Controlling activities and operations

Controlling activities and operations
Chapter 18 PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Learning Objectives 18.1 Explain the nature and importance of control Describe the three steps in the control process Explain how organizational and employee performance are measured. Know how to be effective at giving feedback Describe tools used to measure organizational performance Discuss contemporary issues in control. Develop your skill at dealing with difficult people.

What Is Control? The process of monitoring activities to ensure that they are being accomplished as planned and of correcting significant deviations. Control systems are judged in terms of how well they facilitate goal achievement. There are three different approaches to designing organizational control systems. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-3

Approaches to designing organizational control systems.
1. market control - emphasizes the use of external market mechanisms to establish standards of performance. E.g., use of price competition, relevant market share to establish standards. When this approach is used? useful where products and services are distinct. useful where marketplace competition is considerable. divisions turned into profit centers and judged by the percentage of total corporate profits each contributes What Is Control? PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-4

Approaches of Control systems
2. bureaucratic control - emphasizes organizational authority. Relies on administrative rules, procedures, and policies. Depends on standardization of activities, well-defined job descriptions, and other administrative mechanisms such as budgets. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-5

Approaches of Control systems
3. clan control - behavior regulated by shared values, traditions, and other aspects of organizational culture. dependent on individual and group to identify expected behaviors and performance measures. It found where teams are common and technology changes often. E.g., teams of programmers. For example in IUG individuals are well aware of expectations regarding appropriate work behavior and performance standards. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-6

Control system Most organizations don’t rely totally on just one of these approaches to designing an effective control system. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Teamwork Describe the controlling system of IUG regarding students’ services (registration, and academic issues). PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Why Is Control Important?
As the final link in management functions: Planning Controls let managers know whether their goals and plans are on target and what future actions to take. Empowering employees Control systems provide managers with information and feedback on employee performance. Protecting the workplace Controls enhance physical security and help minimize workplace disruptions. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Why Does Employee Theft Matter?
The U.S. Chamber of Commerce estimates that 75 percent of all employees steal at least once. Employee dishonesty costs American business in excess of $50 billion annually. 55% of perpetrators are managers. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

The Planning–Controlling Link
PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.2

The Control Process The Process of Control
Measuring actual performance. Comparing actual performance against a standard. Taking action to correct deviations or inadequate standards. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

The Control Process Exhibit 18.3

Measuring: How and What We Measure
Sources of Information Personal observation Statistical reports Oral reports Written reports Control Criteria Employees Satisfaction Turnover Absenteeism Budgets Costs Output Sales PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

What We Measure. What we measure more critical than how we measure.
It helps in determining what employees will do. Also helps in setting the control criteria. Example: in pizza company: it uses measures such as number of pizza delivered per day, average delivery time. In government agency they may use, number of applications processed per day. In registration office of IUG they use number of students’ applications processed per day. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-15

What We Measure. Control criteria applicable to any management situation: Employee satisfaction, absenteeism, and turnover. Keeping costs within budgets. Control system needs to recognize the diversity of activities e.g., marketing, production, customer service. Some activities difficult to measure in quantifiable terms. Most activities can be grouped into some objective segments that can be measured. When objective measures are not available, should rely on subjective\qualitative measures PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-16

The Control Process Measuring: How we measure is done through four common sources of information that managers use. Each of these sources has its own advantages and drawbacks. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-17

sources of information that managers
1. personal observation - permits intensive coverage. suffers from obtrusiveness: mistrust PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Four common sources of information
2. statistical reports - numerical data are easy to visualize and effective for showing relationships. Use of graphs, bar charts. 3. oral reports - includes meetings, telephone calls. May be best way to control work in a virtual environment Technology permits creation of written record from oral report Drawbacks - filtering of information PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-19

Four common sources of information
4. written reports - often more comprehensive and concise than oral reports usually easy to file and retrieve Comprehensive control efforts should use all four approaches. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-20

Common Sources of Information for Measuring Performance

Significance of variation is determined by:
Comparing 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 (forecast or budget). PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Defining the Acceptable Range of Variation

Sales Performance Figures for July, Eastern States Distributors

Taking Managerial Action
Courses of Action “Doing nothing” Only if deviation is judged to be insignificant. Correcting actual (current) performance Immediate corrective action to correct the problem at once. Basic corrective which looks at how and why performance deviated before correcting the source of deviation Corrective Actions Change strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Courses of Action Revising the standard
Examining the standard to ascertain whether or not the standard is realistic, fair, and achievable. Upholding/keeping the validity of the standard. Resetting goals that were initially set too low or too high. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Managerial Decisions in the Control Process
Exhibit 18.7 PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Controlling for Organizational Performance
What Is Performance? The end result of an activity What Is Organizational Performance? The accumulated end results of all of the organization’s work processes and activities. What to do to improve performance? Designing strategies, work processes, and work activities. Coordinating the work of employees PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Common Organizational Performance Measures
Organizational Productivity. Organizational Effectiveness. Industry ranking. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Organizational Performance Measures
Organizational Productivity Productivity: the overall output of goods and/or services divided by the inputs needed to generate that output. Output: sales revenues Inputs: costs of resources (materials, labor expense, and facilities) Ultimately, a measure of how efficiently employees do their work. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Organizational Performance Measures
Organizational Effectiveness Measuring how appropriate organizational goals are and how well the organization is achieving its goals. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Three systems of measuring effectiveness:
Systems resource model The ability of the organization to exploit its environment in acquiring scarce and valued resources. E.g., having skilled staff The process model The efficiency of an organization’s transformation process in converting inputs to outputs. The multiple constituencies model The effectiveness of the organization in meeting each constituencies’ needs. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Organizational Effectiveness Measures
Industry rankings on: Profits Return on revenue Return on shareholders’ equity Growth in profits Revenues per employee Revenues per dollar of assets Revenues per dollar of equity Corporate Culture Audits Compensation and benefits surveys Customer satisfaction surveys PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Popular Industry and Company Rankings

Types of Control Feedforward Control Concurrent Control
A control that prevents anticipated problems before actual occurrences of the problem. Building in quality through design. Requiring suppliers conform to ISO 9002. Concurrent Control A control that takes place while the monitored activity is in progress. Direct supervision: management by walking around. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Types of Control Feedback Control
A control that takes place after an activity is done. Corrective action is after-the-fact, when the problem has already occurred. Advantages of feedback controls 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. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Types of Control Exhibit 18.9

Contingency Factors in the Design of Control Systems
PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-38

Exercise Design a suitable controlling system to the following:
1- Small restaurant having 3 employees and selling falafel and homos. 2- Faculty of Commerce-IUG 3 – Ministry of Education. 4- Bakery shop produces bread, uses full automated machine and employ 15 persons working 3 shifts. Try to benefit from the contingency variables, methods of collecting information and approaches of designing the controlling systems. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Tools for Controlling Organizational Performance: Financial Controls
Traditional Controls Ratio analysis Liquidity Leverage/invest through borrowing Activity Profitability Budget Analysis Quantitative standards Deviations Other Measures Economic Value Added (EVA) Market Value Added (MVA) PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Popular Financial Ratios
PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.10a

Popular Financial Ratios
PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.10b

Market Value Added (MVA)-
Other Measures EVA=After tax income - total annual cost of capital. Market Value Added (MVA)- Measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Controlling Organizational Performance
Balanced Scorecard A measurement tool that uses goals set by managers in four areas to measure a company’s performance: Financial, customer, internal processes, and people/innovation/growth assets. Managers should develop goals in each of the 4 areas and measure perofrmance. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

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. MIS PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Benchmarking of Best Practices
The search for the best practices among competitors or non-competitors that lead to their superior performance. Benchmark: the standard of excellence against which to measure and compare. A control tool for identifying and measuring specific performance gaps and areas for improvement. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Benchmarking . The benchmarking process typically follows four steps. a. A benchmarking planning team is formed. The team’s initial task is to identify what is to be benchmarked, identify comparative organizations, and determine data collection methods. b. The team collects internal and external data. c. The data is analyzed to identify performance gaps and to determine the cause of the difference. d. An action plan is prepared and implemented. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Steps to Successfully Implement an Internal Benchmarking Best Practices Program
Connect best practices to strategies and goals. Identify best practices throughout the organization. Develop best practices reward and recognition systems. Communicate best practices throughout the organization. Create a best practices knowledge-sharing system. Nurture/foster best practices on an ongoing basis. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.11

Homework Refer to the book p. 656 and answer the following:
- the questions 1-8. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Application Use an external Benchmarking to develop the food types, quality and delivery processes in the IUG Cafeteria. You may take KFC, burger king, Pizza Hut as a Benchmark if you wish. Refer to the previous slides and follow the steps. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Contemporary 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 e.g. employees redundancy, price increase. Difficulty with the comparability of data collected from operations in different countries. This is applied to multinational companies. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Adjusting Controls for Cultural Differences
Methods of controlling people and work can be quite different in other countries. E.g., global companies. Differences are most marked in the measurement and corrective action steps. In technologically advanced nations, controls are indirect. In less technologically advanced nations, controls are more direct. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-52

Adjusting Controls for Cultural Differences
Laws in different countries provide different constraints on corrective action: e.g., laying off employees, taking money out of the country. Data used for controlling may not be comparable in different countries though for the same company but different branches. E.g., cost production per unit in China different from UK for the same company. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-53

Contemporary Issues In Control
Workplace Privacy Employers have the right to monitor employee communications, examine employee computers and files, and use surveillance cameras Reasons for monitoring include prevention of: Recreational\fun on-the-job Web surfing. Creation of hostile work environments with . Security leaks of critical information. Electronic Communications Privacy Act Prohibits unauthorized interception\catching of electronic communication. Workplace electronic monitoring is still legal. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-54

Workplace monitoring policies
Workplace Privacy (cont.) companies are developing and enforcing workplace monitoring policies. Develop unambiguous computer usage policy. Inform employees that computers may be monitored. Provide clear guidelines on acceptable use of company system and the Web. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-55

E.g.,: food and drink is prohibited in the lab room.
Application Develop Workplace monitoring policies to the use of IUG computer labs, based on the previous slide. E.g.,: food and drink is prohibited in the lab room. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Workplace Concerns Workplace privacy versus workplace monitoring:
, telephone, computer, and Internet usage Productivity, harassment, security, confidentiality, intellectual property protection Employee theft The unauthorized taking of company property by employees for their personal use. Workplace violence Anger and violence in the workplace is affecting employee productivity. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Types of Workplace Monitoring by Employers
Internet use 54.7% Telephone use 44.0% messages 38.1% Computer files 30.8% Job performance using video cameras 14.6% Phone conversations 11.5% Voice mail messages 6.8% Source: Based on S. McElvoy, “ and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.12

Contemporary Issues In Control (cont.)
Employee Theft -Unauthorized taking of company property by employees for their personal use. Up to 85 percent of all organizational theft and fraud is committed by employees. -Is an escalating problem in all types of organizations. -The U.S Chamber of Commerce estimates that theft by employees costs American companies $20 billion to $40 billion a year. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-59

Explanation of employee theft
The answer will depend on who you ask: Industrial security - opportunity presents itself due to lack of controls and favorable circumstances Criminology - people have financial-based pressures or vice-based pressures (such as gambling debts). Clinical psychology - people are able to rationalize any type of behavior. E.g., every one does it. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-60

Control Measures for Employee Theft or Fraud

Workplace Violence Witnessed yelling or other verbal abuse 42%
Yelled at co-workers themselves 29% Cried over work-related issues 23% Seen someone purposely damage machines or furniture 14% Seen physical violence in the workplace 10% Struck a co-worker 2% Source: Integra Realty Resources, October-November Survey of Adults 18 and Over, in “Desk Rage.” BusinessWeek, November 20, 2000, p. 12. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. Exhibit 18.14

Factors contribute to Workplace Violence
Many factors contribute to workplace violence including: Employee work driven by time, numbers, and crises. Rapid and unpredictable change Destructive communication style of manager Authoritarian leadership Defensive attitude Double standards Unresolved grievances\complains. Emotionally troubled employees Repetitive, boring work. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved. © Prentice Hall, 2002 18-63

Contemporary Issues in Control (cont’d)
Customer Interactions Service profit chain The service sequence from employees to customers to profit: service capability affects service value which impacts on customer satisfaction that, in turn, leads to customer loyalty in the form of repeat business (profit). PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

The Service Profit Chain

Contemporary Issues in Control (cont’d)
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/analysis of financial reporting PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Corporate governance: the relationship among the board of directors, top management and shareholders in determining the direction and performance of the corporation. After the financial scandals of Enron two area have been reformed: The role of board of directors: take more active role. Financial reporting. More disclosure and transparency. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Review What would an organization have to do to change its dominant control approach from bureaucratic to clan? From clan to bureaucratic? Changing to a clan approach would entail a radical change in corporate culture because you would be going from a control system that emphasized rules and administrative mechanisms to a control system that emphasized the cultural values and beliefs. Changing from a clan approach to a bureaucratic approach would mean having in place the rules, procedures, and other administrative mechanisms that would be used to control employee behavior. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Review When do electronic surveillance devices such as computers, video cameras, and telephone monitoring step over the line from “effective management controls” to “intrusions on employee rights”? Students should concentrate on the fact that organizations have the right to protect their assets and to monitor premises for illegal activities. However, the dilemma is “How much is too much?” PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Review “Every individual employee in the organization plays a role in controlling work activities.” Do you agree or do you think that control is something that only managers are responsible for? Explain. Control is something that every individual employee plays a role in, particularly in organizations where employees have been empowered. But even in organizations where employees haven’t been empowered, these employees play a role in measuring, comparing, and correcting performance. However, managers will still be responsible for establishing the standards, approaches, and guidelines for measuring, comparing, and correcting. PowerPoint Presentation by Charlie Cook Copyright © 2018 Prentice Hall, Inc. All rights reserved.

Review Learning Objective 18.1
Explain the nature and importance of control. Controlling = monitoring, comparing, correcting Important: Are goals being met? Provides information/feedback Protects organization and assets Controlling is the process of monitoring, comparing, and correcting work performance. As the final step in the management process, controlling provides the link back to planning. If managers didn’t control, they’d have no way of knowing whether goals were being met. Control is important because (1) it’s the only way to know if goals are being met, and if not, why; (2) it provides information and feedback so managers feel comfortable empowering employees; and (3) it helps protect an organization and its assets.

Describe the three steps in the control process. Measuring Comparing Taking action The three steps in the control process are measuring, comparing, and taking action. Measuring involves deciding how to measure actual performance and what to measure. Comparing involves looking at the variation between actual performance and the standard (goal). Deviations outside an acceptable range of variation need attention. Taking action can involve doing nothing, correcting the actual performance, or revising the standards. Doing nothing is self-explanatory. Correcting the actual performance can involve different corrective actions, which can either be immediate or basic. Standards can be revised by either raising or lowering them.

Explain how organizational and employee performance are measured. Productivity Effectiveness Industry and company rankings Organizational performance is the accumulated results of all the organization’s work activities. Three frequently used organizational performance measures include (1) productivity, the output of goods or services produced divided by the inputs needed to generate that output; (2) effectiveness, a measure of how appropriate organizational goals are and how well those goals are being met; and (3) industry and company rankings compiled by various business publications. Employee performance is controlled through effective performance feedback and through disciplinary actions, when needed.

Describe tools used to measure organizational performance. Feedforward controls Concurrent controls Feedback controls Financial controls Information controls Balanced scorecards Benchmarking Feedforward controls take place before a work activity is done. Concurrent controls take place while a work activity is being done. Feedback controls take place after a work activity is done. Financial controls that managers can use include financial ratios (liquidity, leverage, activity, and profitability) and budgets. One information control managers can use is an MIS, which provides managers with needed information on a regular basis. Others include comprehensive and secure controls such as data encryption, system firewalls, data back-ups, and so forth that protect the organization’s information. Balanced scorecards provide a way to evaluate an organization’s performance in four different areas rather than just from the financial perspective. Benchmarking provides control by finding the best practices among competitors or noncompetitors and from inside the organization itself.

Discuss contemporary issues in control. Cross-cultural differences Workplace privacy Employee theft Workplace violence Customer interactions Corporate governance Adjusting controls for cross-cultural differences may be needed primarily in the areas of measuring and taking corrective actions. Workplace concerns include cross-cultural differences, workplace privacy, employee theft, and workplace violence. For each of these issues, managers need to have policies in place to control inappropriate actions and ensure that work is getting done efficiently and effectively. Control is important to customer interactions because employee service productivity and service quality influences customer perceptions of service value. Organizations want long-term and mutually beneficial relationships among their employees and customers. Corporate governance is the system used to govern a corporation so that the interests of corporate owners are protected.

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