McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 08 Control, Change, and Entrepreneurship

8-2 Learning Objectives Define organizational control, and identify the main output and behavior controls managers use to coordinate and motivate employees Explain the role of clan control or organizational culture in creating an effective organizational architecture Discuss the relationship between organizational control and change, and explain why managing change is a vital management task Understand the role of entrepreneurship in the control and change process

8-3 Toyota’s Quality Control Systems Lean production TQM Pokayoke (or mistake-proofing): an initiative focusing on the assembly process stages that produce the most quality problems CCC21: working with suppliers to jointly develop control systems GBL: to build factories that can assemble several different car models on the same production line.

8-4 Toyota’s Quality Control Systems Lean production TQM Pokayoke (or mistake-proofing): an initiative focusing on the assembly process stages that produce the most quality problems CCC21: working with suppliers to jointly develop control systems GBL: to build factories that can assemble several different car models on the same production line.

8-5 What is Organizational Control? Controlling: Managers monitor and evaluate whether the organization’s strategy and structure are working as intended, how they could be improved, and how they might be changed if they are not working

8-6 Control Systems and IT Control systems: Formal, target-setting, monitoring, evaluation and feedback systems that provide managers with information about how well the organization’s strategy and structure are working A good control system should: Be flexible so managers can respond as needed Provide accurate information about the organizational performance Provide information in a timely manner

8-7 Control Systems and IT New forms of IT have revolutionized control systems facilitating the flow of accurate and timely information Control and information systems are developed to measure performance at each stage in the process of transforming inputs into finished goods and services

8-8 Figure Three Types of Control

8-9 Question What type of control gives managers information about customers’ reactions to goods and services? A. Feedforward control B. Concurrent control C. Feedback control D. Benchmark control

8-10 Figure Four Steps in Organizational Control

8-11 Figure Three Organizational Control Systems

8-12 Question What is an example of financial control? How are financial controls used? A. Activity drivers B. Revenue ratios C. Liquidity ratios D. Net income budget

8-13 Financial Measures of Performance Measures how well managers are using the organization’s resources to generate profits A measure of the percentage profit a company is earning on sales; higher the percentage better the use of resources

8-14 Financial Measures of Performance Measures of how well managers protect resources to meet short term debt—current and quick ratios

8-15 Financial Measures of Performance Measures of how much debt or equity is used to finance operations—debt-to-asset and times- covered ratios

8-16 Financial Measures of Performance Measures of how efficiently managers are creating value from assets—inventory turnover, days sales outstanding ratios

8-17 Organizational Goals Best goals are specific, difficult goals—goals that challenge and stretch managers’ ability Are not out of reach and do not require an impossibly high expenditure of managerial time and energy Goal setting and establishing output controls are management skills that are developed over time

8-18 Figure 8.4 – Organization wide Goal Setting

8-19 Operating Budgets Operating budget: Blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently Each division is evaluated on its own budgets for cost, revenue or profit

8-20 Output Control Three components are the essence of effective output control Objective financial measures Challenging goals and performance standards Appropriate operating budgets

8-21 Problems with Output Control Managers must create output standards that motivate at all levels Standards should not cause managers to behave in inappropriate ways to achieve organizational goals It is only a guide to appropriate action Managers must be sensitive in how they use output control Must constantly monitor its effects at all levels in the organization, on customers and stakeholders

8-22 Behavior Control Direct supervision: Allows managers to mentor subordinates and develop their management skills Managers should: Actively monitor and observe the behavior of their subordinates Teach subordinates the behaviors that are appropriate and inappropriate Intervene to take corrective action as needed

8-23 Behavior Control Drawbacks of direct supervision Expensive Can demotivate subordinates More complex a job is, the more difficult it is for a manager to evaluate how well a subordinate is performing

8-24 Management by Objectives A goal-setting process Managers and subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate their attainment of those goals

8-25 Management by Objectives Steps in MBO Specific goals and objectives are established at each level of the organization Managers and their subordinates together determine the subordinates’ goals Managers and their subordinates periodically review the subordinates’ progress toward meeting goals MBO’s effectiveness as a control system can be lowered or even destroyed by personal biases and political objectives

8-26 Bureaucratic Control Control of behavior by means of a comprehensive system of rules and standard operating procedures Rules and SOPs guide behavior and specify what employees are to do when they confront a problem that needs a solution Standardized behavior leads to standardized outputs

8-27 Problems with Bureaucratic Control Establishing rules is always easier than discarding them Organizations tend to become overly bureaucratic over time Amount of red tape becomes too great, decision making slows Rules constrain and standardize behavior Too much standardization can actually reduce the level of learning taking place in an organization Innovation is incompatible with the extensive use of bureaucratic control

8-28 Organizational Culture Shared set of beliefs, expectations, values, norms, and work routines that influences how members of an organization interact with one another and work together to achieve organizational goals Clan control: Control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations

8-29 Adaptive vs. Inert Culture Adaptive culture Culture whose values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective Inert culture Culture that leads to values and norms that fail to motivate or inspire employees Leads to stagnation and often failure over time

8-30 Organizational Change Movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness Many researchers believe that the highest- performing organizations are those that are constantly changing

8-31 Figure Organizational Control and Change

8-32 Figure Four Steps in the Organizational Change Process

8-33 Question What is the process of comparing one company’s performance on specific dimensions with the performance of other high performance organizations? A. Financial comparison B. Objective benching C. Benchmarking D. Competitor analysis

8-34 Entrepreneurship, Control, and Change Entrepreneurs: People who notice opportunities and take responsibility for mobilizing the resources necessary to produce new and improved goods and services Bring about change to companies and industries because they see new and improved ways to use resources to create products customers want Entrepreneurship: Mobilization of resources to take advantage of an opportunity to provide customers with new and improved goods and services

8-35 Entrepreneurship, Control, and Change Entrepreneurship does not just end once a new business is founded Intrapreneurs - People taking responsibility for developing innovative goods and services