Cost-effectiveness–Controls consume moneyand man-hours. Unless a control system will save morethan it costs to implement, look elsewhere for a solution.As you apply these principles of control, you mustconsider the time frame in which your controls operate.Controls operate in three modes in relation to time:feedforward, concurrent, and feedback.Feedforward control–This control, the mostdynamic of the three, is designed to discover problemsbefore they occur. Drawbacks to feedforward control arethe heavy investment of time and the detailedmanagement required to make this system work. Amaintenance manager who adjusts leave and libertyschedules to meet anticipated workloads is practicingfeedforward control.Concurrent control–This type of control effectscorrections as they are needed. It does not predict them.When the process under control deviates fromacceptable limits, concurrent control steps in andcorrects problems as they occur. When you walk, youconstantly monitor your stride and balance to avoidfalling. This is concurrent control.Feedback control–Feedback control fixes aproblem “after the fact.” For instance, a defensecontractor who discovers during final testing that acomponent has a defective design must scrap theproduction run and fix the problem. The contractor maylose money on that one production run, but that is betterthan a congressional investigation for sending defectiveparts to the fleet.There are as many ways of attaining control as thereare managers!Even standard control methods arepersonalized by individual managers to suit personalinclinations and individual situations.METHODS OF CONTROLControl techniques or methods are generallydescribed as either quantitative or nonquantitative.Quantitative MethodsQuantitative methods use data and variousquantitative tools to monitor and control productionoutput. Two common quantitative tools are budgets andaudits. By far the most widely recognized quantitativetool is the chart. Charts used as control tools normallycontrast time and performance. The visual impact of achart often provides the quickest method of relatingdata. A difference in numbers is much more noticeablewhen displayed graphically. Most charts are versions ofeither the Gantt chart or the Program Evaluation andReview Technique (PERT).BUDGETS. –By far the best known control deviceis the budget. Budgets and control are, in fact,synonymous. An organization’s budget is an expressionin financial terms of a plan for meeting theorganization’s goals for a specific period. A budget is aninstrument of planning, management, and control. Weuse budgets in two ways. First, we use them asestablished facts that

must be factored into ouroperational planning. Second, we use them to preparenarrative descriptions and financial information that ourchain of command uses in its annual request andmanagement of its funds. At present, the Department ofthe Navy (DON) uses two major budget systems. Theseare zero-based budgeting (ZBB) and the planning,programming, and budgeting system (PPBS).AUDITS. –Internal auditing provides anindependent review and appraisal of accounting,financial, and other nontactical operations. As amanagement tool, the audit measures and evaluates theeffectiveness of management controls. The Naval AuditService provides an independent audit of programs,activities, systems, and procedures. It also provides anindependent audit of other operations involving the useof funds and resources and the accomplishment ofmanagement goals. Budgets and audits are addressed indetail in Financial Management in the Navy,NAVEDTRA 10792-E.Nonquantitative MethodsNonquantitative methods refer to total or overallcontrol of performance rather than specific processes.These methods use tools such as inspections, reports,directsupervision,andperformanceevaluation/counseling to accomplish goals

Types of Organizational Controls

Control can focus on events before, during, or after a process. For example, a local

automobile dealer can focus on activities before, during, or after sales of new cars.

Careful inspection of new cars and cautious selection of sales employees are ways to

ensure high quality or profitable sales even before those sales take place. Monitoring

how salespeople act with customers is a control during the sales task. Counting the

number of new cars sold during the month and telephoning buyers about their

satisfaction with sales transactions are controls after sales have occurred. These types

of controls are formally called feedforward, concurrent, and feedback, respectively.

Feedforward controls, sometimes called preliminary or preventive controls,

attempt to identify and prevent deviations in the standards before they occur.

Feedforward controls focus on human, material, and financial resources within the

organization. These controls are evident in the selection and hiring of new

employees. For example, organizations attempt to improve the likelihood that

employees will perform up to standards by identifying the necessary job skills and

by using tests and other screening devices to hire people with those skills.

Concurrent controls monitor ongoing employee activity to ensure consistency

with quality standards. These controls rely on performance standards, rules, and

regulations for guiding employee tasks and behaviors. Their purpose is to ensure

that work activities produce the desired results. As an example, many

manufacturing operations include devices that measure whether the items being

produced meet quality standards. Employees monitor the measurements; if they

see that standards are not being met in some area, they make a correction

themselves or let a manager know that a problem is occurring.

Feedback controls involve reviewing information to determine whether

performance meets established standards. For example, suppose that an

organization establishes a goal of increasing its profit by 12 percent next year. To

ensure that this goal is reached, the organization must monitor its profit on a

monthly basis. After three months, if profit has increased by 3 percent,

management might assume that plans are going according to schedule.

Types Of Control

Management can implement controls before an activity commences, while the activity is going on, or after the activity has been completed. The three respective types of control based on timing are feedforward, concurrent, and feedback.

Feedforward Control

Feedforward control focuses on the regulation of inputs (human, material, and financial resources that flow into the organization) to ensure that they meet the standards necessary for the transformation process.

Feedforward controls are desirable because they allow management to prevent problems rather than having to cure them later. Unfortunately, these control require timely and accurate information that is often difficult to develop. Feedforward control also is sometimes calledpreliminary control, precontrol, preventive control, or steering control.

However, some authors use term "steering control" as separate types of control. This types of controls are designed to detect deviation some standard or goal to allow correction to be made before a particular sequence of actions is completed.

Concurrent Control

Concurrent control takes place while an activity is in progress. It involves the regulation of ongoing activities that are part of transformation process to ensure that they conform to organizational standards. Concurrent control is designed to ensure that employee work activities produce the correct results.

Since concurrent control involves regulating ongoing tasks, it requires a through understanding of the specific tasks involved and their relationship to the desired and product.

Concurrent control sometimes is called screening or yes-no control, because it often involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on products or services.

Feedback Control

This type of control focuses on the outputs of the organization after transformation is complete. Sometimes called postaction or output control, fulfils a number of important functions. For one thing, it often is used when feedforward and concurrent controls are not feasible or are to costly.

Sometimes, feedback is the only viable type of control available. Moreover, feedback has two advantages over feedforward and concurrent control. First, feedback provides managers with meaningful information on how effective its planning effort was. If feedback indicates little variance between standard and actual performance, this is evidence that planning was generally on target.

If the deviation is great, a manager can use this information when formulating new plans to make them more effective. Second, feedback control can enhance employees motivation.

The major drawback of this type of control is that, the time the manager has the information and if there is significant problem the damage is already done. But for many activities, feedback control fulfils a number important functions.

Multiple Controls

Feedforward, concurrent, and feedback control methods are not mutually exclusive. Rather, they usually are combined into an multiple control systems. Managers design control systems to define standards of performance and acquire information feedback at strategic control points.

Strategic control points are those activities that are especially important for achieving strategic objectives. When organizations do not have multiple control systems that focus on strategic control points, they often can experience difficulties that cause managers to reevaluate their control processes.

Managerial Approaches To Implementing Controls

Regardless of whether the organization focuses control on inputs, production, or outputs, another choice must be made between different approaches tor control. There are three control approaches

regarding the mechanisms managers will use to implement controls: market control, bureaucratic control, and clan control.

Chapter 16:  Control

Chapter Outline

BASICS OF CONTROL 

1 The Control Process

Learning objective: Describe the basic control process.

Control: a regulatory process of establishing standards to achieve organizational goals, comparing actual performance against the standards, and taking corrective action, when necessary.

 The control process: 1) begins with the establishment of clear standards of performance; 2) involves a comparison of actual performance to desired performance; 3) takes corrective action, if needed, to repair performance deficiencies; 4) is a dynamic, cybernetic process; and 5) consists of three basic methods: feedback control, concurrent control, and feedforward control. 1.1 Standards

The control process begins with the establishment of clear standards of performance.

Standards: a basis of comparison when measuring the extent to which various kinds of organizational performance are satisfactory or unsatisfactory.

Managers set standards by:

Ensuring the standard will enable goal achievement;

Listening to customers or observing competitors;

Benchmarking other companies.

Benchmarking is the process of determining how well other companies perform business functions or tasks. The steps to benchmarking are:

Determining what to benchmark;

Identifying the companies against which to benchmark your standards; and

Collecting data to determine other companies’ performance standards.

 1.2 Comparison to Standards

The next step in the control process is to compare actual performance to performance standards. The quality of the comparison depends on the measurement and information systems a company uses to keep track of performance.

Example: Retail stores spend $435 million a year to hire “secret shoppers” who visit stores to determine whether their employees provide good customer service.

1.3 Corrective Action

The next step in the control process is to identify performance deviations, analyze deviations, and develop and implement programs to correct them.

Example: A first-class hotel in New York City was losing $250,000 per year because of an error that did not post mini bar and phone charges to guests’ bills. The hotel devised a four-step system to eliminate this expensive problem.

1.4 Dynamic, Cybernetic Process

Reference: Exhibit 16.1, Cybernetic Control Process

Control is not a one time result. It is an ongoing, continuous process that managers must repeat over and over. Thus, control is both dynamic and cybernetic.

Cybernetic: the process of steering or keeping on course.

Example: In order to keep his company on course, newly appointed CEO of Commercial Credit in Baltimore, Sandy Weill, immediately set about cutting frivolous corporate spending on items such as free newspaper subscriptions and premium-class company cars.

1.5 Feedback, Concurrent, & Feedforward Control

There are three types of control:

Feedback control: a mechanism for gathering information about performance deficiencies after they occur.

Example: Squirrels cause 90% of the electrical transformer malfunctions on neighborhood utility poles, but utility companies are only ever aware of the problem until after one touches a live wire and causes the kind power surge that blows out computers, televisions, and other appliances.

Concurrent control: a mechanism for gathering information about performance deficiencies as they occur, eliminating or shortening the delay between performance and feedback.

This type of control is an improvement over feedback control because it sees problems as they occur.

Example: Aircraft manufacturers have equipped modern planes with hundreds of computer sensors so airlines can monitor their aircrafts’ systems while in flight. If a flight problem occurs, then the airline is prepared to apply a remedy immediately after landing.

Feedforward control: a mechanism for monitoring performance inputs rather than outputs to prevent or minimize performance deficiencies before they occur.

This type of control is best because it solves problems before they occur.

Reference: Exhibit 16.2, Guidelines for Using Feedforward Control

1.6 Control Isn’t Always Worthwhile or Possible

            Control loss: a situation in which behavior and work procedures do not conform to standards.

Maintaining control is important because control loss prevents goal achievement.

To determine if control is worthwhile, managers must assess if the costs of regulation exceed the benefits.

Regulation costs: the costs associated with implementing or maintaining control.

Example: Many U.S. pharmaceutical companies have stopped producing major vaccines because the cost of controlling legal risks is too high.

Sometimes unintended consequences accompany increased control. In other words, control systems sometimes introduce a new set of problems, and therefore further increase control costs.

A second factor that helps managers determine whether control is possible is cybernetic feasibility.

Cybernetic feasibility: the extent to which it is possible to implement each step in the control process.

Example: Many companies have begun using web-based corporate travel systems that actually force employees to follow company travel policies.

                       HOW AND WHAT TO CONTROL

2 Control Methods

Learning objective: Discuss the various methods that managers can use to maintain control.

Managers can use five different methods to achieve control in their organizations: 1) bureaucratic; 2) objective; 3) normative; 4) concertive; and 5) self-control.

2.1 Bureaucratic Control

 Bureaucratic control: the use of hierarchical authority to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures.

Bureaucratic control can be effective if it provides thoughtful, clear rules and policies. But often it creates inefficient workplaces since employees may not be allowed to think for themselves.

2.2 Objective Control

Objective control: the use of observable measures of worker behavior or outputs to assess performance and influence behavior.

Example: Measuring whether sales representatives met their sales quotas would be an example of objective control.

There are two kinds of objective control:

Behavior control: regulation of the behaviors and actions that workers perform on the job.

Example: The former president of Bear Stearns wrote memos about changing certain behavior of his managers, including not returning phone calls and sending mail by Federal Express.

Output control: regulation of worker results or outputs through rewards and incentives.

 Example: Companies may provide bonuses or other financial incentives for good performance.

DOING THE RIGHT THING: Don’t Cheat on Travel Expense Reports

Have you ever been in a situation where you had the opportunity to take advantage of someone who had to reimburse you? How did you handle it? Has someone (a cashier, a friend, a boss or your parents) given you too much money on accident? What did you do?

Three things must occur for output control to lead to improved business results:

The output control measures must be reliable, fair, and accurate.

Employees and managers must believe they can produce the desired results.

The rewards or incentives tied to outcome control measures must truly depend on achieving established standards of performance.

 2.3 Normative Control

Normative control: regulation of workers’ behavior and decisions through widely shared organizational values and beliefs.

 Example: Nordstrom welcomes its employees by giving them a copy of the Nordstrom handbook. Dubbed the “Nordstrom way”, it is simply a 3” x 5” note card

that calls upon employees to place customer service above all else. The card contains no other rules.

Normative controls are created in two ways:

By carefully screening candidates before they’re hired; and

By having employees observe experienced employees who are good role models.

2.4 Concertive Control

Concertive control: regulation of workers’ behavior and decisions through work group values and beliefs.

Autonomous work groups: groups that operate without managers and are completely responsible for controlling work group processes, outputs, and behavior.

 

2.5 Self-Control

Self-control (self-management): a control system in which managers and workers control their own behavior by setting their own goals, monitoring their own progress, and rewarding themselves for goal achievement.

Reference: Exhibit 16.3, When to Use Different Methods of Control

3 What to Control

Learning objective: Describe the behaviors, processes, and outcomes that today’s managers are choosing to control their organizations.

3.1 The Balanced Scorecard

Balanced scorecard: measurement of organizational performance in four equally important areas: finances, customers, internal operations, and innovation and learning.

Reference: Exhibit 16.4, Southwest Airlines’ Balanced Scorecard

Suboptimization: performance improvement in one part of an organization but only at the expense of decreased performance in another part.

3.2 The Financial Perspective: Controlling Budgets, Cash Flows, and Economic Value Added

Cash flow analysis: a type of analysis that predicts how changes in a business will affect its ability to take in more cash than it pays.

 

Balance sheets: accounting sheets that provide a snapshot of a company’s financial position at a particular time.

 

Income statements: statements, also called “profit and loss statements,” that show what has happened to an organization’s income expenses, and net profit over a period of time.

 

Reference: Exhibit 16.5, Basic Accounting Tools for Controlling Financial Performance

 

Financial ratios: calculations typically used to track a business’s liquidity (cash), efficiency, and profitability over time compared to other businesses in its industry.

 

            Reference: Exhibit 16.6, Common Financial Ratios

 

Budgets: quantitative plans through which managers decide how to allocate available money to best accomplish company goals.

 

            Reference: Exhibit 16.7, Common Kinds of Budgets

Economic value added (EVA): the amount by which company profits (revenues minus expenses minus taxes) exceed the cost of capital in a given year.

Reference: Exhibit 16.8, Calculating Economic Values Added (EVA)

Reference: Exhibit 16.9, Leading Companies by Market Value Added and Economic Value Added

3.3 The Customer Perspective: Controlling Customer Defections

Most customers never complain but rather “defect” or leave the supplier when they are dissatisfied. Thus, companies may not even know that dissatisfaction exists unless they carefully monitor customer defections.

Customer defections:  a performance assessment in which companies identify which customers are leaving and measure the rate at which they are leaving.

There are several reasons why companies should monitor customer defections:

It costs five times more to obtain a new customer as it does to retain a current one.

Customers who have defected to other companies are much more likely than current customers to tell you what you are doing wrong.

Companies that monitor customer defections can not only take steps to fix ongoing problems but can also identify which customers are likely to leave and make changes to prevent them from leaving.

Example: Taco Bell estimates that the lifetime value of a customer is $11,000; for a Cadillac dealer, that number exceeds $330,000; and for grocery stores the number can reach $200,000.

Example: John Chambers, CEO of Cisco Systems, listens to 15-20 voice mails from unhappy customers each day. He knows reading their email would be faster, but he believes that being able to hear the emotion in a person’s voice will increase the value of the exercise.

3.4 The Internal Perspective: Controlling Quality

The internal perspective consists of the processes, decisions, and actions that managers and workers make within the organization. This perspective asks the question: “At what must we excel?” It requires the controlling of quality.

Quality is typically defined and measured in three ways: excellence, value, and conformance to expectations.

Reference: Exhibit 16.10, Lands’ End Principles of Doing Business

Reference: Exhibit 16.11, Conformance to Specifications Checklist for Buying Fresh Fish

Reference: Exhibit 16.12, Advantages and Disadvantages of Different Measures of Quality

Example: Singapore International Airlines has been named the “best airline” in the world eleven consecutive years by the readers of Condé Nast Traveler magazine. “Best” in this case means that they excel on several different attributes, including overall customer service and innovative features, such as AC power for laptop computers and 50 different video games.

Value: customer perception that the product quality is excellent for the price offered.

3.5 The Innovation and Learning Perspective: Controlling Waste and Pollution

The innovation and learning perspective asks the question: “Can we continue to improve and create value?” This perspective is concerned with new product development, continuous improvement, and relearning and redesigning the processes by which products and services are created.

Controlling waste and pollution is also an important part of this control perspective. There are four levels of waste minimization: 1) Waste prevention and reduction; 2) Recycle and reuse; 3) Waste treatment; and 4) Waste disposal.

Reference: Exhibit 16.13, Four Levels of Waste Minimization

In waste prevention and reduction, goals are to prevent waste and pollution before they occur or to reduce them when they do occur. There are three strategies for waste prevention and reduction:

Good housekeeping: regularly scheduled preventive maintenance for offices, plants, and equipment.

Material/product substitution: replacing toxic or hazardous materials with less harmful materials.

Process modification: changing steps or procedures to eliminate or reduce waste.

At the second level, recycle and reuse, wastes are reduced by reusing materials as long as possible or by collecting materials for on- or off-site recycling.

Example: In the European Union, companies will have to be able to recover and recycle 80% of the parts that go into their original products at reclamation centers.

At the third level, waste treatment, companies use biological, chemical, or other processes to turn potentially harmful waste into harmless compounds or useful by-products.

Finally, at the fourth level, waste disposal, wastes that cannot be prevented, reduced, recycled, reused or treated should be safely disposed of in processing plants or in environmentally secure landfills that prevent leakage and damage to soil and underground water supplies.