1010Chapter

Organization ControlOrganization Controland Cultureand Culture

Chapter #10 Learning ObjectivesChapter #10 Learning ObjectivesChapter #10 Learning ObjectivesChapter #10 Learning Objectives

• By the conclusion of this discussion you By the conclusion of this discussion you should understand:should understand:What controls are and how they should be What controls are and how they should be

used in organizations to help improve used in organizations to help improve efficiencies, quality, responsiveness and efficiencies, quality, responsiveness and innovation.innovation.

The control process and how it is used.The control process and how it is used.The three organizational control systems and The three organizational control systems and

their purpose and value to organizations.their purpose and value to organizations.

Organizational ControlOrganizational ControlOrganizational ControlOrganizational Control

• Controlling:Controlling: process of monitoring and process of monitoring and evaluating whether outcomes match evaluating whether outcomes match objectives; if not, analyzing why and taking objectives; if not, analyzing why and taking corrective action.corrective action.Is the firm efficiently converting inputs into Is the firm efficiently converting inputs into

outputs?outputs?Is product quality improving?Is product quality improving?Are employees responsive to customers?Are employees responsive to customers?Are our managers innovative in outlook?Are our managers innovative in outlook?

Control SystemsControl SystemsControl SystemsControl Systems

• Formal, target-setting, monitoring, evaluation Formal, target-setting, monitoring, evaluation and feedback systems that provide managers and feedback systems that provide managers with information about how well the with information about how well the organization’s strategy and structure are organization’s strategy and structure are working.working.

• A good control system should:A good control system should:be flexible so managers can respond as be flexible so managers can respond as

needed.needed.provide accurate information about the provide accurate information about the

organization.organization.provide information in a timely manner.provide information in a timely manner.

Three Types of ControlThree Types of ControlThree Types of ControlThree Types of Control

Figure 10.1

Control Process StepsControl Process StepsControl Process StepsControl Process Steps

Figure 10.2

Establish standardsEstablish standards

Measure actual performanceMeasure actual performance

CompareCompare

Evaluate & take corrective actionEvaluate & take corrective action

1.

2.

3.

4.

Three Organizational Control SystemsThree Organizational Control SystemsThree Organizational Control SystemsThree Organizational Control Systems

Figure 10.3

Output Control

Behavior Control

CultureControl

Financial Measures or performanceGoals

Operating budgets

Direct supervisionManagement by Objective (MBO)

Rules & Standard Operating Procedures

ValuesNorms

Socialization

Financial Measures of PerformanceFinancial Measures of PerformanceFinancial Measures of PerformanceFinancial Measures of Performance

• Financial ControlsFinancial ControlsProfit ratiosProfit ratiosLiquidity ratiosLiquidity ratiosLeverage ratiosLeverage ratiosActivity ratiosActivity ratios

Output ControlOutput ControlOutput ControlOutput Control

• Organizational GoalsOrganizational GoalsEach division within the firm is given specific Each division within the firm is given specific

goals that must be met in order to attain goals that must be met in order to attain overall organizational goals.overall organizational goals.

• Goals should be specific and difficult, but not Goals should be specific and difficult, but not impossible, to achieve (impossible, to achieve (stretch goalsstretch goals).).

• Goal setting and establishing output controls are Goal setting and establishing output controls are management skills that are developed over time.management skills that are developed over time.

Output Control (cont’d)Output Control (cont’d)Output Control (cont’d)Output Control (cont’d)

• Operating BudgetsOperating BudgetsBlueprints state how managers intend to Blueprints state how managers intend to

allocate and use the resources they control allocate and use the resources they control to attain organizational goals effectively and to attain organizational goals effectively and efficiently.efficiently.

• Each division is evaluated on its own budgets for Each division is evaluated on its own budgets for cost, revenue or profit.cost, revenue or profit.

• Managers are evaluated by how well they meet goals Managers are evaluated by how well they meet goals for controlling costs, generating revenues, or for controlling costs, generating revenues, or maximizing profits while staying within their budgets.maximizing profits while staying within their budgets.

Problems with Output ControlProblems with Output ControlProblems with Output ControlProblems with Output Control

• Managers must create output standards that Managers must create output standards that motivate at all levels.motivate at all levels.

• They must be careful not to create short-term They must be careful not to create short-term goals that motivate managers to ignore the goals that motivate managers to ignore the future.future.

• If standards are set too high, workers may If standards are set too high, workers may engage unethical behaviors to attain them.engage unethical behaviors to attain them.

Behavior ControlBehavior ControlBehavior ControlBehavior Control

• Direct SupervisionDirect SupervisionManagers who directly manage can teach, Managers who directly manage can teach,

reward, lead by example, and take corrective reward, lead by example, and take corrective action as needed.action as needed.

• Management by Objectives (MBO)Management by Objectives (MBO)A goal-setting process in which managers A goal-setting process in which managers

and subordinates negotiate specific goals and subordinates negotiate specific goals and objectives for the subordinate to achieve and objectives for the subordinate to achieve and then periodically evaluate their and then periodically evaluate their attainment of those goals.attainment of those goals.

Behavior ControlBehavior Control Behavior ControlBehavior Control

• Bureaucratic ControlBureaucratic ControlControl through a system of rules and Control through a system of rules and

standard operating procedures (SOPs) that standard operating procedures (SOPs) that shapes the behavior of divisions, functions, shapes the behavior of divisions, functions, and individuals.and individuals.

• rules and SOPs tell the worker what to do rules and SOPs tell the worker what to do (standardized actions)(standardized actions)

• still a need for output control to correct mistakes.still a need for output control to correct mistakes.

• best used for routine problems in stable environmentsbest used for routine problems in stable environments

Organizational CultureOrganizational CultureOrganizational CultureOrganizational Culture

• Organizational CultureOrganizational CultureThe set of internalized values, norms, The set of internalized values, norms,

standards of behavior, and common standards of behavior, and common expectations that control the ways in which expectations that control the ways in which individuals and groups in an organization individuals and groups in an organization interact with each other and work to achieve interact with each other and work to achieve organizational goals.organizational goals.

Clan ControlClan ControlClan ControlClan Control

• Clan ControlClan ControlThe control through the development of an The control through the development of an

internal system of values and norms.internal system of values and norms.Both culture and clan control accept the Both culture and clan control accept the

norms and values as their own and then work norms and values as their own and then work within them.within them.

These methods provide control where output These methods provide control where output and behavioral control does not work.and behavioral control does not work.

Strong culture and clan control help worker Strong culture and clan control help worker to focus on the organization and enhance its to focus on the organization and enhance its performance.performance.

Values and NormsValues and NormsValues and NormsValues and Norms

• ValuesValuesBeliefs and ideas about the kinds of goals Beliefs and ideas about the kinds of goals

members of a society should pursue and members of a society should pursue and about the kinds and modes of behavior about the kinds and modes of behavior people should use to achieve those goals.people should use to achieve those goals.

• NormsNormsUnwritten, informal rules or guidelines that Unwritten, informal rules or guidelines that

prescribe appropriate behavior in particular prescribe appropriate behavior in particular situations.situations.

• Having norms and values that are suited to the Having norms and values that are suited to the organization’s environment is important.organization’s environment is important.

Creating A Strong Organizational CultureCreating A Strong Organizational CultureCreating A Strong Organizational CultureCreating A Strong Organizational Culture

Figure 10.5

Creating Organizational CultureCreating Organizational CultureCreating Organizational CultureCreating Organizational Culture

• Values of the FounderValues of the FounderInitial values are critical as founders hire Initial values are critical as founders hire

their first set of managers.their first set of managers.• Founders are likely hire those who share their vision Founders are likely hire those who share their vision

which evolves eventually into the culture of the firm.which evolves eventually into the culture of the firm.

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

• SocializationSocializationOrganizational Socialization Organizational Socialization

• The process by which newcomers learn an The process by which newcomers learn an organization’s values and norms and acquire the organization’s values and norms and acquire the work behaviors necessary to perform jobs effectively.work behaviors necessary to perform jobs effectively.

• Newcomers learn not only because “they have to” but Newcomers learn not only because “they have to” but because they want to in order to “fit in.”because they want to in order to “fit in.”

• Organizational behavior, expectations, and Organizational behavior, expectations, and background is presented.background is presented.

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

• Ceremonies and RitesCeremonies and RitesFormal events that focus on important Formal events that focus on important

incidents.incidents.• Rite of passageRite of passage: denoting employees’ entrance into : denoting employees’ entrance into

the firm with the formal presentation of a name the firm with the formal presentation of a name badge.badge.

• Rite of integration:Rite of integration: building common bonds with building common bonds with annual office parties and outings or celebrations for annual office parties and outings or celebrations for meeting organizational performance goals.meeting organizational performance goals.

• Rites of enhancement:Rites of enhancement: enhancing worker enhancing worker commitment to values through promotion ceremonies commitment to values through promotion ceremonies and awards dinners.and awards dinners.

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

Creating Organizational Culture Creating Organizational Culture (cont’d)(cont’d)

• Stories and LanguageStories and LanguageOrganizations repeat the stories of founders Organizations repeat the stories of founders

or significant events in the firm’s history to or significant events in the firm’s history to communicate the values and norms for communicate the values and norms for behaviors that are valued by the organizationbehaviors that are valued by the organization

• Show workers how to act and what to avoid.Show workers how to act and what to avoid.

• Stories often have a hero that workers can mimic.Stories often have a hero that workers can mimic.

• Many firms have unique dress codes and use jargon Many firms have unique dress codes and use jargon in their internal communications that only their in their internal communications that only their employees understand.employees understand.

Culture and Managerial Action Culture and Managerial Action Culture and Managerial Action Culture and Managerial Action

• Culture affects the functions of management.Culture affects the functions of management.PlanningPlanning

• In innovative firms, the culture will encourage all In innovative firms, the culture will encourage all managers to participate.managers to participate.

• In slow moving firms, the focus will be on the formal In slow moving firms, the focus will be on the formal process rather than the decision.process rather than the decision.

OrganizingOrganizing• Creative firms have organic, flexible structures that Creative firms have organic, flexible structures that

are most likely very flat with delegated, decentralized are most likely very flat with delegated, decentralized authority.authority.

Culture and Managerial Action Culture and Managerial Action (cont’d) (cont’d)

Culture and Managerial Action Culture and Managerial Action (cont’d) (cont’d)

• Culture affects the functions of management Culture affects the functions of management (cont’d)(cont’d)LeadingLeading

• Flexible, open organizations encourage leading by Flexible, open organizations encourage leading by example; top managers take risks and trust lower example; top managers take risks and trust lower managers.managers.

ControllingControlling• Innovative firms choose types of controls that match Innovative firms choose types of controls that match

their structure and foster new ideas and their structure and foster new ideas and organizational cooperation.organizational cooperation.

ConclusionConclusionConclusionConclusion

• Controlling is a necessary function for all Controlling is a necessary function for all levels of management.levels of management.

• When used effectively, controls improve When used effectively, controls improve efficiencies, responsiveness, quality and efficiencies, responsiveness, quality and productivity.productivity.

• Output, behavior and culture control systems Output, behavior and culture control systems can be used together to achieve results.can be used together to achieve results.