Chapter Twenty

Basic Elements of
Control

Slide content created by Charlie Cook, The University of West Alabama

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 The Nature of Control in
Organizations
• Control
– The regulation of organizational activities so that
some targeted element of performance remains
within acceptable limits.
• Benefits of Control
– Provides organizations with indications of how well
they are performing in relation to their goals.
– Provides a mechanism for adjusting performance
to keep organizations moving in the right direction.

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 The Nature of Control in
Organizations

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• Adapting to Environmental Change
– between the time a goal is established and the time it is
reached, many things can happen in the organization and its
environment to disrupt movement toward the goal—or even
to change the goal itself
– Limiting the Accumulation of Error
• Over time, however, small errors may accumulate and
become very serious
– Coping with Organizational Complexity
• When large firms merge, the short-term results are often
disappointing
– Minimizing Costs
• effective control systems can eliminate waste, lower
labor costs, and improve output per unit of input.

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 The Nature of Control in
Organizations (cont’d)
• Types of Controls
– Areas of Control
• Physical resources—inventory management, quality
control, and equipment control.
• Human resources—selection and placement, training
and development, performance appraisal, and
compensation.
• Information resources—sales and marketing forecasts,
environmental analysis, public relations, production
scheduling, and economic forecasting.
• Financial resources—managing capital funds and cash
flow, collection and payment of debts.

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 Figure 20.3: Steps in the
Control Process

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 The Nature of Control in
Organizations (cont’d)
• Steps in the Control Process (cont’d)
– Establish standards
• Control standard—a target against which subsequent
performance will be compared.
– Should be expressed in measurable terms.
– Should be consistent with organizational goals.
– Should be identifiable indicators of performance.
– Measure performance
• Performance measurement is a constant, ongoing
process.
• Performance measures must be valid indicators (e.g.,
sales, costs, units produced) of performance.

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 The Nature of Control in
Organizations (cont’d)
• Steps in the Control Process (cont’d)
– Compare performance against standards
• Define what is a permissible deviation from the
performance standard.
• Utilize the appropriate timetable for measurement.
– Consider corrective action
• Maintain the status quo (do nothing).
• Correct the deviation to bring operations into compliance
with the standard.
• Change the standard if it was set too high or too low.

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 Figure 20.2: Levels of Control

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 Levels of Control
• Operations control
– focuses on the processes the organization uses to transform resources into
products or services.
– Quality control is one type of operations control.
• Financial control
– concerned with the organization’s financial resources.
– Monitoring receivables to make sure customers are paying their bills on time
is an example of financial control
• Structural control
– concerned with how the elements of the organization’s structure are serving
their intended purpose.
– Monitoring the administrative ratio to make sure staff expenses do not
become excessive is an example of structural control
• strategic control
– focuses on how effectively the organization’s corporate, business, and
functional strategies are succeeding in helping the organization meet its
goals.

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 Operations Control

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• Preliminary Control
– concentrates on the resources—financial, material, human,
and information—the organization brings in from the
environment.
– monitor the quality or quantity of these resources before
they enter the organization
• Screening Control
– focuses on meeting standards for product or service quality
or quantity during the actual transformation process itself
– relies heavily on feedback processes
– More and more companies are adopting screening controls
because they are an effective way to promote employee
participation and catch problems early in the overall
transformation process

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• Postaction Control
– focuses on the outputs of the organization
after the transformation process is
complete.
– Postaction control also provides a basis for
rewarding employees.

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 Financial Control
• Financial Control
– Control of financial
resources (revenues,
shareholder investments)
as they:
• Flow into the organization
revenues
• Are held by the organization
as working capital, retained
earnings
• Flow out of the organization
as payment of expenses

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 Structural Control
• Bureaucratic Control
– A form of organizational
control characterized by
formal and mechanistic
structural arrangements.
• Decentralized control
– An approach to organizational
control based on informal and
organic structural
arrangements.

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 Strategic Control
• Integrating Strategy and Control
– Strategic control
• Is aimed maintaining an effective alignment with the
environment and moving toward achieving strategic
goals.
• Focuses on structure, leadership, technology, human
resources, and informational and operational systems.
• Focuses on the extent to which implemented strategy
achieves the organization’s goals.
– International Strategic Control
• Focuses on whether to manage the global organization
from a centralized or decentralized perspective.
– Centralization creates more control and coordination,
whereas decentralization fosters adaptability and
innovation.

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 Managing Control in
Organizations
• Characteristics of Effective Control
– Integration with planning
– Flexibility
– Accuracy
– Timeliness
– Objectivity

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