be paid on a
commission basis, as is common in the
industry. Instead, they were to be salaried.
Why should GM do so? What might be the
advantage of this pay policy?

Copyright 2004 McGraw-Hill. All rights reserved. 836