Management A Practical Introduction Third Edition Angelo Kinicki & Brian K. Williams Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Chapter 16: Control Techniques for Enhancing Organizational Effectiveness Managing for Productivity Control The Balanced Scorecard, Strategy Maps, & Measurement Management Levels & Areas of Control Some Financial Tools for Control Total Quality Management Managing Control Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 2 16.1 Managing for Productivity WHAT IS PRODUCTIVITY? Productivity is defined as outputs divided by inputs where: outputs are the goods and services produced, and inputs are labor, capital, materials, and energy Productivity is important because it determines whether a company will make a profit and affects a country’s standard of living Maintaining productivity depends on control Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 3 16.1 Managing for Productivity Figure 16.1: Managing for Productivity and Results Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 4 16.2 Control: When Managers Monitor Performance WHY IS CONTROL IMPORTANT? Control is making something happen the way it was planned to happen, while controlling is monitoring performance, comparing it with goals, and taking corrective action as needed Recall that: -planning is setting goals and deciding how to achieve them -organizing is arranging tasks, people, and other resources to accomplish the work -leading is motivating people to work hard to achieve the organization’s goals -controlling is making sure performance meets objectives Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 5 16.2 Control: When Managers Monitor Performance Figure 16.2: Controlling for Productivity Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6 Chapter 16: Control CLASSROOM PERFORMANCE SYSTEM The four management functions include all of the following except A) implementing B) organizing C) planning D) controlling Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 7 16.2 Control: When Managers Monitor Performance There are six reasons why control is needed: 1. To adapt to change & uncertainty - organizations need to be able to deal with change and uncertainty in the environment 2. To discover irregularities and errors - without checks and balances, companies might not survive 3. To reduce costs, increase productivity, or add value - control systems can reduce costs, increase output, and add value to a product Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 8 16.2 Control: When Managers Monitor Performance 4. To detect opportunities - controls can help firms identify opportunities that might otherwise go unnoticed 5. To deal with complexity - controls help firms deal with the complexities of multiple product lines, customer bases, and so on 6. To decentralize decision making & facilitate teamwork - controls allow top managers to decentralize control to lower levels and encourage teamwork Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 9 16.2 Control: When Managers Monitor Performance There are four steps in the control process: 1. Establish Standards The desired performance level for a given goal is a control standard, or performance standard Standards can be broad or narrow 2. Measure Performance Performance is measured using three sources: written reports, oral reports, and personal observation Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 10 16.2 Control: When Managers Monitor Performance 3. Compare Performance To Standards Measured performance is compared to established standards The amount of deviation acceptable depends on the predetermined range of variation Some firms follow management by exception where managers are informed of a situation only if data show a significant deviation from standards 4. Take Corrective Action, If Necessary Firms can make no changes to the current situation, recognize and reinforce positive performance, or take action to correct negative performance Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 11 16.2 Control: When Managers Monitor Performance Figure 16.4: Steps in the Control Process Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 12 16.3 The Balanced Scorecard, Strategy Maps & Measurement Management HOW CAN MANAGERS ESTABLISH STANDARDS AND MEASURE PERFORMANCE? The balanced scorecard, strategy maps, and measurement management are all techniques that managers use to establish standards and measure performance The balanced scorecard gives top management a fast but comprehensive view of the organization using four indicators: customer satisfaction, internal processes, innovation and improvement activities, and financial measures Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 13 16.3 The Balanced Scorecard, Strategy Maps & Measurement Management Figure 16.5: The Balanced Scorecard Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 14 Chapter 16: Control CLASSROOM PERFORMANCE SYSTEM The balanced score card sets goals and performance measures from all of the following perspectives except A) innovation and learning B) financial C) customer D) productivity Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 15 16.3 The Balanced Scorecard, Strategy Maps & Measurement Management A strategy map is a visual representation of the four perspectives of the balanced scorecard that enables managers to communicate their goals so that everyone in the company can understand how their jobs are linked to the overall objectives of the organization There are two types of organizations: -measurement-managed companies are ones that have set measurable criteria that are linked to performance goals -non-measurement managed firms do not have measurable criteria linked to goals Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 16 16.3 The Balanced Scorecard, Strategy Maps & Measurement Management Figure 16.6: The Strategy Map Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 17 16.4 Levels & Areas of Control HOW SHOULD CONTROL BE IMPLEMENTED? There are three levels of control: 1. Strategic control is monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed Strategic control is performed by top managers with reports being issued quarterly, semi-annually, or annually Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 18 16.4 Levels & Areas of Control 2. Tactical control is monitoring performance to ensure that tactical plans – those at the divisional or departmental level – are being implemented and taking corrective action as needed Control is done by middle managers with reports on a weekly or monthly basis 3. Operational control is monitoring performance to ensure that operational plans – day-to-day goals – are being implemented and taking corrective action as needed Control is by first-line managers with reports on a daily basis Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 19 Chapter 16: Control CLASSROOM PERFORMANCE SYSTEM Which type of control issues reports on a weekly or monthly basis? A) strategic B) operational C) supervisory D) tactical Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 20 16.4 Levels & Areas of Control There are six areas of organizational control: 1. Physical area control includes things like equipment controls to monitor computer use, inventory management controls to keep track of inventory levels, and quality controls to ensure that products are being produced properly 2. Controls to monitor human resources include personality tests, drug tests, and performance tests 3. Controls of informational areas include production schedules, sales forecasts, and analyses of the competition Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 21 16.4 Levels & Areas of Control 4. Financial controls affect debt payments, payroll, budgets, and so on 5. Structural control involves the organizational hierarchy Bureaucratic control is characterized by rules, regulations, and formal authority Decentralized control is characterized by informal and organic structural arrangements 6. Cultural controls influence the norms and values of the organization’s culture which then affect the work process and performance levels Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 22 16.3 Some Financial Tools For Control WHAT ARE THE MAJOR FINANCIAL TOOLS FOR MANAGERS? Financial controls including budgets and financial statements are especially important to firms A budget is a formal financial projection Budgets provide a yardstick against which performance can be measured and comparisons can be made to other time periods, departments, and so on Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 23 16.3 Some Financial Tools For Control There are two different ways to budget: Incremental budgeting allocates increased or decreased funds to a department by using the last budget as a reference point—only incremental changes in the budget request are reviewed Zero-based budgeting forces each department to start from zero in projecting its funding needs for the budget period There two different types of budgets: Fixed budgets allocate resources on the basis of a single estimate of costs Variable budgets allow the allocation of resources to vary in proportion with various levels of activity Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 24 16.3 Some Financial Tools For Control A summary of some aspect of an organization’s financial status is a financial statement There are two basic types of financial statements: A balance sheet summarizes an organization’s overall financial worth (assets and liabilities) at a specific point in time where: -assets are the resources the organization controls, current assets are cash and other assets that are readily convertible to cash fixed assets are property, buildings, and equipment that are harder to convert to cash, and liabilities are claims by suppliers, lenders, and others Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 25 16.3 Some Financial Tools For Control The income statement summarizes an organization’s financial results - revenues (the assets from the sale of goods) and expenses (the costs required to produce goods and services) - over a specified period of time Liquidity ratios indicate how easily a company’s assets can be converted to cash Debt-management ratios indicate the degree to which an organization can meet its long-term financial obligations Asset management ratios indicate how effectively an organization is managing resources Return ratios indicate how effective management is at generating a return on assets Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 26 Chapter 16: Control CLASSROOM PERFORMANCE SYSTEM Ratios that indicate how effectively an organization is managing resources are A) return ratios B) liquidity ratios C) asset management ratios D) debt management ratios Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 27 16.3 Some Financial Tools For Control Formal verifications of an organization’s financial and operational systems are called audits There are two types of audits: An external audit is a formal verification of an organization’s financial accounts and statements by outside experts An internal audit is a verification of an organization’s financial accounts and statements by the organization’s own professional staff Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 28 16.6 Total Quality Management HOW CAN QUALITY BE IMPROVED? Total quality management (TQM) is a comprehensive approach, led by top manager and supported throughout the organization, dedicated to continuous quality improvement, training, and customer satisfaction The two core principles of TQM are people orientation (everyone involved in the organization should focus on delivering value to customers), and improvement orientation (everyone should work on continuously improving work processes) There are several techniques for improving quality including employee involvement, benchmarking, outsourcing, reduced cycle time, and statistical process control Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 29 16.7 Managing Control Effectively HOW CAN CONTROL BE MANAGED SUCCESSFULLY? Successful control systems are: 1. Strategic & results oriented – they support strategic plans and focus on activities that will make a real difference to the firm 2. Timely, accurate, & objective 3. Realistic, positive, & understandable & encourage selfcontrol 4. Flexible - so that they can be modified as needed Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 30 Chapter 16: Control There are several barriers that can limit successful control: 1.Too much control - when companies exert too much control, employees may rebel 2. Too little employee participation - employee participation can enhance productivity 3. Overemphasis on means instead of ends 4. Overemphasis on paperwork - unnecessary emphasis on paperwork can reduce effort in other areas 5. Overemphasis on one instead of multiple approaches using multiple control activities can increase accuracy and objectivity Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 31 Chapter 16: Control CLASSROOM PERFORMANCE SYSTEM Which of the following is not a barrier to successful control? A) flexibility B) too much control C) overemphasis on paperwork D) too little employee participation Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 32 Finale: Some Life Lessons WHAT ARE THE KEYS TO MANAGERIAL SUCCESS? Initiative is always in short supply If you have an active desire to learn new things, you’ll be ready for the next step Think ahead, understand what your obstacles are, and develop a strategy to win Be flexible, keep your cool, and take yourself lightly Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 33
