You are on page 1of 21

ORGANIZATIONAL CONTROL & STRATEGIC CONTROL

Broad View of Organizational Control
Control; The regulatory process directing the activities an organization
conducts to achieve anticipated goals and standards.
Controlling; The process of monitoring and regulating the organization’s
progress towards achieving goals.
Definition of Organizational Control; controlling entails monitoring,
evaluating and improving activities that take place within an organization.
Evaluating the Controlling concept
Frederick W. Tailor, father of scientific management emphasized establishing order
through strict management control to achieve efficiency in the work force. He
proposed a hierarchical management structure to exert control over employees
and to increase labour efficiency.
Over the years, many US businesses adopted Taylor’s concept of control, but now
a day’s Tailor method of control is viewed as a process imposed on employees by
the managers. A growing number of companies recognize that they should focus
on controlling processes, not on controlling people.



Controlling Organizations
Organizational Control; Controls are required to successfully manage every
organization function. Financial, budgetary & HR controls are used by the
managers of every department, whereas R&D, marketing and operations controls
are specific to their functions.
• Financial & Budgetary Control; enables top-level managers to access the overall
functioning of the organization. Middle managers use budgetary control to keep
spending on target & compare monthly/periodical spending with the budget.
• Human Resource Control; HR control is the process of regulating employee’s
behavior, it includes both improving the capabilities of employees & implementing
rewards, bonuses or incentive programmes aimed at achieving the goals.
• Operations Control; is used to regulate the process of producing goods & services.
It helps companies to reduce the amount of time it takes to produce a product and
to increase the amount of time that critical machines are operational.
• Marketing Control; it is used to evaluate how effective pricing, promotion,
distribution & products meet the customer’s expectations. Marketing controls also
monitor sales by region, competitor’s prices.
• R&D Control: It is the process of regulating the development of new products, it
also include the formal ranking & selection & of development of projects based on
customer needs
• Project Control: Cybernetic or steering control by far is the most common type of
control system. The key feature of cybernetic control is its automatic operations.





STRATEGIC CONTROL
• Application of Strategic Control
 Strategic Control; It is a special type of organizational control focuses on
monitoring & evaluating the strategic management process to ensure what is
suppose to happen, actually happens.
 Purpose of Strategic Control
 To help top management achieve organizational goals through
monitoring and evaluating the strategic management process.
 Provides feedback that is critical for deterring whether all steps of
strategic process are appropriate, compatible & functioning properly.
 Control Focus: Focus on three elements; Performance, Cost & Time.
• Types of Control System
 First Order Control System: The standard is set & there is no provisions for altering
it expect outside intervention, thermostat is an example.
 Second Order Control System: The device can alter the system can alter the system
standards according to some pre-determined rules & standards, adding a clock to a
thermostat to allow it to maintain different standards at day & night.
 Third Order Control System: It can reflect on system performance and decides to
act in ways they are not contained in instructions. Can change its goals without
specific programming so must contains humans.

STRATEGIC CONTROL
STRATEGIC CONTROL PROCESS
• Step 1 – Measure Organizational Performance
Management generally uses strategic audit to determine what is actually
happening within the organization.
• Step 2 – Compare Organizational Performance With Goals and Standards
Management build a case for concluding whether what has happened as a result
of strategic management process is acceptable.
• Step 3 – Take Necessary Corrective Action
If events are occurring in line with organizational goals, no corrective action is
required. If they are out of line some corrective action is required.
Step 1 – Measure Organizational Performance

• Measure Organizational Performance
 Management generally uses strategic audit to determine what is actually
happening within the organization.
 Strategic Audit; it is examination & evaluation of areas affected by the
operation of strategic management process within the organization.
 Scope of Audit; it may be very comprehensive or very focused.
 Formal / Informal; Formal Audit strictly adhere to established
organizational rules & procedures, whereas during informal audit
managers enjoy discretion in deciding what organizational
measurement should be taken & when.
 Strategic Audit Measurement Methods
 Qualitative Organizational Measurement
 Quantitative Organizational Measurement
Qualitative Organizational Measurement Method
Measurements are best arrived by answering questions designed to reflect
important facets of organizational operations.
 Is Organizational Strategy Internally Consistent?
 Refers to the impact of various strategies on the organization.
 Strategies are not conflicting in purpose, in terms of relationship to other
organizational strategies.
 Is Organizational Strategy Consistent With Environment?- Problems rise from:
 Inconsistency between environment and strategy is due to the difficulty of
matching two variables.
 Organization make no effort to make strategy & environment consistent
 Is Organizational Strategy Given Appropriate Organizational Resources;
 Organization possesses resources to execute organizational strategy.
 Without resources it is senseless to pursue any strategy.
 Is Organizational Strategy Too Risky?
 Strategy & resources in combination determine likely the degree of risk .
 Management must access proportion of organizational resources.
 Is Time Horizon of Strategy Appropriate?
 Strategy is designed to achieve organizational goals within a given time.
 Management must ensure that time available to reach the goal &
implement the strategy is consistent.
 In consistency between two variables can delay the achievement of goals.


QUANTITATIVE ORGANIZATIONL MEASUREMENT
METHODS
• The Quantitative Organizational Measurements are organizational assessments
resulting in data that are numerically summarized and organized before
conclusions are drawn on which to base strategic control action.
• Data gathered against such measures are generally easier to summarize &
organized. For the quantitative measurement of organizational performance three
measurements methods are commonly used:-
 ROI: The overall ROI for an enterprise is sometimes used as a way to grade
how well a company is managed. An ROI calculation is sometimes used along
with other approaches to develop a business case for a given proposal.
 Z-Score; These common quantitative measures results from an analysis that
numerically weights & sums five measures to arrive an overall score. Z Score of
a particular firm gives top management an idea of financial health of the firm.
 Stakeholders Audit; Stakeholders are people interested in a corporation’s
activities because they are significantly affected by accomplishment of the
organization’s objectives.
RETURN ON INVESTMENT (ROI) METHOD
• Formula: Net income is divided by total asset, it indicates the relationship between
the amount income generated & amount of assets needed to operate.
• Uses
 One of the measure to analyze Company’s own performance; always compare
ROI value of consecutive quarters and years for true picture.
 Measure performance in relation to industry; comparison with competitors
operating in the same industry.
 Help in making investment decisions normal risk viz-a-viz risk investment
 A return may be adjusted for inflation to better indicates its true worth
• Advantages
 How well management uses the property of the company to generate profit.
 A good way of evaluating financial viability of a capital investment proposal.
• Disadvantages
 ROI is very sensitive to depreciation policy & book value.
 One division operates in industry having favorable conditions the another in
unfavorable conditions, the former looks better.


Z SCORE METHOD
• Z-score formula for predicting bankruptcy : The formula predict the probability
that a firm will go into bankruptcy within two years. The Z-score uses multiple
corporate income and balance sheet values to measure the financial health. The Z
is defined as an index of over all corporate health.
• Z-Score Formula / Z score bankruptcy model
Z= 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 +1.0 X5
X1
= Working Capital / Total Assets.
X2
= Retained Earnings / Total Assets.
X3
= Earnings Before Interest and Taxes / Total Assets.
X4
= Market Value of Equity / Book Value of Total Liabilities
X5
= Sales/ Total Assets.

• Zones of Discrimination: Z score typically results in a single number that ranges
from -5 to 10. Interpretation of these figures are:
Z > 2.99 -“Safe” Zones
1.81 < Z < 2.99 -“Grey” Zones
Z < 1.81 -“Distress” Zones

STAKEHOLDERS AUDIT - METHOD
• Stakeholders Audit; Stakeholders are people interested in a corporation’s activities
because they are significantly affected by accomplishment of the organization’s
objectives.
• Organization’s Stakeholders: These are
 Stockholders; are interested in appreciation of stock & dividends.
 Unions; are interested in favaourable wage rates & benefit package.
 Creditors; are interested in the organization’s ability to pay its debts.
 Suppliers; are interested in retaining organization as a customer.
 , Governments; who see organizations as taxpayers contributing to the costs
of running the society.
 Social Interest Groups; such as consumer advocates & environmentalists.
• Usefulness of Stakeholders Audit: A summary of feedback generated by various
stakeholders groups, its tone & content can be a extremely valuable indicator of
organizational progress toward various goals.


Step 2 - COMPARE ORGANIZATIONAL PERFORMANCE WITH GOALS &
STANDARDS

• Organizational Goals; Establishment of Organizational Direction; Mission &
Objectives are the output of earlier step of the strategic management process,
• Standards; are developed to reflect organizational goals; they are the “yardsticks”
that are the acceptable levels of organizational performance. As a rule
management must develop standards in all performance areas touched on by
established organizational goals.
• Types of Standards
 Profitability Standards; Profit like to be made in given area.
 Market Position Standards; the percentage of total product market, company
would like to win from the competitors.
 Productivity Standards; the production oriented standards, indicate
acceptable rates at which products should be generated within the
organization.
 Personnel Development Standards; list acceptable level of progress in areas
critical to organizational success.
 Productivity Leadership Standards; innovation is critical for long range
organizational success.
 Employee Attitude Standards; indicates attitude of workers and managers.
 Public Responsibility Standards; certain obligations towards society and
acceptable level of social responsibility activities.
 Standard Reflecting Balance Between Short Range & Long Range Goal;
consisting between both and relationship between them.



Step 3 - TAKE NECESSARY CORRECTIVE ACTION

– Compare Organizational Measurement to Established Goals & Standards;
Once managers have collected organizational measurements and compared
these measurements with established goals and standards, they should take
any corrective action that is warranted.
– Corrective action is defined as the change management makes in the way an
organization functions in order to ensure that the organization can more
effectively and efficiently reach organizational goals and perform up to
standards that have been established. Corrective action may be as simple as
changing the price of the product or as complicated as to be deliberated in the
boardroom.
– Improving Organizational Performance; Assume that in a particular
organization goal and standards are not being met and corrective action is
necessary, such action might include improving organizational performance by
focusing one or more steps of strategic management process. In case goals
and standards are set too low, prompt action be taken to make them more
challenging.

THE IMPORTANCE OF INFORMATION IN STRATEGIC CONTROL

• Information System
 For successful strategic control, management must have valid and reliable
information reflecting various measurements of organizational performance.
 Virtually all organizations develop and implement some type of system to
generate this information. Two such systems commonly used are Management
Information System (MIS) and Management Decision Support System (MDSS).
• The Management Information System (MIS)
 An ongoing organized procedure to generate analyze, disseminate, store and
retrieve information for use in making marketing decision
 Salient characteristics includes real time data, generates regular report &
identify trends.
• Management Decision Support System (MDSS)
 It is a computer based information system that supports businesses and
organizational decision making activities. It helps to compile information from
raw data, documents, personal knowledge or business model etcetera.
 DSS is an interactive software-based system intended to help decision makers
compile useful information from various sources that helps in decision making



MANAGEMENT INFORMATION SYSTEM

• The Management Information System (MIS)
 Is the formal organizational network that is computer-assisted and provide
managers with information to facilitate them in decision making. Besides its
many uses a significant portion supports in strategic control.
 Once management establishes what information is needed for strategic
control, appropriate data must be collected and analyzed and the information
this analysis yields must be disseminated to appropriate organizational
members, usually upper management.
 Management must formulate strategic control activities. MIS System be used
as a basis for meeting the information needs of strategic control better in
future.
• The MIS & Management Levels; Managers at various levels of the organization are
responsible for performing different kinds of activities, the MIS should be flexible
enough to provide various management levels with requisite information.


TOP MANAGEMENT & STRATEGIC CONTROL
LEVEL CHARACTERISTICS OF ACTIVITY
PERFORMED
SAMPLE ACTIVITIES
Top
Management
•Activities are future oriented.
•Activities involve significant amount of
uncertainty, subjective assessment &
management emphasis.
•Establishing org direction.
•Performing environmental
analysis.
•Developing org strategies.
Middle
Management
•Activities are somewhat future
oriented but not to the degree of top-
management.
•Activities emphasize implementation
of organizational strategies.
•Making short-term forecast.
•Budgeting Human Resource
planning
Source
Management
Activities emphasize daily production,
daily performance that reflects
organizational strategy & helps in
attainment of long term organizational
goals.
•Assigning job to specific workers
& supervising them.
•Handling workers complaints.
•Managing inventory.
•Maintaining organizational
procedures & rules.
MANAGEMENT INFORMATION SYSTEM


• The Management Information System (MIS)
 Is the formal organizational network that is computer-assisted and provide
managers with information to facilitate them in decision making. Besides
its many uses a significant portion supports in strategic control.
 Once management establishes what information is needed for strategic
control, appropriate data must be collected and analyzed and the
information this analysis yields must be disseminated to appropriate
organizational members, usually upper management.
 Management must formulate strategic control activities. MIS System be
used as a basis for meeting the information needs of strategic control
better in future.
• The MIS & Management Levels; Managers at various levels of the organization are
responsible for performing different kinds of activities, the MIS should be flexible
enough to provide various management levels with information.
• Symptoms of an Inadequate MIS; Managers should continuously assess MIS
functioning. Managers must constantly alert for signals that MIS is not operating
effectively and efficiently. Once such symptoms are discovered, management must
take steps to solve whatever problems plague the MIS


Symptoms of an Inadequate MIS
• TYPE OF SYMPTOMS
 Operational Symptoms; Related to the way the organizational functions.
 Psychological Symptoms; Reflects the feelings of organizational problems.
 Report Content Symptoms; Exhibited in the structure of report generated by
MIS.
• IDENTIFICATION OF MIS RELATED PROBLEMS
 Where & how do managers involved in strategic control process get
information.
 Can managers make better use of there contacts to get information?
 In what strategic control areas is the knowledge of these managers weakest.
and how can they be given information to minimize such weakness.
 Do managers involved in strategic control tend to act before receiving enough
information?
 Do managers involved in strategic control wait so long for information that
opportunities pass them by and they become “bottlenecks”?

THE IMPORTANCE OF INFORMATION IN STRATEGIC CONTROL

The Management Decision Support System (MDSS)
 Is an interdependent set of decision aid that helps manager make relatively
unstructured, perhaps non-recurring decisions? MDSS is used as an analytic
tool for making more subjective decisions. MDSS help managers to make
strategic control decisions and other types of strategic management decisions.
 Technological advances have made the use of MDSS feasible and unavailable
virtually to all managers. Moreover, development of extensive software to
support information analysis related to more subjective decision making is
contributing to the popularity of MDSS.


USE OF MIS IN STRATEGIC CONTROL PROCESS
TOP MANAGEMENT & STRATEGIC CONTROL

• Understanding of Top-management; Strategic Control is a critical
ingredient of successful strategic management, top management
must be able to understand strategic control and know how to take
the action implied strategic control process.

• Primary Objective; Strategic Control entails reaching either of two
primary objectives maintaining strategic momentum already
achieved or “leaping” to a new strategic direction.

• Consistency in Organizational Variables; To reach these objectives,
top management must ensure that four interrelated organizational
variables are consistent & complimentary;
 Organizational Structure
 Incentives
 Information Systems
 Organizational Value Systems and Norms