Ch. 16 Outline
1. Bureaucratic Control Systems
The Control Cycle
Different Approaches to Bureaucratic control
Financial Controls
The Downside to Bureaucratic Control
2. Other Controls
Market Control
Clan Control
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Characteristics of Control
• Managers can apply three broad strategies for
achieving organizational control
– Bureaucratic control is the use of rules, regulations, and
formal authority to guide performance
– Market Control involves the use of pricing mechanisms
to regulate activities in organizations as though they were
economic transactions
– Clan Control Is based on the idea that employees may
share the values, expectations, and goals of the
organization and act in accordance with them
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Control
• Control is essential for the attainment of
any management objective
– Our Text—Control is any process that directs
the activities of individuals toward the
achievement of organizational goals
– Other Texts—The Process of monitoring
activities to ensure that they are being
accomplished as planned and of correcting
any significant deviations.
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Approaches to Bureaucratic
Control
• There are three approaches to bureaucratic control
– Feed forward Control takes place before operations
begin and includes policies, procedures, and rules
designed to ensure that planned activities are carried out
properly
– Concurrent Control takes place while plans are being
carried out and includes directing, monitoring, and finetuning activities
– Feedback Control focuses on the use of information
about results to correct deviations from the acceptable
standard after they arise
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Management Audits
• Management audits are an evaluation of
the effectiveness and efficiency of various
systems within an organization
• Management audits may be
– External – this occurs when one organization
evaluates another organization
– Internal – these are a periodic assessment of a
company’s own planning, organizing, leading,
and controlling processes
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Budgetary Controls
• Budgetary control is the process of finding out
what’s being done and comparing the results
with the corresponding budget data to verify
accomplishments or remedy differences
• This is one of the most widely recognized and
commonly used methods of managerial control
• It is commonly called budgeting
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Budgetary Control
• Budgetary control begins with an estimate
of sales and expected income
• One of the primary considerations is the
length of the budget period
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Financial Controls
• Two financial statements that help
control overall organizational
performance are:
– Balance sheet shows the financial picture of a
company at a given time
– Profit and loss statement is an itemized
financial statement of the income and expenses
of a company’s operations
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Financial Controls
• Financial ratios are also an effective
approach for checking on the overall
performance of the enterprise
• They allow managers to effectively
compare their organization’s
performance with other organization’s
performance
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Designing Effective Control
Systems
• Effective control systems maximize potential benefits
and minimize dysfunctional behaviors
• Five characteristics of effective control systems
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–
–
–
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They are based on valid performance standards
They communicate adequate information to employees
They are acceptable to employees
They use multiple approaches
They recognized the relationship between empowerment
and control
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Market Control
• Market controls involve the use of economic forces
– and the pricing mechanisms that accompany
them – to regulate performance
• System is based on the principle that as output
from an individual, department, or business unit
creates value to other people, a price can be
negotiated for its exchange
• Two effects of this occur
– Price becomes an indicator of the value of the product
or service
– Price competition has the effect of controlling
productivity and performance
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Market Controls
• At the corporate level market controls
are used to regulate independent business
units
• At the business unit level market controls
are used to regulate exchanges among
departments and functions
– Transfer price is the price charged by one unit
for a product or service provided to another
unit within the organization
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Market Controls
• Market controls are
used at the
individual level to
determine wage
levels for the skills
that employees
possess
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Clan Control: The Role of
Empowerment and Culture
• Managers are discovering that control systems
based solely on bureaucratic and market
mechanisms are insufficient for directing
today’s workforce because
– Employee’s jobs have changed
– The nature of management has changed
– The employment relationship has changed
• Because of this empowerment has become a
necessary aspect of a manager’s repertoire of
control
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Clan Control: The Role of
Empowerment and Culture
• Clan control involves creating relationships
built on mutual respect and encouraging each
individual to take responsibility for his or her
actions
• Employees work within a guiding framework of
values, and they are expected to use good
judgment
• The emphasis in an empowered organization is
on satisfying customers, not on pleasing the boss
• Clan control takes a long time to develop and an
even longer time to change
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