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New Control Measures In recent years, the reliance on profitability, return on investment, and other purely financial measures to gauge the performance and health of business firms has given way to a larger variety of control indicators which provide a more complete picture of the firm’s performance and competitive standing. Measures of product quality and customer satisfaction are two of the more important measures which firms have added to the key performance indicators with which they gauge overall performance. Customer Satisfaction Though the concern about customer complaints and satisfaction is as old as business itself, the widespread effort to measure this systematically and continuously is relatively recent. In part, this is the result of intensifying competition for the customer’s loyalty among contemporary firms, and in part also because of the influence of various management gurus who claim that contemporary firms must be “customer driven” to be successful. Customer satisfaction can be measured through various means. Many firms who cannot afford to use the services of independent consumer research organization devise their own measures which include questionnaires, interviews, sales force feedback, etc. These methods are not new. What is new is the effort to collect customer satisfaction data on a regular or continuing basis- so that changes and trends over time can be detected and evaluated. By measuring customer satisfaction systematically and continuously, firms have a direct basis for gauging the state of customer satisfaction instead of inferring the same primarily from the trend in the sales revenues of the firm. Quality Measurements. Statistical Quality Control is the name of the traditional approach for the measurement of production quality in the shop floor. As a result of the highly acclaimed innovations pioneered in Japanese manufacturing firms “quality control circles,” how ever, the approach to quality has changed in a very fundamental way. It is no longer considered a virtue to use a traditional concepts such as “acceptable quality levels” where product lots are passed off as acceptable provided the defect rate (as measured through random sampling) does not exceed a certain predetermined threshold. Rather, firms are now enjoined to aim for “zero defects” as their quality standard in production.

Numerous books are now available detailing the philosophy. are meant to suggest that the practice of giving up primary reliance on financial measures to monitor and control the activities of the firm is giving way to a more comprehensive set of measures which provide the managers of business firms additional data and insights into aspects of the firm’s operations which are often not captured in traditional financial measures. Switzerland which represents a federation of national standards organizations from more than 100 countries around the world. The assignment of tasks to several persons insures checks and balances in an organization. management must weigh the benefits to be derived from the system against the cost of installing and maintaining the system. More importantly. Control requirements that one person should not have full control of a transaction. They obtain data on the practices and performance of their best competitors against which to compare their own performance It can be said that TQM is now a worldwide movement. Today. Cost Implications of Control In designing a control system or in adopting a control tool or technique. capital. The types of costs that are associated with control are personnel costs. The monitoring process requires timely and regular reports which imply the creation of additional tasks to be performed by additional personnel. there is now an International Standards Organization (ISO) based in Geneva. Another aspect of the control function is closed monitoring of performance in order to correct deviations from targets or plans. Personnel costs increase as control is tightened because of additional manpower requirements as tasks are divided. among others. which is limited only to customer satisfaction and quality measures. Many leading firms today are not content just to measure and monitor quality in their various products and processes internally.The phenomenal success of quality circles in Japanese manufacturing has revolutionized attitudes and practices in quality assurance world-wide. and can perform independent and comprehensive assessments and certificate of the practices of a specific firm. analytical concepts and practices of TQM. Through the process of benchmarking. . This discussion. people speak of Total Quality Management or TQM to extend the philosophy of continuous improvement which originated in the production floor in Japan to all the other operations and processes in the firm. and operating expenses. Such organization promote international standardization of quality practices.

. In large firm. management must. In a small business. Considering these costs. Internal auditing involves among others. the size of the internal audit staff could approximate that of accounting staff. carefully assess the benefits from control before adopting a specific control tool or system. As number of employees increase.Examples of additional tasks that are created by the Control Function are: 1) internal auditing 2) financial analysis. the more floor space is required as well as office furniture and equipment. and supplies. telephone. the examinations of the company’s accounting records and the periodic verification of company’s assets. operating expenses. the owner assumes this responsibilities with the assistant of the accountant. As personnel costs increase with the division of tasks and addition of new tasks. Cost of administration and overhead cost also increase as the number of personnel increase. The more people that a company hires. the regular evaluation of the company’s internal control system. therefor. also increase. Performance monitoring requires additional staff who will prepare variance analysis reports (analysis of deviations of actual performance from target performance) and timely financial reports like Financial Statements. capital outlays also increase. both reporting to a Controller. utilities.