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Chapter 13

Foundations of Control

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

What Is Control?
Define control

Discuss the reasons why control is important


Explain the planning-controlling link Contrast the three approaches to designing control systems

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

The Control Process


Describe the three steps in the control process

Explain the three courses of action managers can take in controlling


Explain why what is measured is more critical than how its measured

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

Controlling for Organizational Performance


Define organizational performance Describe the most frequently used measures of organizational performance
Tools for Organizational Performance
Contrast feed-forward, concurrent, and feedback controls Explain the types of financial and information controls managers can use Describe how balanced scorecards and benchmarking are used in controlling
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

Current Issues in Control


Describe how managers may have to adjust controls for cross-cultural differences Discuss the types of workplace concerns managers face and how they can address those concerns Discuss what corporate governance is and how its changing
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

The Organizations Culture


Describe the seven dimensions of organizational culture

Discuss the impact of strong culture on organizations and managers


Explain the source of an organizations culture and how that culture continues Describe how culture is transmitted to employees
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

What Is Control?
Control
The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations

Importance of Control
To ensure that activities are completed in ways that lead to accomplishment of organizational goals
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Purpose of Controls
Goals and Objectives
Organizational Divisional Departmental Individual
Taking Corrective Action Comparing to Standards Measuring Performance

Controlling

Planning

PlanningControlling Linkage
Leading Organizing

Exhibit 11.1 The PlanningControlling Link


Planning Goals Objectives Strategies

Plans
Controlling Standards Measurements Comparison Actions Organizing Structure Human Resource Management

Leading
Motivation Leadership Communication Individual and Group Behaviour

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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What Is Control? (contd)


Types of control systems
Market Control
Emphasizes the use of external market mechanisms to establish the standards used in the control system

Bureaucratic Control
Emphasizes organizational authority and relies on rules, regulations, procedures, and policies

Clan Control
Regulates behaviour by shared values, norms, traditions, rituals, and beliefs of the firms culture
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.2 Approaches to Design Control Systems

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.11 Types of Control


Input Processes Output

Feedforward Control Anticipates problems

Concurrent Control Corrects problems as they happen

Feedback Control Corrects problems after they occur

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Tools for Controlling Organizational Performance


Feed-forward Control
Prevents anticipated problems before they occur
Building in quality through design Requiring suppliers conform to ISO 9002

Concurrent Control
Monitoring while activity is in progress
Direct supervision: management by walking around
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Tools for Controlling Organizational Performance (contd)


Feedback Control
Takes place after an activity is done
Corrective action is after-the-fact, when the problem has already occurred

Advantages
Feedback provides managers with information on the effectiveness of their planning efforts Feedback enhances employee motivation by providing them with information on how well they are doing
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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The Control Process


1. Measuring actual performance

2. Comparing actual performance against a standard


3. Taking managerial action to correct deviations or inadequate standards
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Exhibit 11.6 The Control Process


Step 1
Measuring Actual Performance

GOALS Organizational Divisional Departmental Individual Taking Managerial Action Comparing Actual Performance Against Standard

Step 2

Step 3

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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How and What We Measure


How We Measure
Personal observations (MBWA) Statistical reports Oral reports Written reports

What We Measure
Employees
Satisfaction Turnover Absenteeism

Budgets
Costs Output Sales
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Exhibit 11.7 Common Sources of Information for Measuring Performance

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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What Do Managers Measure?

Finances Operations People Information

Financial Controls
Traditional Controls
Ratio analysis
Liquidity Leverage Activity Profitability

Other Measures
Economic value added (EVA) Market value added (MVA)

Budget analysis
Quantitative standards Deviations

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.12 Popular Financial Ratios

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.12 Popular Financial Ratios (contd)

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Financial Controls (contd)


Other Measures
Economic value added (EVA)
How much value is created by what a company does with its assets, less any capital investments in those assets: the rate of return earned over and above the cost of capital

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Financial Controls (contd)


Other Measures (contd)
Market value added (MVA)
The value that the stock market places on a firms past and expected capital investment projects If the firms market value (its stock and debt) exceeds the value of its invest capital (its equity and retained earnings), then managers have created wealth
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Controlling Organizational Performance


Balanced Scorecard
A measurement tool that uses goals set by managers in four areas to measure a companys performance:
Financial Customer Internal processes People/innovation/growth assets

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Information Controls
Management Information Systems (MIS)
A system used to provide management with needed information on a regular basis
Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names)
Information: data that has been analyzed and organized such that it has value and relevance to managers

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Benchmarking of Best Practices


Benchmarking
The search for the best practices among competitors or non-competitors that lead to their superior performance A control tool for identifying and measuring specific performance gaps and areas for improvement

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.13 Steps to Nurture best practices Implementing a Best on an ongoing basis best practices Practices Program Create knowledge sharing system
Communicate best practices throughout the organization Develop best practices reward and recognition systems Identify best practices throughout the organization Connect best practices to strategies and goals
Source: Based on T. Leahy, Extracting Diamonds in the Rough, Business Finance, August 2000, pp. 33-37.

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Comparing Actual Performance Against Standard


Determining the degree of variation between actual performance and the standard
Significance of variation is determined by:
The acceptable range of variation from the standard (forecast or budget) The size (large or small) and direction (over or under) of the variation from the standard
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Exhibit 11.8 Defining the Acceptable Range of Variation


Acceptable Upper Limit Acceptable Range of Variation

Standard

Acceptable Lower Limit

t+1

t+2 t+3 Time Period ( t )

t+4

t+5
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Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Exhibit 11.9 Sales Performance Figures for July, Beer Unlimited

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Taking Managerial Action


Courses of Action
Doing nothing
Only if deviation is insignificant

Correcting actual (current) performance


Immediate or basic corrective action

Revising the standard


Determine whether the standard is realistic, fair, and achievable
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.10 Managerial Decisions in the Control Process


Compare actual performance with standard No Is variance acceptable? Goals Standard Measure actual performance No Is standard acceptable? No Revise standard Correct performance Y es Identify cause of variation Y es Do nothing Is standard being attained? Y es Do nothing

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Qualities Of An Effective Control System (PP. 382-3)


Corrective Action Multiple Criteria Emphasis on Exceptions Accuracy Timeliness

EFFECTIVE CONTROL SYSTEM

Economy

Strategic Placement Reasonable Criteria


Robbins et al., Fundamentals of Management, 4th Canadian Edition 2005 Pearson Education Canada, Inc.

Flexibility

Understandability

FOM 7.17

Contingency Factors in Control Systems


Contingency Variable Small Control Recommendations Informal, personal management

Organization Size

Large
High Low High Low Open Closed High Low

Formal, personal management


Many complex criteria Few, easy-to-measure criteria Increased number of controls Reduced number of controls Informal, self-control Formal, external controls Comprehensive controls Loose, informal controls

Position and Level

Degree of Decentralization

Organizational Culture

Importance of an Activity

Dysfunctional Controls

Inflexible Controls

Unreasonable Standards

Current Issues in Control


Cross-cultural Issues
The use of technology to increase direct corporate control of local operations Legal constraints on corrective actions in foreign countries

Difficulty with the comparability of data collected from operations in different countries
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Current Issues in Control (contd)


Workplace Concerns
Privacy versus monitoring:
E-mail, telephone, computer, and Internet usage can all be monitored

Employee theft
The unauthorized taking of company property by employees for their personal use

Violence
Anger, rage, and violence in the workplace is affecting employee productivity
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.14 Types of Workplace Monitoring by Employers


Internet use Telephone use E-mail messages Computer files Job performance using video cameras Phone conversations 54.7% 44.0% 38.1% 30.8% 14.6% 11.5%

Voice-mail messages
Source: Based on S. McElvoy, E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy? Communications and the Law, June 2002, p. 69.
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

6.8%

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Exhibit 11.15 Control Measures for Employee Theft or Fraud

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.16 Control Measures for Deterring or Reducing Workplace Violence

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Current Issues in Control (contd)


Corporate Governance
The system used to govern a corporation so that the interests of the corporate owners are protected
Changes in the role of boards of directors

Increased scrutiny of financial reporting

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Entrepreneurs Managing Downturns


Recognizing crisis situations Things can turn worse Exit the venture Business evaluation

Entrepreneurs Controlling for Growth


Plan for growth Organize for growth Control for growth

Understanding Organizational Culture


What Is Organizational Culture? A system of shared meanings and common beliefs held by organizational members that determine, to a large degree, how they act toward each other The way we do things around here
Values, symbols, rituals, myths, and practices

Implications:
Culture is a perception Culture is shared Culture is a descriptive term
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.3 Dimensions of Organizational Culture


Degree to which employees are expected to exhibit precision, analysis, and attention to detail Degree to which employees are encouraged to be innovative and to take risks Degree to which managers focus on results or outcomes rather than on how these outcomes are achieved

Attention to Detail

Innovation and Risk-taking

Outcome Orientation

Stability

Organizational Culture

People Orientation

Degree to which organizational decisions and actions emphasize maintaining the status quo

Aggressiveness

Team Orientation

Degree to which management decisions take into account the effects on people in the organization

Degree to which employees are aggressive and competitive rather than cooperative Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Degree to which work is organized around teams rather than individuals

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Strong Vs. Weak Cultures


Strong Cultures Key values are deeply held and widely held Have strong influence on organizational members
Factors Influencing the Strength of Culture Size of the organization Age of the organization Rate of employee turnover Strength of the original culture Clarity of cultural values and beliefs
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Developing an Organizations Culture


The founders philosophy
Recruitment of employees who fit Behaviour of top management Socialization of new employees to help them adapt to the culture
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.4 How an Organizations Culture

Is Established
Top Management Philosophy of Organization's Founders Selection Criteria Organization's Culture

Socialization

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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How Employees Learn Culture


Stories
Narratives of significant events or actions of people that convey the spirit of the organization

Rituals
Repetitive sequences of activities that express and reinforce the values of the organization

Material Symbols
Physical assets distinguishing the organization

Language
Acronyms and jargon of terms, phrases, and word meanings specific to an organization
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 11.5 Managerial Decisions Affected by Culture

Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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