Chapter 7

Control

©2004 by Nelson, a division of Thomson Canada Limited

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What Would You Do?

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Howmet opened a new plant in Laval Aircraft parts market plummeted Layoffs were a possibility How can costs be cut to make up for the sales shortage?

©2004 by Nelson, a division of Thomson Canada Limited

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Learning Objectives: Basics of Control
After reading the next two sections, you should be able to: 1. describe the basic control process 2. answer the question: Is control necessary or possible?

©2004 by Nelson, a division of Thomson Canada Limited

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The Control Process
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Establish clear standards Compare actual to standard performance Take corrective action, if needed Control is a continuous, dynamic process Three basic methods
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Standards

Determine what should be benchmarked Identify companies against which to benchmark standards Collect data to determine other companies’ performance standards
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The Control Process
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Actual performance Measure performance Compare with standards Identify deviations Analyze deviations Develop program for corrections Implement program for corrections Desired performance
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Adapted from Exhibit 7.1 ©2004 by Nelson, a division of Thomson Canada Limited

Basic Control Methods

Feedback control

Gather information about performance deficiencies after they occur Gather information about deficiencies as they occur Gather information about performance deficiencies before they occur
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Concurrent control

Feedforward control

©2004 by Nelson, a division of Thomson Canada Limited

Guidelines for Feedforward Control

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Thorough planning and analysis required Careful discrimination of input variables System must be dynamic System model should be developed Data regularly collected Data regularly assessed Requires action
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Adapted from Exhibit 7.2 ©2004 by Nelson, a division of Thomson Canada Limited

Is Control Necessary or Possible?
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Is more control necessary? Is more control possible? Quasi-Control: When control isn’t possible

©2004 by Nelson, a division of Thomson Canada Limited

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Is More Control Necessary?

Degree of dependence

the extent to which a company needs a particular resource to accomplish its goals The extent to which a company has easy access to critical resources

Resource flows

©2004 by Nelson, a division of Thomson Canada Limited

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Is More Control Possible?

Cost of control
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direct costs of control unintended costs the extent to which it is possible to implement each step in the control process if a step cannot be implemented, then control may not be possible

Cybernetic feasibility

©2004 by Nelson, a division of Thomson Canada Limited

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Quasi-Control: When Control Isn’t Possible

Reducing independence
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a choice to abandon or change goals when control over a critical resource is not possible exchange dependence on one critical resource for dependence on another

Restructure dependence

©2004 by Nelson, a division of Thomson Canada Limited

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Learning Objectives: How and What to Control
After reading the next two sections, you should be able to: 3. Discuss the various methods that managers can use to maintain control 4. Describe the behaviours, processes, and outcomes tat managers are choosing to control in today’s organizations
©2004 by Nelson, a division of Thomson Canada Limited

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Control Methods
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Bureaucratic Objective Normative Concertive Self-Control

©2004 by Nelson, a division of Thomson Canada Limited

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Bureaucratic Control
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Top-down control Use rewards and punishments to influence employee behaviour Use policies and rules to control behaviour Bureaucratically controlled companies are resistant to change and slow to respond to customers
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©2004 by Nelson, a division of Thomson Canada Limited

Objective Control
Use of observable methods  Behaviour control

regulate actions and behaviours of employees measure employee outputs coupled with use of rewards and incentives
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Output control
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©2004 by Nelson, a division of Thomson Canada Limited

Normative Control
Company values and beliefs guide employee behaviour and decisions. Created by:
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Careful selection of employees Role-modeling and retelling of stories

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Concertive Control
Employees are guided by beliefs that are shaped and negotiated by work groups. Autonomous work groups
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operate without managers Members responsible for controlling work group process, outputs, and behaviour
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Self-Control

Employees control their own behaviour Employees make decisions within clear boundaries Managers and employees set goals and monitor their own progress

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When to Use Different Methods of Control
Use bureaucratic control when

standard operating procedures needed necessary to establish limits easier to measure activities than outputs “cause-effect” relationships are clear good measures of behaviour are 20

Use behaviour control when

 Adapted from Exhibit 7.4

©2004 by Nelson, a division of Thomson Canada Limited

When to Use Different Methods of Control
Use output control when
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easier to measure outputs than behaviours good measures of output are available clear goals and standards are available “cause-effect” relationships are unclear culture is strong difficult to create behaviour measures difficult to create output measures
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Use normative control when
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Adapted from Exhibit 7.4 ©2004 by Nelson, a division of Thomson Canada Limited

When to Use Different Methods of Control
Use concertive control when
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group responsible for task accomplishment workers take “ownership” of behaviour and outputs strong worker-based control needed

Use self-control when
workers are intrinsically motivated  difficult to create behaviour measures  difficult to create output measures  workers have self-control and selfleadership Adapted from Exhibit 7.4

©2004 by Nelson, a division of Thomson Canada Limited

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What to Control
The Balanced Scorecard  Customer perspective  Internal perspective  Innovation and learning perspective  Financial perspective

©2004 by Nelson, a division of Thomson Canada Limited

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Example of a Balanced Scorecard — Financial Perspective
Financial perspective Goals Survive Succeed Prosper
Adapted from Exhibit 7.5 ©2004 by Nelson, a division of Thomson Canada Limited

Measures Cash flow Sales growth by division Increased market share
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Balanced Scorecard

Managers look beyond traditional financial measures Managers set specific goals and measure performance in four areas Helps minimize suboptimization

©2004 by Nelson, a division of Thomson Canada Limited

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The Financial Perspective: Controlling Economic Value Added The amount by which company profits exceed the cost of capital in a given year. Important because:
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It shows if a business or profit centre is paying for itself Focuses attention on specific departments Encourage creative ways to improve organizational performance
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©2004 by Nelson, a division of Thomson Canada Limited

The Customer Perspective: Controlling Customer Defections

Which customers are leaving and at what rate Don’t rely completely on customer satisfaction surveys Cost of replacing old customers with new ones is great

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The Internal Perspective: Controlling Quality
Managers focus on quality. Quality is measured as:
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excellence value conformance to expectations

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Quality as Excellence
Advantages  promotes organizational vision  motivates and inspires  appeals to customers
Adapted from Exhibit 7.9 ©2004 by Nelson, a division of Thomson Canada Limited

Disadvantages  provides little practical guidance  what does excellence mean?  difficult to measure and control
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Quality as Value
Advantages  customers recognize differences in value  easy to measure and compare value of different products/services
Adapted from Exhibit 7.9 ©2004 by Nelson, a division of Thomson Canada Limited

Disadvantages  difficult to determine which factors account for value  difficult to control balance between excellence and cost
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Quality as Conformance to Specifications
Advantages  specifications, if written, are measurable  increased efficiency  consistent quality Disadvantages  difficult to evaluate some products/services  increased standardization may make change difficult  less appropriate for services
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Adapted from Exhibit 7.9 ©2004 by Nelson, a division of Thomson Canada Limited

The Innovation and Learning Perspective: Controlling Waste and Pollution Four levels of waste minimization  Waste prevention and reduction  Recycle and reuse  Waste treatment  Waste disposal

©2004 by Nelson, a division of Thomson Canada Limited

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What Really Happened?
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Focused on customer satisfaction Implemented Six Sigma system Quality and on-time delivery improved dramatically Howmet is an industry model

©2004 by Nelson, a division of Thomson Canada Limited

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