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Chapter

8 Organizing: Control and Culture

Essentials of

ContemporaryManagement

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Learning Objectives

After studying the chapter, you should be able to:Define organizational control, and describe the four

steps of the control process.

Identify the main output controls, and discuss theiradvantages and disadvantages as means ofcoordinating and motivating employees.

Identify the main behavior controls, and discuss

their advantages and disadvantages as means ofcoordinating and motivating employees.

Explain the role of organizational culture increating an effective organizational architecture.

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What Is Control?

ControllingThe process whereby managers monitor and

regulate how efficiently and effectively anorganization and its members are performing the

activities necessary to achieve organizational goals.Involves monitoring and evaluating organizational

strategy and structure to assess whether there is aneed for change to improve the firms competitive

performance.

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Organizational Control

Managers must monitor and evaluate:Is the firm efficiently converting inputs into outputs?

Are units of inputs and outputs measured

accurately?

Is product quality improving?

Is the firms quality competitive with other firms?

Are employees responsive to customers?

Are customers satisfied with the services offered?

Are our managers innovative in outlook?

Does the control system encourage risk-taking?

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Control Systems and IT

Control Systems

Formal, target-setting, monitoring, evaluation and

feedback systems that provide managers withinformation about how well the organizationsstrategy and structure are working.

A good control system should:

Be flexible so managers can respond as needed.

Provide accurate information about theorganization.

Provide information in a timely manner.

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Three Types of Control

Figure 10.1

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Types of Control

Feedforward Controls

Used in the input stage of the process.

Anticipates problems before they arise.

Example: Giving rigorous specifications to suppliers to avoid quality

problems with inputs.

Concurrent Controls

Give immediate feedback on how inputs are converted into outputs.Allows correction of problems as they arise

Managers can see that a machine is becoming out of alignment

and adjust/fix it.

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Types of Control (contd)

Feedback Controls

Provide after-the-fact information managers can use in

the future.

Customers reactions to products are used to take

corrective action in the future.

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Control Process Steps

Figure 8.2

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The Control Process

1. Establish standards, goals, or targets againstwhich performance is to be evaluated.

Managers at each organizational level need to set

their own standards.

Standards must be consistent with theorganizations strategy (i.e., for a low coststrategy, standards should be focused closely on

reducing costs).

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The Control Process

2. Measure actual performanceManagers can measure outputs resulting from

worker behavior or they can measure thebehavior themselves.

The more non-routine the task, the harder it isto measure performance or output, causing

managers to measure an employees behavior

(e.g., that an employee comes to work on time)

rather than the employees output.

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The Control Process

3. Compare actual performance against chosenstandards.

Managers must decide if performance actuallydeviates, often, several problems combinecreating low performance.

4. Evaluate result and take corrective action.

Standards have been set too high or too low.

Workers may need additional training orequipment.

This step is often hard since the environment isconstantly changing.

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Three Organizational Control Systems

Figure 8.3

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Financial Measures of Performance

Financial ControlsProfit ratios

How efficiently managers convert resources into

profitsreturn on investment (ROI).

Liquidity ratios

How well managers protect resources to meet

short term debtcurrent and quick ratios.

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Financial Performance Measures

Profit Ratios

Liquidity Ratios

assetsTotal

taxesbeforeprofitNetinvestmentonReturn

revenuesSales

soldgoodsofcost-revenuesSales

marginprofitGross

sliabilitieCurrent

assetsCurrentratioCurrent

sliabilitieCurrent

inventory-assetsCurrentratioQuick

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Financial Measures (contd)

Financial Controls (contd)Leverage ratios

How much debt is used to finance operations

debt-to-asset and times-covered ratios.

Activity ratios

How efficiently managers are creating value from

assetsinventory turnover, days sales

outstanding ratios.

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Financial Performance Measures (contd)

Leverage Ratios

Activity Ratios

assetsTotal

debtsTotalratioassets-to-Debts

chargesinterestTotal

taxesandinterestbeforeProfit

ratiocovered-Times

Inventory

soldgoodsofCost

turnoverInventory

300

SalesTotal

receivableAccountsgoutstandinsalesDays

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Output Control

Organizational GoalsEach division within the firm is given specific goals

that must be met in order to attain overallorganizational goals.

Goals should be specific and difficult, but notimpossible, to achieve (stretch goals).

Goal setting and establishing output controls are

management skills that are developed over time.

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Organization-Wide Goal Setting

Figure 10.4

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Output Control (contd)

Operating Budgets

Blueprints that state how managers intend toallocate and use the resources they control to attain

organizational goals effectively and efficiently.

Each division is evaluated on its own budgets for

cost, revenue or profit.

Managers are evaluated by how well they meet

goals for controlling costs, generating revenues,or maximizing profits while staying within their

budgets.

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Problems with Output Control

Managers must create output standards thatmotivate at all levels.

They must be careful not to create short-term goalsthat motivate managers to ignore the future.

Example: Cutting costs by curtailing researchand development (R&D) now may lead to a loss

of competitiveness in the future.

If standards are set too high, workers may engage

unethical behaviors to attain them.

Example: Attempting to increase output

regardless of product quality issues caused by

omitting steps in the production process.

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Behavior Control

Direct SupervisionManagers who directly manage can teach, reward,

lead by example, and take corrective action asneeded.

Can be very expensive since only a few workerscan be personally managed by one manager and

many managers are needed.

Close supervision demotivates workers who

desire less scrutiny and more autonomy, causingthem to avoid responsibility.

Direct supervision is difficult to do effectively in

complex job settings.

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Management by Objectives

Management by Objectives (MBO)

A goal-setting process in which managers and

subordinates negotiate specific goals and objectivesfor the subordinate to achieve and then periodicallyevaluate their attainment of those goals.

Specific goals are set at each level of the firm.

Pay raises and promotions are tied to goalattainment.

Teams are also measured with goals andperformance measured for the team.

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Rules and Standard Operating Procedures

Bureaucratic Control

Control through a system of rules and standard operatingprocedures (SOPs) that shapes the behavior of divisions,functions, and individuals.

Rules and SOPs tell the worker what to do (standardized

actions) so outcomes are predictable.

There is still a need for output control to correct mistakes.

Bureaucratic control is best used for routine problems in

stable environments.

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Rules and Standard Operating Procedures(contd)

Bureaucratic Control

Problems with Bureaucratic Control

Rules easier to make than discarding them,

leading to bureaucratic red tape and slowing

organizational reaction times to problems.

Firms become too standardized and lose

flexibility to learn, to create new ideas, and solve

to new problems.

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Organizational Culture

Organizational CultureThe set of internalized values, norms, standards of

behavior, and common expectations that controlthe ways in which individuals and groups in anorganization interact with each other and work to

achieve organizational goals.

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Clan Control

Clan Control

The control through the development of an internal

system of values and norms.Both culture and clan control accept the norms and values

as their own and then work within them.

Examples: Work dress styles, normal working hours,

pride taken in work.

These methods provide control where output andbehavioral control does not work.

Strong culture and clan control help worker to focus on

the organization and enhance its performance.

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Factors Creating A Strong Organizational Culture

Figure 8.5

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Values and Norms

ValuesBeliefs and ideas about the kinds of goals members

of a society should pursue and about the kinds andmodes of behavior people should use to achieve

those goals. Norms

Unwritten, informal rules or guidelines thatprescribe appropriate behavior in particular

situations.

Having norms and values that are suited to the

organizations environment is important.

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Creating Organizational Culture

Values of the FounderInitial values are critical as founders hire their first

set of managers.

Founders are likely hire those who share their

vision which evolves eventually into the culture ofthe firm.

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Creating Organizational Culture (contd)

SocializationOrganizational Socialization

The process by which newcomers learn anorganizations values and norms and acquire the

work behaviors necessary to perform jobseffectively.

Newcomers learn not only because they have

to but because they want to in order to fit in.

Organizational behavior, expectations, andbackground are included in socialization.

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Ceremonies and RitesFormal events that focus on important incidents:

Rite of passage:

denoting employees entrance into the

firm with the formal presentation of a name badge.

Rite of integration:

building common bonds with annual

office parties and outings or celebrations for meeting

organizational performance goals. Rites of enhancement:

enhancing worker commitment to values through

promotion ceremonies and awards dinners.

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Stories and Language

Organizations repeat the stories of founders orsignificant events in the firms history tocommunicate the values and norms for behaviorsthat are valued by the organization.

Show workers how to act and what to avoid.

Stories often have a hero that workers canmimic.

Many firms have unique dress codes and usejargon in their internal communications that onlytheir employees understand.

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Culture and Managerial Action

Culture affects the functions of management.Planning

In innovative firms, the culture will encourage all

managers to participate.

In slow moving firms, the focus will be on theformal process rather than the decision.

Organizing

Creative firms have organic, flexible structures

that are most likely very flat with delegated,

decentralized authority.

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Culture and Managerial Action (contd)

Culture affects the functions of management(contd)

Leading

Flexible, open organizations encourage leading

by example; top managers take risks and trustlower managers.

Controlling

Innovative firms choose types of controls that

match their structure and foster new ideas and

organizational cooperation.

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