Hellriegel 11e PPT_CH10

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Don Hellriegel

Susan E. Jackson

John W. Slocum, Jr.

MANAGING: A COMPETENCY

BASED APPROACH

11

th

Edition

Chapter 10: Achieving Organizational

Control

Prepared by

Argie Butler

Texas A&M University

Learning Goals

1. Explain the foundations of control

2. Identify the six phases of the corrective control model

3. Describe the primary methods of organizational control

4. Explain key corporate governance issues and control mechanisms

Chapter 10: PowerPoint 10.1

Processes for ensuring that behaviors and decisions conform to an organization’s standards and legal requirements, including its rules, policies, procedures, and goals

How controls and planning support each other

Controls help ensure that decisions, actions, and results are consistent with plans

Controls help maintain or redirect actual behaviors and results toward those desired in plans

Controls help provide essential information needed to plan

Plans indicate the purposes to be served by controls

Chapter 10: PowerPoint 10.2

Mechanisms intended to reduce the likelihood of an unwanted event and thereby minimize the need for corrective action

A few forms:

1. Rules and regulations

2. Standards

3. Recruitment and selection procedures

4. Training and development programs

Chapter 10: PowerPoint 10.3

Corrective Controls

Corrective Controls

Mechanisms intended to reduce or eliminate unwanted behaviors or results and thereby return the situation to conformity with the organization’s regulations and standards

A few forms:

1. Direct supervision and feedback

2. Disciplinary action

3. Procedures for reporting misconduct

4. Monthly or even daily financial reports

Chapter 10: PowerPoint 10.4

Source of

Control

Stakeholders

Preventive

Maintaining quotas for hiring personnel in protected class

Corrective

Changing recruitment policies to attract qualified personnel

Organization Using budgets to guide expenditures

Disciplining an employee for violating a “No Smoking” safety regulation in a hazardous area

(continued)

Chapter 10: PowerPoint 10.5 (Adapted from Table 10.1)

Source of

Control

Group

Individual

Preventive Corrective

Advising a new employee about the group’s norm in relation to expected level of output

Harassing and socially isolating a worker who doesn’t conform to group norms

Deciding to skip lunch in order to complete a project on time

Revising a report you have written because you are dissatisfied with it

Chapter 10: PowerPoint 10.6 (Adapted from Table 10.1)

Objective controls

Acceptable controls

To Achieve

Strategic

Goals

Timely controls

Complete controls

Chapter 10: PowerPoint 10.7 (Adapted from Figure 10.1)

How Much Organizational Control?

Core questions

1. For what desired behaviors and results should organizational controls be developed?

2. What are the costs and benefits of the organizational controls required to achieve the desired behaviors and results?

3. What are the costs and benefits of utilizing alternative controls; such as self-managed teams, informal peer control, or individual self-control?

Chapter 10: PowerPoint 10.8

Internal Control

A process—effected by an organization’s board of directors, management, and other personnel— designed to provide reasonable assurance regarding the achievement of goals in the various categories

Major categories of internal control

1. Effectiveness and efficiency of operations

2. Reliability of financial reporting

3. Compliance with applicable laws and regulations

Chapter 10: PowerPoint 10.9

Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring

Internal

Control

Chapter 10: PowerPoint 10.10 (Figure 10.2)

Snapshot

“Fundamentally, control exists only to mitigate risk. So every internal control framework has to start with a systematic approach to identifying risk…Look at some of the major recent corporate failures. Where did the problems fundamentally arise? They occurred primarily because of breakdowns in the control environment.”

Larry Rittenberg, Chairman, COSO—Committee of

Sponsoring Organizations of the Treadway Commission

Chapter 10: PowerPoint 10.11

Limitations of internal control

Cannot change a bad manager into a good one

External influences may be beyond management’s control

Judgments may be faulty

May be circumvented by collusion of two or more employees

Management can override the control system

Chapter 10: PowerPoint 10.12

1. Define the

System

2. Identify Key

Characteristics

3. Set

Standards

4. Collect

Information

If okay continue

6. Diagnose and Correct

Problems

If deviations

Chapter 10: PowerPoint 10.13 (Figure 10.3)

5. Make

Comparisons

Snapshot

“Many large companies suffer the ravages of fiefdoms, turf wars and bureaucracy. It’s a problem that begins when individuals, groups, or divisions try to protect their turfs, reshaping their environments to gain as much control as possible…Ultimately, fiefdoms lose their ability to act consistently on behalf of the greater good of the company.”

Robert J. Herbold, Former Chief Operating Officer of

Microsoft, and author of The Fiefdom Syndrome

Chapter 10: PowerPoint 10.14

Chapter 10: PowerPoint 10.15 (Figure 10.4)

Mechanistic Control Methods Organic Control Methods

 Use of detailed rules and procedures whenever possible

Top-down authority, with emphasis on positional power

 Activity-based job descriptions that prescribe day-to-day behaviors

 Use of detailed rules and procedures only when necessary

Flexible authority, with emphasis on expert power and networks of influence

 Results-based job descriptions that emphasize goals to be achieved

(continued)

Chapter 10: PowerPoint 10.16 (Adapted from Table 10.2)

Mechanistic Control Methods Organic Control Methods

Emphasis on extrinsic rewards (wages, pensions, status symbols)

 Distrust of teams, based on an assumption that team goals conflict with organizational goals

Emphasis on both extrinsic and intrinsic rewards

(meaningful work)

 Use of team, based on an assumption that team goals and norms assist in achieving organizational goals

Chapter 10: PowerPoint 10.17 (Adapted from Table 10.2)

The collection and evaluation of data related to sales, prices, costs, and profits for guiding decisions and evaluating results

Market controls require:

1. The costs of the resources used in producing outputs to be measured monetarily

2. The value of the goods and services produced to be defined clearly and priced monetarily

3. The prices of the goods and services produced to be set competitively

Chapter 10: PowerPoint 10.18

Mechanisms for preventing or correcting the misuse and misallocation of resources, especially monetary resources

Comparative financial control: evaluation of a firm’s financial condition for two or more time periods

Ratio analysis: selecting two significant figures (or a combination of a number of figures), expressing their relationship as a fraction or percent, and comparing the value for two or more periods of time

Example: return on investment (ROI) ratio is net profit before tax divided by net worth and is a measure of the efficiency of total assets in generating net profits

Chapter 10: PowerPoint 10.19

Budgetary control: the process of monitoring, comparing, and evaluating actual expenditure levels in various categories in relation to budgeted amounts, and making changes as needed during the budget time period

Purposes of budgeting

1. Help in planning work effectively

2. Assist in allocating resources

3. Aid in controlling and monitoring resource utilization during the budget period

Chapter 10: PowerPoint 10.20

Common Types of Budgets in a Business

Sales budget Capital budget

Materials budget Research and development budget

Labor budget Cash budget

Chapter 10: PowerPoint 10.21

Automation: the use of self-regulating devices and processes that operate independently of people

Machine control: utilizes self-regulating instruments or devices to prevent and correct deviations from preset standards

In continuous process or robotic operations, machines control other machines

Chapter 10: PowerPoint 10.22

The pattern of relations and controls between the stockholders, the board of directors, and the top management of a company

Expectations: set by the organization through policies, procedures, practices and guidelines

Communication: makes sure that expectations are understood throughout the organization, and that there is proper training

Accountability: holds people accountable for meeting the expectations that have been set

Chapter 10: PowerPoint 10.23

Corporate Governance: A Sample of

Key Terms and Elements

Bylaws

Proxy statement

Board of directors

Annual meeting

Annual report and

Annual meeting

Chapter 10: PowerPoint 10.24

Laws and regulatory agencies

Lawsuits by stakeholders

Chapter 10: PowerPoint 10.25

Possibility of being acquired

Proxy statements: voting by shareholders

Eleven major sections dealing with such issues as:

1. Auditor independence

2. Corporate responsibility

3. Enhanced financial disclosures

4. Conflicts of interest

5. Corporate accountability

Chapter 10: PowerPoint 10.26

Certification: requires CEOs and CEOs of publicly traded companies to personally “testify”/sign that valid financial accounting processes have been established and used

Auditability: requires companies to develop and publish internal processes so that outsiders can confirm the existence of appropriate controls

Disclosure: companies must report financial results and material changes in corporate financial condition or operations “on a rapid and current basis”

Criminal accountability

Whistle-blower protection

Chapter 10: PowerPoint 10.27

Independent Boards of directors

Compensation contracts that attempt to align the interests of top executives with those of stockholders

Corporate bylaws that set ground rules for the responsibilities of top executives and board members

Evaluation of CEO by the Board

Strategic allocation of corporate resources by Board

Exercise of fiduciary responsibility and control by the Board

Chapter 10: PowerPoint 10.28

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