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Managerial control 2

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Christine Ann Fabros

on 7 July 2014

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Transcript of Managerial control 2

Control is the process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations.
Any process that directs the activities of individuals toward the achievement of organizational goals
Control is a basic managerial function of every manager and the responsibility of line authority.
one of the Siamese twins of management. The other twin is PLANNING.
Symptoms of an Out-of-Control Company are:
Lax top management - senior managers do not emphasize or value the need for controls.
Absence of policies - the firm's expectations are not established in writing.
Lack of agreed-upon standards- organization members are unclear about what needs to be achieved.
"Shoot the messenger" management- employees feel their careers would be at risk if they reported bad news.
Lack of periodic reviews- managers do not access performance on a regular timely basis.
Bad information systems- key data are not measured and reported in a timely and easily accessible way.
Lack of ethics in the culture- organization members have not internalized a commitment to integrity.
The use of rules, regulations, and authority to guide performance
Market control
control based on the use of pricing mechanisms and economic information to regulate activities within organizations
Clan Control
Control based on the norms, values, shared goals, and trust among group members.
Bureaucratic Control Systems
Step 1: Setting performance standards
standard - expected performance for a given goal

target that establishes a desired performance level, motivates performance, and serves as a benchmark against which actual performance is assessed

can be set for any activity

typically is derived from job requirements

set with respect to quantity, quality, time, and cost
The control cycle
Step 2: Measuring performance

performance data obtained from three sources

written reports
personal observation
oral reports
Step 3: Comparing performance with the standard

evaluation of the performance

for some activities, small deviations from the standard are acceptable

for other activities, a slight deviation may be serious
Step 4: Taking corrective action

ensures that operations are adjusted where necessary

type of corrective action depends on the nature of the problem
specialist control
operator control
Approaches to bureaucratic control

Feedforward (preliminary) control

control process used before operations begin
uture oriented
prevent problems before they occur
includes policies, procedures, and rules
Concurrent control - control process used while plans are being carried out

the heart of any control system
includes directing, monitoring, and fine-tuning activities as they are performed
advances in information technology have created powerful concurrent controls
Feedback control - control that focuses on the use of information about previous results to correct deviations from the acceptable standard

implies that performance data were gathered and analyzed
results used to make corrections
timing is an important aspect of feedback control
Management audits
evaluation of the effectiveness and efficiency of various systems within an organization

External audit
- evaluation conducted by one organization, such as a CPA firm, on another
may conduct external audit of a competitor for strategic decision-making purposes
useful for feedback and feedforward control
nternal audit
- periodic assessment of a company’s own planning, organizing, leading, and controlling processes
assess what the company has done for itself and its customers
reviews the company’s past, present, and future
Budgetary control
most widely recognized and commonly used method of managerial control

rocess of investigating what is being done and comparing the results with the corresponding budget data
used to verify accomplishments or remedy differences
Fundamental budgetary considerations

begin with an estimate of sales and expected income
budgeting information is supplied to the entire company or any of its units
not confined to financial matters
budgets prepared for a definite time period

budgetary control proceeds through several stages
establishing expectancies - starts with the broad company plan and sales estimates
ends with budget approval and publication
budgetary operations - find out what is being accomplished and compare the results with expectancies
taking corrective action (if necessary)
Accounting audits

procedures used to verify accounting reports and statements
performed by an outside firm of public accountants

Activity-based costing (ABC)

cost accounting method that identifies streams of activity
employees break down what they do to define basic activities
total expenses computed by traditional accounting
Financial controls
alance sheet - report that shows the financial picture of a company at a given time
assets - the values of various items the corporation owns
liabilities - the amounts the corporation owes to various creditors
stockholders’ equity - amount accruing the corporation’s owners
shows trends over timeAssets = Liabilities + Stockholders’ equity
gives managers insight into overall performance
identifies areas which require adjustments
Profit and loss statement - itemized financial statement of the income and expenses of a company’s operations
comparisons of profits and losses can identify trouble areas
a common control for the enterprise as a whole
may be used at the division and department level

Financial ratios - indicate possible strengths and weaknesses
calculated from selected items on the profit and loss statement and the balance sheet

Liquidity ratios - indicate the ability to pay short-term debts
current ratio - indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities

Rigid bureaucratic behavior -

acting in ways that make one look good on the control system’s measures
may result in rigid, inflexible behavior geared toward doing only what the system requires

Tactical behavior -
behavior aimed at “beating the system”
manipulate or falsify performance data
concern about individual rather than organizational performance

Resistance to control -
people don’t like being accountable
control system can change expertise and power structures
control system can change the social structure
control system may be perceived as an invasion of privacy
Downside of bureaucratic control

Establish valid performance standards - most effective standards expressed in quantitative terms
measures are not easily faked or sabotaged
system incorporates all important aspects of performance
too many measures create over control and employee resistance
have stated tolerance ranges

Provide adequate information - employees must understand the importance and nature of the control system
people need feedback about performance
enables them to correct deviations from the standards
information should be accessible
Designing effective control systems
Ensure acceptability to employees - more likely to accept systems that have useful performance standards
over control is not an issue
believe the standards are possible to achieve
emphasize positive behavior rather than focusing on controlling negative behavior alone

Use multiple approaches

include both financial and nonfinancial performance goals
incorporate aspects of feedforward, concurrent, and feedback control

involves the use of economic forces and the pricing mechanisms that accompany them
where output from any organizational unit has value to others, a price can be negotiated for its exchange
as a market for these transactions becomes established:
price becomes an indicator of the value of the product or service
price competition effectively controls performance

Market controls at the corporate level
used to regulate independent business units
business units treated as competing profit centers
profit and loss data used to evaluate performance
Market control
Market controls at the business unit level
regulates exchange among departments and functions
transfer price - price charged by one unit in the organization for a product or service that it supplies to another unit of the same organization
provide natural incentives to keep costs down
Market controls at the individual level
market rate is a good indicator of an employee’s potential worth
provide a natural incentive for employees to enhance their skills
boards of directors use market controls to manage CEOs

bureaucratic and market controls are no
longer sufficient because:

employees’ jobs have changed
the nature of management has changed
the employment relationship has changed

empowerment - has become a necessary aspect of a manager’s repertoire of control
does not mean giving up control
clan control - create relationships built on mutual respect
Clan control: the role of empowerment and culture
Management Control In An Empowered Setting
1. Put control where the operation is
2. Use “real time” rather than after-the-fact controls
3. Rebuild the assumptions underlying management
control to build on trust rather than distrust
4. Move to control based on peer norms
5. Rebuild the incentive systems to reinforce
responsiveness and teamwork
Understanding culture’s role in control

organization culture - set of important assumptions about the organization and its goals and practices that members of the company share
strong culture - everyone understands and believes in the firms’ goals, priorities, and practices
weak culture - different people hold different values
confusion about corporate goals

Diagnosing culture - clues about culture
corporate mission statements and official goals
business practices
symbols, rites and ceremonies
the stories people tell
Group Culture
Dominant Attribute: cohesiveness, participation, teamwork, sense of family
Leadership Style: mentor, facilitator, parent-figure
Bonding: loyalty, tradition, interpersonal cohesion
Strategic Emphasis: toward developing human resources, commitment, and morale
Dominant Attribute: entrepreneurship, creativity, adaptability, dynamism
Leadership Style: innovator, entrepreneur, risk taker
Bonding: flexibility, risk, entrepreneur
Strategic Emphasis: toward innovation, growth, new resources

Dominant Attribute: order, rules and regulations, uniformity, efficiency

Leadership Style: coordinator, organizer, administrator

Bonding: rules, policies and procedures, clear expectations

Strategic Emphasis: toward stability, predictability, smooth
Dominant Attribute: order, rules and regulations, uniformity, efficiency
Leadership Style: coordinator, organizer, administrator
Bonding: rules, policies and procedures, clear expectations
Strategic Emphasis: toward stability, predictability, smooth
Dominant Attribute: goal achievement, environment exchange, competitiveness
Leadership Style: production and achievement-oriented, decisive
Bonding: goal orientation, production, competition
Strategic Emphasis: toward competitive advantage and market superiority
Managing culture to reinforce clan control

approaches to managing culture
corporate leadership should espouse lofty ideals and visions for the company
executives must be attentive to the details of daily affairs
top management must behave appropriately during moments of truth when hard choices have to be made
top management must celebrate and reward those who exemplify the new values
clan control is a “double edged sword”
takes a long time to develop and even longer to change
employees must unlearn old values and embrace the new
FIN :)

thank you
for listening!
Full transcript