Those who cannot remember the past are condemned to repeat it. George Santayana.
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Transcript of Those who cannot remember the past are condemned to repeat it. George Santayana.
Those who cannot remember the past are condemned to repeat it.
George Santayana
The Wizard of Oz: Pay No Attention
Control: Enron, BPold Ch. 13, new Ch. 14
Control: Enron, BPold Ch. 13, new Ch. 14
Planning Leading Organizing Controlling
We’ll discuss: Did Enron violate control system principles/ mechanisms?Any parallels to BP/Amoco—Texas City explosion, Gulf spill?
Control systems: regulate activity bureaucratic: budgets, rules, policies, proceduresmarket: pricing, economic informationclan control: culture, norms, values
Have you ever experienced evidence of poor controls?
Lax top managementNo policiesNo agreed-upon standards“Shoot the messenger” managementNo periodic reviews of people or plansBad information systemsNo ethics in the culture
Control
Control - any process that directs individuals toward the achievement of organizational goals
Four steps:1. Set performance standards
Standard - expected performance, a benchmark
2. Measure performance
3. Compare to the standardsPrinciple of Exception - a managerial principle—control is enhanced by concentrating on the exceptions to or significant deviations from the expected result or standard
But, need data about the norm (e.g., SPC)4. Correct or reinforce
Control: 3 Ways to Get It
Bureaucratic Control—budgets, rules, regulations, authority
Market Control—pricing mechanisms and economic information to regulate activities
Clan Control—culture, norms, values, shared goals
Bureaucratic controls
Feed-forward controlbefore operations begincreate plans, structures, policies, procedures, and rules
Concurrent control while plans are being carried out direct, monitor, and fine-tune activities
Feedback control Audits, performance dataUse information about results to correct deviations from
the acceptable standard
Bureaucratic controls
Bureaucratic controls
Accounting policies and audits—Internal—ensure our numbers are accurate, draw conclusions
about past, present, and futureExternal—similar, bound by law to be objective and legal
Board of directors—committed to but not controlled by us,dispassionate semi-outside guidance and decision-making.
Consultants—help us (why keep separate from auditors?)
Regulators and politicians—balance needs of firm, industry, society
HR practices, decision-making policies, organizational structure
Bureaucratic controls: Financial
Budgets: What are our plans and expectations?Sales, Production, Cost, Cash, Capital, Master budget
Income Statement: How did we do?Revenue – Expenses = Net Income
Balance Sheet: What’s our status? Assets: Values of things we own
Liabilities: What we owe to creditors
Stockholders’ Equity: The remainder—belongs to owners
Current Ratio – Can we pay short-term liabilities?
Debt-Equity Ratio – Can we pay long-term liabilities?
Return on Investment (ROI) – Is it worth investing in us?
Bureaucratic controls: FinancialExample: Whitewing
1 of 3000+ Enron off-balance sheet Special Purpose Entities (SPEs)(from whistleblower Sherron Watkins’ book)
Downsides to bureaucratic control
Rigid bureaucratic behavior—gotta follow the rules
Tactical behavior—focus on short-term goals and methods, not long-termManagement Myopia: Focusing on short-term earnings and profits at the expense of longer-term strategic obligations
Resistance—people might dislike, cheat, not comply
Market controls
Price indicates how well we do things, value of goods and servicesCompetition means we have to be good to succeed
External: Stock priceStock analysts—give honest appraisals of firmOpinion makers/advisors—help firm, but in context of stakeholders.
Internal:Using profitability, market share to evaluate employeesCapital allocation processUsing external labor market rates to determine pay rates
Clan controls
Culture: norms, values, shared goals
What do we want?—what are our company and individual goals?How do we get it?—what is acceptable or desirable?Dissent versus conformityTrust versus distrustHow do we share rewards?How do we deal with problems?
Enron: Bad bureaucratic, market, clan controls
Any parallels to BP/Amoco—Texas City explosion, Gulf oil spill?
What we just did: Control
Why control systems?
Bureaucratic controls: Financial and others
Market controls: External and internal
Clan controls: Culture
Next time: Communication (old Ch. 12, new Ch. 13)