Chapter Eight: Control, Change, and Entrepreneurship University of Bahrain College of Business Administration Management & Marketing Department Chapter Eight: Control, Change, and Entrepreneurship Dr.Mahmood Asad MGT230: Chapter8

What is Organizational Control Controlling is the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control To understand the importance of organizational control, consider how it helps managers obtain superior efficiency, quality, responsiveness to customers, and innovation-the four building blocks of competitive advantage. Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control 1. Efficiency: To determine how efficiently they are using their resources, managers must be able to accurately measure how many units of inputs (raw materials and HR) are being used to produce a unit of output. Managers also must be able to measure how many units of outputs (goods and services) are being produced. Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control A control system contains the measures that allow managers to assess how efficiently the organization is producing goods and services. Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control 2. Quality: Without a control system in place, managers have no ideas well their organization is performing and how its performance can be improved. Organizational control is important in determining the quality of goods and services because it gives managers feedback on product quality. Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control 3. Responsiveness to Customers: Managers can also help make their organization more responsive to customers if they develop a control system that allows them to evaluate how well customer-contact employees are performing their jobs. Monitoring employee behavior can help managers find ways to increase employees’ performance levels, Dr.Mahmood Asad MGT230: Chapter8

The Importance of Organizational Control 4. Innovation: Controlling can raise the level of innovation in an organization by empowering employees and decentralize authority. Deciding on the appropriate control systems to encourage risk taking is an important management challenge. Dr.Mahmood Asad MGT230: Chapter8

Control Systems and IT Control systems are formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about how well the organization’s strategy and structure are working. Dr.Mahmood Asad MGT230: Chapter8

Control Systems and IT An effective control system has three characteristics: Flexible enough to allow managers to respond unexpected events Provides accurate information and gives managers a true picture of organizational performance Provides managers with the information in a timely manner because making decisions on the basis of outdated information lead to failure Dr.Mahmood Asad MGT230: Chapter8

Control Systems and IT New forms of IT have revolutionized control systems because they facilitate the flow of accurate and timely information up and down the organizational hierarchy and between functions and divisions. Employees at all levels of the organization routinely feed information into a company’s information system or network and start the chain of events that affect decision making. Dr.Mahmood Asad MGT230: Chapter8

Control Systems and IT Control and information systems are developed to measure performance at each stage in the process of transforming inputs into finished goods and services. Dr.Mahmood Asad MGT230: Chapter8

Figure 8.1: Three Types of Control Dr.Mahmood Asad MGT230: Chapter8

Figure 8.2: Four Steps in Organizational Control Dr.Mahmood Asad MGT230: Chapter8

The Control Process The control process can be broken down into four steps: Step 1: Establish the standards of performance, goals, or targets against which performance is to be evaluated Dr.Mahmood Asad MGT230: Chapter8

The Control Process Managers decide on the standards of the entire organization or part of it (division, function, or individual). The standards of performance that managers select measure efficiency, quality, responsiveness to customers, and innovation. Dr.Mahmood Asad MGT230: Chapter8

The Control Process Step 2: Measure actual performance In practice, managers can measure or evaluate two things: The actual outputs that result from the behavior of their members The behaviors themselves Sometimes both outputs and behaviors can be easily measured. Dr.Mahmood Asad MGT230: Chapter8

The Control Process The first kind of performance measures that managers tend to use are those that measure outputs. Then managers develop performance measures or standards that allow them to evaluate behaviors to determine whether employees at all levels are working toward organizational goals. Do employees come to work on time? Do employees consistently follow the rules of greeting customers? Dr.Mahmood Asad MGT230: Chapter8

The Control Process Step 3: Compare actual performance against chosen standards of performance Managers evaluate whether-and to what extent-performance deviates from the standards of performance chosen in step 1. Dr.Mahmood Asad MGT230: Chapter8

The Control Process If performance is higher than expected, managers might decide that they set performance standards too low and may raise them for the next time period to challenge their subordinates. Dr.Mahmood Asad MGT230: Chapter8

The Control Process If performance is too low and standards were not reached, or if standards were set so high that employees could not achieve them, managers must decide whether to take corrective action. Dr.Mahmood Asad MGT230: Chapter8

The Control Process Step 4: Evaluate the result and initiate corrective action (that is, make changes) if the standard is not being achieved Whether performance standards have been met or not, managers can learn a great deal during this step. If managers decide that the level of performance is unacceptable, they must try to change the way work activities are performed to solve the problem. Dr.Mahmood Asad MGT230: Chapter8

The Control Process Sometimes, performance problems occur because the work standard was too high. In this case, adopting more realistic standards can reduce the gap between actual performance and desired performance. Dr.Mahmood Asad MGT230: Chapter8