CHAPTER 11

Organizational
Control and Change

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 Learning Objectives
1. Define organizational control, and explain how it increases
organizational effectiveness.
2. Describe the four steps in the control process and the way it
operates over time.
3. Identify the main output controls, and discuss their advantages and
disadvantages as means of coordinating and motivating
employees.
4. Identify the main behavior controls, and discuss their advantages
and disadvantages as means of coordinating and motivating
employees.
5. Discuss the relationship between organizational control and
change, and explain why managing change is a vital management
task.

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 Organizational Control

Organizational control
• Managers monitor and regulate how efficiently
and effectively an organization and its
members are performing the activities
necessary to achieve organizational goals.

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 Control Systems and IT (1 of 4)

Control systems
• Formal, target-setting, monitoring, evaluation,
and feedback systems that provide managers
with information about whether the
organization’s strategy and structure are
working efficiently and effectively

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 Figure 11.1 Three Types of Control

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 Control Systems and IT (2 of 4)

Feedforward control
• Control that allows managers to anticipate
problems before they arise
• Giving stringent product specifications to
suppliers in advance

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 Example – University of Alabama
Gameday
The University of Alabama provides
information for fans to be ready for football
game day parking and events.
This is an example of feedforward control.

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 Control Systems and IT (3 of 4)

Concurrent control
• Control that gives managers immediate
feedback on how efficiently inputs are being
transformed into outputs so managers can
correct problems as they arise

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 Example – Achieving Competitive
Excellence (ACE)
United Technologies Corporation uses ACE
to get employees involved in identifying and
solving design and quality problems and
finding better ways to assemble its products
to increase quality and reduce costs.
Problems are correct on an ongoing basis.
This is an example of concurrent control.

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 Control Systems and IT (4 of 4)

Feedback control
• Control that gives managers information about
customers’ reactions to goods and services so
corrective action can be taken if necessary

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 Control Process Steps

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 The Control Process (1 of 4)

1. Establish standards of performance,

goals, or targets against which
performance is to be evaluated.
• Managers decide on the standards of
performance, goals, or targets that they will
use in the future to evaluate the performance
of the entire organization or part of it.

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 The Control Process (2 of 4)

2. Measure actual performance.

• Managers measure outputs resulting from
worker behavior or measure the behavior
themselves.
• The more non-routine the task, the harder it is
to measure behavior or outputs.

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 The Control Process (3 of 4)

3. Compare actual performance against

chosen standards of performance.
• Managers evaluate whether, and to what
extent, performance deviates from the
standards of performance chosen in step 1.

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 The Control Process (4 of 4)

4. Evaluate the result and initiate

corrective action if the standard is not
being achieved.
• If managers decide that the level of
performance is unacceptable, they must try
to change the way work activities are
performed to solve the problem.

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 Three Organizational Control
Systems
Type of Control Mechanisms of Control
Output Financial measures of
control performance
Organizational goals
Operating budgets

Behavior Direct supervision

control Management by objectives
Rules and standard operation
procedures

Clan Values
control Norms
Socialization

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 Financial Measures of Performance
(1 of 4)

Profit ratios
• Measure how efficiently managers are using
the organization’s resources to generate
profits
Return on investment (ROI)
• Organization’s net income before taxes,
divided by its total assets
• Most commonly used financial performance
measure

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 Financial Measures of Performance
(2 of 4)

Operating margin
• Calculated by dividing a company’s operating
profit by sales revenue
• Provides managers with information about
how efficiently an organization is utilizing its
resources

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 Financial Measures of Performance
(3 of 4)

Liquidity ratios
• Measure how well managers have protected
organizational resources to be able to meet
short-term obligations
Leverage ratios
• Measure the degree to which managers use
debt or equity to finance ongoing operations

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 Financial Measures of Performance
(4 of 4)

Activity ratios
• Show how well managers are creating value from
organizational assets
Inventory turnover
• Measures how efficiently managers are turning
inventory over so excess inventory is not carried
Days sales outstanding
• Reveals how efficiently managers are collecting
revenue from customers to pay expenses

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 Organizationwide Goal Setting

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 Operating Budgets

Operating budgets
• Blueprint that states how managers intend to
use organizational resources to achieve
organizational goals efficiently

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 Effective Output Control

Objective financial measures

Challenging goals and performance standards

Appropriate operating budgets

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 Problems with Output Control

Managers must create output standards

that motivate at all levels.
These should not cause managers to
behave in inappropriate ways to achieve
organizational goals.

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 Behavior Control

Direct supervision
• Managers who actively monitor and observe
the behavior of their subordinates
• Teaches subordinates appropriate behaviors
• Intervenes to take corrective action
• Most immediate and potent form of behavioral
control
• Can be an effective way of motivating
employees
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 Problems with Direct Supervision

Very expensive because a manager can

personally manage only a relatively small
number of subordinates effectively

Can demotivate subordinates if they feel

that they are under such close scrutiny that
they are not free to make their own
decisions

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 Management by Objectives (1 of 2)

Management by objectives (MBO)

• A goal-setting process in which a manager
and each of his or her subordinates negotiate
specific goals and objectives for the
subordinate to achieve and then periodically
evaluate the extent to which the subordinate
is achieving those goals

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 Management by Objectives (2 of 2)

1. Specific goals and objectives are

established at each level of the
organization.
2. Managers and their subordinates
together determine the subordinates’
goals.
3. Managers and their subordinates
periodically review the subordinates’
progress toward meeting goals.

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 Bureaucratic Control

Bureaucratic control
• Control by means of a comprehensive system
of rules and standard operating procedures
(SOPs) that shapes and regulates the
behavior of divisions, functions, and
individuals

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 Problems with Bureaucratic Control

Rules are easier to make than discard,

leading to bureaucratic “red tape” and
slowing organizational reaction times to
problems.
People might become so used to
automatically following rules that they stop
thinking for themselves.

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 Clan Control

Clan control
• The control exerted on individuals and groups
in an organization by shared values, norms,
standards of behavior, and expectations

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 Organizational Change

Organizational change
• Movement of an organization away from its
present state and toward some desired future
state to increase its efficiency and
effectiveness

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 Figure 11. 5 Organizational Control
and Change

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 Figure 11. 6 Lewin’s Force-Field
Theory of Change

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 Evolutionary and Revolutionary
Change (1 of 2)
Evolutionary change
• Gradual, incremental, and narrowly focused
• Constant attempt to improve, adapt, and
adjust strategy and structure incrementally to
accommodate changes in the environment

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 Evolutionary and Revolutionary
Change (2 of 2)
Revolutionary change
• Rapid, dramatic, and broadly focused
• Involves a bold attempt to quickly find ways to
be effective
• Likely to result in a radical shift in ways of
doing things, new goals, and a new structure
for the organization

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 Figure 11.7 Four Steps in the
Organizational Change Process

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 Implementing the Change (1 of 2)

Top-down change
• A fast, revolutionary approach to change in
which top managers identify what needs to be
changed and then move quickly to implement
the changes throughout the organization

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 Implementing the Change (2 of 2)

Bottom-up change
• A gradual or evolutionary approach to change
in which managers at all levels work together
to develop a detailed plan for change

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 Evaluating the Change

Benchmarking
• The process of comparing one company’s
performance on specific dimensions with the
performance of other, high-performing
organizations
• Example: Xerox benchmarking against
L.L.Bean, John Deere, and Proctor &
Gamble

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 Video: Starbucks

How important is quality control to

Starbucks’s success?
What quality control steps does Starbucks
take?

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