Principles and Practices for Tomorrow’s Leaders
Gary Dessler
CHAPTER
Controlling and Building
Commitment
14
Controlling
PowerPoint Presentation by Charlie Cook
Copyright © 2004 Prentice Hall, Inc. All rights reserved.
Chapter Objectives
After studying this chapter and the case exercises at
the end, you should be able to:
1. Rate the adequacy of the manager’s control
system.
2. Recommend specific feedforward, concurrent,
and feedback controls that the manager can
use to control the activity.
3. Write a simple budget for the manager.
4. Specify a specific strategic ratio the manager
should have employees focus on.
5. List five measures the manager can use to
build a balanced scorecard.
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14–2
The Fundamentals Of An Effective
Control System
• Control
 The task of ensuring that planned activities are
getting the desired results.
 All control systems try to influence behavior.
 Controlling involves setting a target (planning),
measuring performance (evaluation), and taking
corrective action.
 Control also applies to monitoring every task—large
and small—that is delegated.
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14–3
Management and the Control Process
FIGURE 14–1
Source: © Gary Dessler, PH.D
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14–4
Types of Process Controls
• Steering Control
 A control that predicts results and takes corrective
action before the operation or project is completed.
• Concurrent or Yes/No Control
 A control system in which the manager exercises
control as the activity takes place, and the work may
not proceed until or unless it is acceptable.
• Feedback or Post-Action Control
 Any control tool in which the project or operation
being controlled is completed first, and then results
are measured and compared to the standard.
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14–5
How Effective Is Your Control System?
FIGURE 14–2
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14–6
Checklist 14.1
Requirements for Adequate Controls
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Controls should reflect the nature and needs of the
activity.
Controls should report deviations promptly.
Controls should be forward-looking.
Controls should point up exceptions at strategic
points.
Controls should be objective.
Controls should be flexible.
Controls should reflect the organization structure.
Controls should be economical.
Controls should be understandable.
Controls should indicate corrective action.
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14–7
Examples of Control Standards
FIGURE 14–3
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14–8
Approaches To Maintaining Control
• The Traditional Control Process
 Step 1: Set a standard, target, or goal.
 Step 2: Measure actual performance against
standards (observation and timing).
 Step 3: Take corrective action.
• The Commitment-Based Control Process
 Encouraging all employees to exercise ethical selfcontrol (as they initiate process improvements and
new ways of responding to customers’ needs.
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14–9
Types of Traditional Control Systems
• Diagnostic controls
 A control method, such as a budget, that ensures that
standards are being met and that variances are
diagnosed and explained.
• Boundary Controls
 Policies, such as codes of conduct, that establish
rules and identify the actions and pitfalls that
employees must avoid.
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14–10
Types of Traditional Control Systems
(cont’d)
• Personal/Interactive Controls
 Control methods that involve direct, face-to-face
interaction with employees so as to monitor rapidly
changing information and respond proactively to
changing conditions.
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14–11
Two Basic Categories of Control Systems
FIGURE 14–4
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14–12
Diagnostic Controls and Budgetary
Systems
• Principle of Exception (Management by
Exception)
 Employees should be left to pursue the standards set
by management, and only significant deviations from
the standard should be brought to a manager’s
attention.
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14–13
The Basic Management Control System
• Budget
 Formal financial expression of a manager’s plans.
• Sales Budget
 A planning document that shows the estimated
number of units to be sold in each period (usually per
month) or the expected sales activity to be achieved
and the sales revenue expected from the sales.
• Operating Budget
 Shows the expected sales and/or expenses for each
of the company’s departments for the planning period
in question.
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14–14
Pro Forma Profit Planning
• Income Statement
 Shows expected sales, expected expenses, and
expected income or profit for the year.
• Cash Budget
 Shows, for each month, the amount of cash the
company can expect to receive and the amount it can
expect to disperse.
• Balance Sheet
 A projected statement of the financial position of the
firm.
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14–15
Example of a Budget
FIGURE 14–5
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14–16
Performance Reporting
• Variances
 Differences between budgeted and actual amounts.
• Audit
 A systematic process of objectively obtaining and
evaluating evidence of the firm’s performance,
judging the accuracy and validity of the data, and
communicating the results to interested users.
• Financial Ratio
 An arithmetic comparison of one financial measure to
another, generally used to monitor and control
financial performance.
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14–17
Example of a Performance Report
FIGURE 14–6
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14–18
Widely Used Financial Ratios
FIGURE 14–7a
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14–19
Widely Used Financial Ratios (cont’d)
FIGURE 14–7b
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14–20
Widely Used Financial Ratios (cont’d)
FIGURE 14–7c
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14–21
Widely Used Financial Ratios (cont’d)
FIGURE 14–7d
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14–22
Ratio Analysis:
Factors Affecting
Return on Investment
FIGURE 14–8
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14–23
Financial Responsibility Centers
• Financial Responsibility Centers
 Individuals or groups who are assigned the
responsibility for a particular set of financial outputs
and/or inputs.
• Profit centers
 Responsibility centers whose managers are held
accountable for profit.
• Revenue centers
 Responsibility centers whose managers are held
accountable for generating revenues, which is a
financial measure of output.
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14–24
Other Diagnostic Financial and
Managerial Controls
• Activity-Based Costing (ABC)
 A method for allocating costs to products and services
that takes all the product’s cost drivers into account
when calculating the actual cost of each product or
service.
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14–25
Other Diagnostic Financial and
Managerial Controls (cont’d)
• Balanced Scorecard
 A management tool, usually a computerized model,
that traces a multitude of performance measures
simultaneously and shows their interactions.
• Enterprise Resource Planning System
 A companywide integrated computer system that
gives managers real-time, instantaneous information
regarding the costs and status of every activity and
project in the business.
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14–26
Boundary Control Systems
• Boundary Control Systems
 Define the ethical rules for proper conduct in the
organization and specify which actions and pitfalls
that employees must avoid.
 Include ethics standards, codes of conduct, and
strategic policies.
• Steps in establishing boundary controls:
 Emphasize top management’s commitment.
 Publish a code.
 Establish compliance mechanisms.
 Measure results.
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14–27
Johnson &
Johnson’s
Corporate
Credo
FIGURE 14–9
Source: Source: Courtesy of Johnson & Johnson.
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14–28
Personal/Interactive Control Systems
• Interactive Control
 Maintaining control by personally monitoring how
everyone is doing is interactive control.
• Electronic Performance Monitoring (EPM)
 Monitoring the work activities of employees through
electronic means.
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14–29
Behavioral Consequences of Controls
Controls
Behavioral
Displacement
Gamesmanship
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Operating
Delays
Negative
Attitudes
14–30
Behavioral Consequences of Controls
• Behavioral Displacement
 A reaction to being controlled in which the controls
encourage behaviors that are inconsistent with what
the company actually wants to accomplish.
• Gamesmanship
 Management actions that try to improve the
manager’s apparent performance in terms of the
control system without producing any economic
benefits for the company.
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14–31
Implementing Commitment-based
Control Systems
Motivation
Techniques
Belief
Systems
CommitmentBased Control
System
CommitmentBuilding Systems
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14–32
Using Commitment-Building Systems to
Foster Self-Control
• Foster People-First Values
• Guarantee Organizational Justice
• Build a Sense of Shared Fate and Community
• Use Value-based Hiring
• Financial Rewards and Profit Sharing
• Communicate Your Vision
• Encourage Personal Development and SelfActualization
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14–33