Chapter 19Managing Quality and Performance

Managers use a variety of measures to monitor performance:– Controlling work processes

– Regulating employee behavior

– Systems for financial resources

– Evaluating profitability

Controlling

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Organizational control is the systematic process through which managers regulate organizational

activities to make them consistent with expectations established in plans, targets, and

standards of performance

The Meaning of Control

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• Common measures and controls:– Sales– Revenue– Profit

• More focus on measuring intangibles– Customer service– Increased revenue

Choosing Standards and Measures

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Balanced perspective of company performance

Integrates various areas of the organization

Managers record, analyze, and discuss the metrics

Serves as core management-control system

The Balanced Scorecard

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19.1 The Balanced Scorecard

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19.2 Feedback Control Model

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Establish Standards of Performance

Measure Actual Performance

Compare Performance to Standards

Take Corrective Action

Steps of Feedback Control

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• Budgetary control – setting targets and monitoring expenditures

• Budgets list planned and actual expenditures

• Budgets are associated with a division or department

– The unit of analysis for budgeting is the responsibility center

Application to Budgeting

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Financial Control

Financial Statements provide basic information for financial control

Income Statement profit-and-loss

statement or P&L highlights firm’s

financial performance

Balance Sheet shows firm’s

financial position

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19.3 Balance Sheet

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19.4 Income Statement

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• Managers need to evaluate financial reports• Comparing performance with other data and

industry standards• Financial Analysis:– Ratios– Statistics

• Review:– Profits, assets, sales, and inventory

Financial Analysis: Interpreting Numbers

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19.5 Common Financial Ratios

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• Hierarchical controls include the monitoring of behavior through rules, policies, reward systems, and written documentation

• Decentralized controls based on values and assumptions; rules are only used when necessary– Culture is adaptive, uniting individuals and teams

Hierarchical versus Decentralized Approaches

Managers’ approach to control is changing in many of today’s organizations

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19.6 Comparing Methods of Control

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Decentralized philosophy

Get every employee thinking like an owner

Information sharing and teamwork

Allows employees to see the financial condition of company

See how his/her job fits into organizational success

Open-Book Management

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19.7 Which Countries Have the Most Secretive Economies?

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• Infuse quality into every aspect of the business, all day-to-day activities

• Became popular in the U.S. in the 1980s• Focuses on:– Teamwork– Collaboration– Identifying improvements

• The goal of TQM is zero-defects

Total Quality Management (TQM)

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TQM Techniques

Quality Circles

Benchmarking

Six Sigma

Reduced Cycle Time

Continuous Improvement

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19.8 The Importance of Quality Improvement Programs

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19.9 Quality Program Success Factors

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• ISO 9000 standards – International Organization for Standardization– Organization certification– 157 Countries

• Organizations demonstrate a commitment to quality

• Europe leads in certifications but the United States has had large increases

International Quality Standards

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• Economic Value-Added (EVA) – gauge financial performance; look at ways to add value

• Market Value-Added (MVA) – Stock market’s estimate of the value of a company

• Activity-Based Costing (ABC) – allocating costs across departments and functions

• Corporate Governance – systems and rules from the top are safeguards for shareholders

New Financial Control Systems

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