Because learning changes everything.

Chapter 11
Organizational Control
and Change

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Learning Objectives
1. Define organizational control, and explain how it increases
organizational effectiveness.
2. Describe the four steps in the control process and the way it operates
over time.
3. Identify the main output controls, and discuss their advantages and
disadvantages as means of coordinating and motivating employees.
4. Identify the main behavior controls, and discuss their advantages and
disadvantages as means of coordinating and motivating employees.
5. Discuss the relationship between organizational control and change,
and explain why managing change is a vital management task.

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 What Is Organizational Control?
Organizational control:
• Managers monitor and regulate how efficiently and
effectively an organization and its members are
performing the activities necessary to achieve
organizational goals.

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 The Importance of Organization Control

To obtain superior efficiency, quality,

responsiveness to customers, and innovation:
• Control system to monitor inputs and outputs.
• Control system to monitor the quality of goods.
• Control system to monitor how well customer-contact
employees perform jobs.
• Control system to encourage risk-taking.

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 Control Systems and Technology 1

Control systems:
• Formal, target-setting, monitoring, evaluation, and
feedback systems that provide managers with
information about whether the organization’s strategy
and structure are working efficiently and effectively.

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 Figure 11.1 Three Types of Control

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 Control Systems and Technology 2

Concurrent control:
• Control that gives managers immediate feedback on
how efficiently inputs are being transformed into
outputs so managers can correct problems as they
arise.

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 Control Systems and Technology 3

Input Stage.
Feedforward control:
• Control that allows managers to anticipate problems
before they arise.
• Giving stringent product specifications to suppliers in
advance.

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 Example: University of Alabama Gameday

The University of Alabama provides information

for fans to be ready for football game day
parking and events.
This is an example of feedforward control.

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 Control Systems and Technology 4

Output Stage.
Feedback control:
• Control that gives managers information about
customers’ reactions to goods and services so
corrective action can be taken if necessary.

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 Figure 11.2 Four Steps in Organizational
Control

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 The Control Process 1

1. Establish standards of performance, goals,

or targets against which performance is to
be evaluated.
• Managers decide on the standards of performance,
goals, or targets that they will use in the future to
evaluate the performance of the entire organization
or part of it.

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 The Control Process 2

2. Measure actual performance.

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

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 The Control Process 3

3. Compare actual performance against

chosen standards of performance.
• Managers evaluate whether, and to what extent,
performance deviates from the standards of
performance chosen in step 1.

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 The Control Process 4

4. Evaluate the result and initiate corrective

action if the standard is not being
achieved.
• If managers decide that the level of performance is
unacceptable, they must try to change the way work
activities are performed to solve the problem.

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 Figure 11.3 Three Organizational Control
Systems
Type of Control Mechanisms of Control
Output Financial measures of
control performance
Organizational goals
Operating budgets
Behavior Direct supervision
control Management by objectives
Rules and standard
operation procedures
Clan Values
control Norms
Socialization

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 Financial Measures of Performance 1

Profit ratios:
• Measure how efficiently managers are using the
organization’s resources to generate profits.

Return on investment (ROI):

• Organization’s net income before taxes, divided by its total
assets.
• Most commonly used financial performance measure.

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 Financial Measures of Performance 2

Operating margin:
• Calculated by dividing a company’s operating profit by
sales revenue.
• Provides managers with information about how
efficiently an organization is utilizing its resources.

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 Financial Measures of Performance 3

Liquidity ratios:
• Measure how well managers have protected
organizational resources to be able to meet short-term
obligations.

Leverage ratios:
• Measure the degree to which managers use debt or
equity to finance ongoing operations.

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 Financial Measures of Performance 4

Activity ratios:
• Show how well managers are creating value from
organizational assets.

Inventory turnover:
• Measures how efficiently managers are turning inventory
over so excess inventory is not carried.

Days sales outstanding:

• Reveals how efficiently managers are collecting revenue
from customers to pay expenses.

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 Figure 11.4 Organization wide Goal Setting

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 Operating Budgets
• Blueprint that states how managers intend to use
organizational resources to achieve organizational
goals efficiently.

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 Effective Output Control

Objective financial measures.

Challenging goals and performance standards.

Appropriate operating budgets.

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 Problems with Output Control
Managers must create output standards that
motivate at all levels.
These should not cause managers to behave in
inappropriate ways to achieve organizational
goals.

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 Behavior Control
Direct supervision:
• Managers who actively monitor and observe the
behavior of their employees.
• Teaches employees appropriate behaviors.
• Intervenes to take corrective action.
• Most immediate and potent form of behavioral control.
• Can be an effective way of motivating employees.

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 Problems with Direct Supervision
Very expensive because a manager can
personally manage only a relatively small
number of employees effectively.
Can demotivate employees if they feel that they
are under such close scrutiny that they are not
free to make their own decisions.

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 Management by Objectives 1

Management by objectives (MBO):

• A goal-setting process in which a manager and each
of his or her employees negotiate specific goals and
objectives for the subordinate to achieve and then
periodically evaluate the extent to which the
subordinate is achieving those goals.

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 Management by Objectives 2

1. Specific goals and objectives are established

at each level of the organization.
2. Managers and their subordinates together
determine the employees’ goals.
3. Managers and their subordinates periodically
review the employees’ progress toward
meeting goals.

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 Balanced Scorecard
Developed by Kaplan and Norton.
Extension of MBO, but more balanced.
Addresses financial matters as well as:
• Customer service.
• Internal business processes.
• Learning and growth.

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 Bureaucratic Control
• Control by means of a comprehensive system of rules
and standard operating procedures (S OPs) that
shapes and regulates the behavior of divisions,
functions, and individuals.

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 Problems with Bureaucratic Control
Rules are easier to make than discard, leading to
bureaucratic “red tape” and slowing
organizational reaction times to problems.
People might become so used to automatically
following rules that they stop thinking for
themselves.

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 Clan Control
• The control exerted on individuals and groups in an
organization by shared values, norms, standards of
behavior, and expectations.

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 Organizational Change
• Movement of an organization away from its present
state and toward some desired future state to
increase its efficiency and effectiveness.

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 Figure 11.5 Organizational Control and
Change

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 Figure 11.6 Lewin’s Force-Field Model of
Change

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 Evolutionary and Revolutionary Change 1

Evolutionary change:
• Gradual, incremental, and narrowly focused.
• Constant attempt to improve, adapt, and adjust
strategy and structure incrementally to accommodate
changes in the environment.

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 Evolutionary and Revolutionary Change 2

Revolutionary change:
• 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.

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 Figure 11.7 Four Steps in the
Organizational Change Process

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 Implementing the Change 1

Top-down change:
• A fast, revolutionary approach to change in which top
managers identify what needs to be changed and then
move quickly to implement the changes throughout
the organization.

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 Implementing the Change 2

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.

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 Evaluating the Change
Benchmarking:
• The process of comparing one company’s
performance on specific dimensions with the
performance of other, high-performing organizations.
• Examples: Xerox benchmarking against L.L.Bean,
John Deere, and Proctor and Gamble.

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© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw Hill.