TOPIC 7

Organizational Control in a
Complex Business
Environment

15–1
Organizational Control Defined
• Organizational Control
 The systematic process through which managers
regulate organizational activities to make them
consistent with the expectations established in plans,
and to help them achieve all predetermined standards
of performance.
 Control is the process of ensuring that actual activities
conform to planned activities.
• This definition implies that leaders must:
 Establish performance standards.
 Develop mechanisms for gathering performance
information in order to assess the degree to which
standards are being met.
15–2
The importance of control
1. Change-Control systems should be able
to detect changes affecting org.
2. Complexity-A more formal and careful
control approach is required.
3. Mistakes-allows managers to detect
mistakes before they become critical
4. Delegation-allows managers to check on
subordinates progress

15–3
Steps in the Control Process

15–4
 Steps in the control process
1. Establish standards and methods for
measuring performance.-standards should be
stated in clear, measurable terms that include
specific deadlines.
2. Measure performance-measurement is an
ongoing repetitive process.
3. Determine whether performance matches the
standard-This is the easiest step in the control
process
4. Take corrective action-This step is necessary if
performance falls short of standards and the
analysis indicates action is required.
5
Designing Quality and Effectiveness into
the Control System
• Factors affecting control system quality to
consider when designing a control system:
 The amount of variety in the control system.

 The ability to anticipate problems.

 The sensitivity of the measuring device.
 The composition of the feedback reports.

15–6
Control System–Design Issues

15–7
Design Factors Affecting Control System
Quality
• The Amount of Variety in the Control System
 Variety: the number of activities, processes, or items
that are measured and controlled.
 More variety leads to less predictability.
• Law of Requisite Variety in Control Systems
 Variety in control systems to match the variety in the
systems to be controlled can be achieved by:
 Increasing variety in the control system.
 Reducing variety in the system being controlled.

15–8
Design Factors Affecting Control System
Quality (cont’d)
• Composition of Feedback
Reports
 Variance Reporting
 Highlights only those things
that fail to meet the
established standards.
 Management by Exception
 Focuses on the elements
that are not meeting the
standards.

15–9
Criteria for Effective Control
• Related to Organizational Strategy
 A control system should measure what is important
now and what will be important in the future… not
what was important in the past.
• Uses All Steps in the Control Process
 To be effective, a control system must employ all of
the steps in the control process.
• Composed of Objective and Subjective
Measures
 Effective control systems typically require managers
to blend quantitative (objective) and qualitative
(subjective) performance measures.
15–10
Criteria for Effective Control (cont’d)
• Incorporates Timeliness in Feedback Reporting
 Timeliness is the degree to which the control system
provides information when it is needed.
• Acceptable to a Diverse Work Force
 To be effective, organizational controls must be
accepted by employees.
 The control system should motivate workers to
recognize standards and act to achieve them.

15–11
Selecting the Proper Amount of Control
• Costs in Control Systems
 Two basic categories of costs need to be considered
relative to control systems:
 The costs associated with the information needed
to perform the control process.
 The costs associated with undesirable deviations
from standards.

15–12
Selecting the Proper Amount of Control
(cont’d)
• Reliability of the System
 Reliability refers to the probability that the object or
process being controlled will consistently behave in
an acceptable manner.
 The basic premise is that the more reliable the
process, the less control that is needed.
• Importance of the Process Being Controlled
 The more important the object or process being
controlled, the greater the amount of control that
should be exercised.

15–13
Selecting the Focal Point for Control
• Feedforward (Preventive) Control
 Focuses on detecting undesirable material, financial, or human
resources that serve as inputs to the transformation process.
• Concurrent Control
 Focuses on the transformation process to ensure that it is
functioning properly.
• Feedback Control
 Focuses on discovering undesirable output and implementing
corrective action.
• Multiple Focal Points
 Most organizations use several control systems focused on
various phases of the transformation process.

15–14
 Control Focal Points

Pre-process In-process Post-process

15–15
Design Factors Affecting Control System
Quality (cont’d)
• Ability to Anticipate Problems
 If a deviation can be anticipated before it occurs:
 Correctiveaction can be instituted more quickly.
 Negative consequences of the deviation (e.g.,
unacceptable performance time lags) are reduced.
• Sensitivity of the Measuring Device
 Sensitivity: the precision with which the measurement
can be made.
 Use a device sensitive enough to adequately
measure the system being controlled is required.

15–16
Types of control methods
1. Pre-action control
2. Steering control
3. Screening or Yes/No control
4. Post-action control

15–17
1.Pre-Action
Control
Control before an action is undertaken e.g
before a new product is launch, marketers
conduct market testing.

Allow corrective action to be taken

before a particular sequence of
actions is completed. e.g. after
launching a new product, marketers
will monitor competitors, customers
and dealers reaction and take
corrective actions if required. 15–18
3.Screening or Yes/No
controls
Provides a screening process in which
specific aspects of a procedure must be
met before the operations is allowed to
proceed.e.g large customers withdrawal
must be approved by a bank officer.
4.Post-action
controls
Measure the result of a completed
action e.g. marketers conducted
Profitability analysis to assess the
profitability of the new product
15–19
Control Philosophies for Leaders
• Bureaucratic Control
 Use of formal mechanisms to influence behavior,
assess performance, and correct unacceptable
deviations from standards.
• Organic Control (“Clan Control”)
 Reliance upon social values, traditions, shared
beliefs, flexible authority, and trust to assess
performance and correct unacceptable deviations.

15–20
Selecting A Control Style In Today’s Diverse
And Multinational Organizations
• Top-level leaders are faced with a dilemma in
choosing a control style for their organization.
• Managers should evaluate:
 Individual management style
 Organizational culture
 Employee professionalism
 Performance measures.
• The choice of a control style is contingent on all
of these situational factors.

15–21
Impact of Information Technology on
Organizational Control
• Technological advances and improvements
serve to:
 Get critical control information to managers in a more
timely fashion.
 Allow managers to make the proper control
responses more quickly.
 Disseminate the information on those decisions more
quickly so that the negative consequences associated
with out-of-control situations can be minimized.

15–22
Mechanisms for Financial Control
• Financial Statements
 Balance sheet
 Summary of an organization’s financial position at
a given point in time, showing assets, liabilities,
and owner’s equity.
 Income statement
 Summary of an organization’s financial
performance over a given time interval, showing
revenues, expenses, and bottom-line profit or loss.

15–23
Key Financial Terms
• Asset
 A thing of value that an
individual or organization
owns.
• Current Asset
 An item that can be
converted into cash in a
short time period.
• Fixed Asset
 An asset that is long term in
nature and cannot be
converted quickly into cash.
• Liability
 A debt or obligation of the
firm.
• Current Liability
 A debt that must be paid in
the near future.
• Long-term Liability
 A debt that is payable over
a long time span.
15–24
Financial Ratios
• Liquidity ratios
 Indicators of the firm’s
ability to meet its short-
term debt obligations.
• Profitability ratios
 Indicators of the
relative effectiveness,
or profitability, of the
organization.
• Debt ratios
 Indicators of the firm’s
ability to handle long-
term debt.
• Activity ratios
 Indicators of
performance with
respect to key activities
defined by
management.

15–25
Ethical Issues in the Control of a Diverse
Work Force
• Drug Testing • Computer Monitoring
 Pre-employment testing  Privacy in communications
 Testing current employees  Measuring performance
 Random  Liability for harassment
 Probable cause
 Accident

• Undercover Surveillance
 Internal security
 External security
 Electronic devices

15–26