CONTROL & AUTONOMY

OVERVIEW

Objective

! To discuss issues in organisational management relating to control and

autonomy.

CONTROL
AND
AUTONOMY

OPERATIONAL CONTROL
DECENTRALISATION IN
PLANNING
ORGANISATIONS

! Participation ! Advantages ! Control systems

! Control & empowerment ! Disadvantages ! Budgets
! Conditions ! Management
information
! Practical tools
! Production control
! Shared purpose
! Learning

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1 OPERATIONAL PLANNING

1.1 Introduction

Once the strategic plan is finalised and ready for implementation it is effectively implemented
throughout the organisation by employees in the form of operational and tactical plans.

1.2 Importance of participation

1.2.1 Advantages 1.2.2 Disadvantages

! Motivational impact ! Time and effort required

! Ideas become refined ! Seen to undermine authority

! Encourages good communications ! Employees may not seek

responsibility
! Highlights importance of plans
! Group influence
! Encourages teamwork
! Too rigid

1.3 Control and empowerment

One of the main concerns in organisation design is getting the right balance between:

! centralised control, through rigid structures and firm direction

! empowerment, through the encouragement of intrapreneurism and creativity.

This issue is related to the arguments surrounding centralisation and decentralisation

discussed in the next section.

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2 DECENTRALISATION

2.1 Introduction

! This concerns the degree to which authority to act can be dispersed

throughout an organisation.

2.2 Advantages of decentralisation 2.3 Disadvantages of decentralisation

! Allows top management time to ! Requires adequate control and

concentrate on strategic responsibilities communication systems

! Speeds up local decision-making ! Requires co-ordination to ensure sub-

! Allows more flexibility for local
conditions
! Better decision-making
! Responsibility and status given to lower
levels of management
! Focuses attention to cost/profit centres
units act in the interest of the whole
! Can lead to inconsistent treatment of
customer
! May encourage suboptimisation and lose
economies of scale
! Requires many well-motivated
managers

! Tax advantages ! Increased information requirements to

monitor divisional performance

2.4 Conditions for successful decentralisation

! Several separate activities

! Independent divisions

! Carefully designed performance evaluation systems

! Central policies to integrate and control strategic decisions, major capital

expenditure and transfer prices.

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3 CONTROL IN ORGANISATIONS

3.1 Introduction

Having implemented a strategy, it is important that the organisation ensures that it

happens.

3.2 Control systems

Standard

Effector Comparator

Sensor

Inputs Processes Outputs

System being controlled

Control system

The major components of a control system are shown above, and are as follows.

! Standard

− A statement of the objectives of the system or the output expected

or required from it
− The system is controlled against the standard

! Sensor

− A device used to measure the output

− May also record the output

! Comparator

− Compares the evidence gathered by the sensor with the required

output defined by the standard

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! Effector/activator

− Effects (or causes) change to the system to bring its performance

back in line with the standard
− Acts on the inputs and processes, as through these the outputs are
modified

3.3 Budgetary control

The simplest illustration of the above model is budgetary control. In this system, the
control components are as follows:

− Sensor - Actual costs and revenues

− Standard - Budgeted costs and revenues

− Comparator - Variance analysis

− Effector - Management

− Primary feedback - Correction of performance

− Secondary feedback - Flexible/rolling budgeting

− Open loop feedback - Re-budgeting for external

changes

3.4 Management information and control

The typical large business organisation possesses three important characteristics:

! Stability - the organisation has a long life, typically exceeding that of both the
employees and products.

! Complexity - operating in different markets and countries, with a large

number of employees, and often using sophisticated technology.

! Roles within the organisation are highly specialised.

In order to achieve control of this complex organisation requires a sophisticated control

system to integrate the various activities and specialisations. One of the control
systems is the Accounting Information System (AIS). Although the AIS is only one of
the control systems there are TWO reasons why it has tended to become pre-eminent

! Profit is the most widely used single performance indicator in the business
organisation, and is the prime concern of investors.

! Accounting provides the only common scale of measurement that may be

applied to all activities within the organisation.

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3.5 Practical control tools

All of the preceding sections of this chapter take a very theoretical approach to the
topic of control, but there are many very straightforward practical control tools that can
be built into the management structure of an organisation or project.

! Contracts of employment

The contract of employment forms the most basic control tool for the
relationship between employer and employee. It contains, often in great
detail, standards of behaviour and expected performance required of the
employee, and the duties and responsibilities of the organisation.

In the case of disciplinary proceedings, the contract (and any accompanying

code of conduct) are used as a basis for corrective action. However, if this
stage is reached it is likely that the employer-employee relationship has
already broken down. A less formal approach to discipline is preferable, as it
does not destroy the relationship.

! Policies and procedures

Most organisations produce policies and procedures, often collected together

in a regularly updated procedures manual. These set down standards for
many aspects of work, and document the accepted methodology of activity in
the organisation.

! Disciplinary systems

In many countries, disciplinary procedures are prescribed and regulated by

the appropriate employment law. Detailed questions on employment law will
not be asked, but a professional and reasonable approach to maintaining
discipline might be one aspect of a question.

Quite often, disciplinary proceedings go through a formal three-stage process

prior to the dismissal of the employee concerned. These stages are intended
to correct the behaviour of the employee, and moving from one stage to the
next should be viewed as a management failure. The stages are as follows:

# Informal counselling about attitudes and behaviour, making it clear

that changes are necessary.

# A verbal warning, which is the start of the formal disciplinary

process, making it clear that a failure to change will lead to the next
step. Often the verbal warning is noted on the employee’s record,
and they are told that this is the case. Such a warning should be
given in the presence of a third party, so they can evidence the fact
that the warning was given and agree the precise terms of the
warning.

# A written warning that, if behaviour does not change within a

certain time period, dismissal will follow. Such a warning is
normally given in the presence of a witness, and the employee signs
a copy to acknowledge receipt. A written warning letter must
contain very clear details of precisely what is expected, and by
when.

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! Reward systems

There are many examples of reward systems being used to incent and give
credit to good performance. Salary may be linked to clear performance
criteria, or a bonus may be paid for exceptional work. Once again, the terms
of such reward schemes must be clearly expressed, and the employees must
be confident that the reward will be received if they perform accordingly.

In a project environment, project team members may be paid a bonus on

completion that is linked to cost, time or quality criteria.

! Reporting structures

Organisational and project management hierarchies are a very simple day-to-

day control mechanism for ensuring that staff perform tasks well and
complete them on time. Managers should try to build daily staff contact time
into their schedules, to ensure that any control issues are identified and
resolved promptly.

The relationship between manager and subordinates should be close enough

so problems can be discussed without fear of blame or recrimination.

! Appraisals

Despite the informal day-to-day contact between a manager and their

subordinates, there is still a role for the formal performance appraisal system.
A periodic process of performance review and objective setting allows career
planning and is very motivating for staff. The appraisal is also an opportunity
to identify training and career development needs.

3.6 Production control

Example 1

What control tools do you think can be used in the production function?

3.7 Shared purpose

A strong culture, particularly a shared “vision” or purpose, will lead to employees

controlling their own activities and outputs. Tools such as total quality management
(TQM) can help to achieve this (see session 14).

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3.8 Learning and experience

Learning - The strategic process of developing strategy by crafting, experimentation

and feedback. Note that learning in this context does not mean rote or memory
learning.

3.8.1 Learning and experience

While experience is something that an employee gathers, in a passive way, learning is a

deliberate act. When applied to the whole organisation, learning becomes a culture.

3.8.2 Organisational learning

Based on the work, principally, of Peter Senge of Massachusetts Institute of

Technology (MIT) (though first coined by Chris Argyris) the “learning organisation” is
a term to describe an organisation which is continuously adjusting its way of operating
in response to changing conditions. A learning organisation is one which does this
better than most in its industry - faster learning is seen as spotting significant change
sooner and developing the skills and knowledge to deal with it faster than rivals. The
classic work in the field is Peter Senge's The Fifth Discipline.

The idea of any organisation being a “learning organisation” is really an abstraction, a

concept offered by management pundits. A contingency view of any business
organisation holds that “the firm” must be responsive to forces and developments in its
environment otherwise it will atrophy and die - rather like a political party which after
16 years of running a government runs out of steam.

It is those who direct the organisation and other members (employees) who, it is
suggested, need to learn and adapt. To survive occupationally and have continuous and
prosperous capacity to earn a living - they need new knowledge, behaviours and
willingness to do things they do not currently do. The individual may either

! stay the same and have the same orientations and behaviours even though the
work situation may change

! regress

! adapt to meet the demands of new situations

The occupational (got to earn a living) world is harsh. The “crowd” that forms the firm
- owners and servants - have to mobilise their stock of know-how and renew it.
Learning here is performance and company related - it usually means knowledge and
competences which enhance the ability to succeed in various tasks. Many of the points
at which adaptation takes place occur along the different points on the supply chain -
from conception and specification of the product or service to engagement with the
customer, from purchasing to production and dispatch and on to staffing and the overall
infrastructures of the firm.

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FOCUS

You should now be able to:

! evaluate internal control systems

! appreciate the need for control

! understand management information and control systems

! understand production control systems

! explain the learning organisation

! differentiate learning from experience

! assess shared purpose and vision

! understand challenging experiences.

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EXAMPLE SOLUTIONS

Solution 1 – Production control

Within the production function, control can be effected by a variety of means including
the following:

! Quality inspection and control procedures

! Better training
! Supervision
! Automated manufacturing equipment

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