1. Foundations of Control with Duane Weaver
Chapter 15
Foundations of Control
with Duane Weaver
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

2. What Is Control? Control The Purpose of Control
The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations
The Purpose of Control
To ensure that activities are completed in ways that lead to accomplishment of organizational goals
Control is the process of monitoring activities to ensure they are being accomplished as planned and of correcting any significant deviations. There are three different approaches to designing organizational control systems (see Exhibit 15.1).
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

3. Designing 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 firm’s culture
Refer to Exhibit 15.1.
Market control is an approach that emphasizes the use of external market mechanisms to establish the standards used in the control system.
External measures: price competition and relative market share
Used by organizations that face considerable competition
B. Bureaucratic control is an approach that emphasizes organizational authority and relies on administrative rules, regulations, procedures, policies, standardization of activities, well-defined job descriptions, and other administrative mechanisms to ensure that employees exhibit appropriate behaviours and meet performance standards.
C. Clan control is an approach to designing control systems in which employee behaviours are regulated by the shared values, norms, traditions, rituals, beliefs, and other aspects of the organization’s culture.
Used where teams are common and technology changes rapidly
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

4. Qualities of an Effective Control System
Corrective
Action
Accuracy
Timeliness
Multiple
Criteria
Effective
Control
System
Emphasis on
Exceptions
Economy
An extra slide, indicating factors to consider when designing a control system.
Strategic
Placement
Flexibility
Reasonable
Criteria
Understandability
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

5. Contingency Factors in the Design of Control Systems
An extra slide to help indicate factors to consider when designing control systems.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

6. Why Is Control Important?
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
Control is important for several reasons:
1. It serves as the final link in the functional chain of management. Exhibit 15.2 shows the planning-controlling link.
2. Controlling is also important to delegation. If managers develop an effective control system, it may lessen the resistance to delegation and results in greater employee empowerment.
3. It protects the organization and the physical workplace by heightening security alerts and protecting against such disruptive influence as internal scandal.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

7. Exhibit 15.3 The Control Process
GOALS
Organizational
Divisional
Departmental
Individual
Measuring
Actual Performance
Comparing Actual
Performance
Against Standard
Taking
Managerial Action
Step 1
Step 3
Step 2
The control process is the three-step process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviations or inadequate standards (see Exhibit 15.3).
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

8. How and What We Measure How: Sources of Information
Personal observations
Statistical reports
Oral reports
Written reports
What: Control Criteria
Employees
Satisfaction
Turnover
Absenteeism
Budgets
Costs
Output
Sales
Measuring is the first step in the control process.
1. How we measure is done through four common sources of information that managers use. Each of these sources has its own advantages and drawbacks.
a. Personal observation
b. Statistical reports
c. Oral reports
d. Written reports
2. What we measure is probably more critical than the how. Both objective and subjective measures are used.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

9. Exhibit 15.4 Common Sources of Information for Measuring Performance
Exhibit 15.4 summarizes the advantages and drawbacks of some sources of performance information. For most managers, using a combination of approaches increases both the number of input sources and the probability of getting reliable information.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

10. Exhibit 15.5 Defining the Acceptable Range of Variation
Lower Limit
Standard
Upper Limit t
+ 1
+ 2
+ 3
+ 4
+ 5
Time Period ( )
It’s critical to determine the range of variation, which are the acceptable parameters of variance between actual performance and the standard (see Exhibit 15.5).
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

11. 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
Taking managerial action is the final step in the control process. Although the manager might decide to “do nothing,” two other alternatives are possible.
1. Correct actual performance. Once the manager has decided to correct actual performance, he or she has another decision to make.
a. Take immediate corrective action, which is correcting an activity at once in order to get performance back on track.
b. Take basic corrective action, which is determining how and why performance has deviated and correcting the source of deviations.
c. The action taken will depend on the cost/benefit of doing so.
d. Possible corrective actions include: changing strategy, structure, compensation scheme, or training programs; redesigning jobs; or firing employees
2. Revise the standard. Manager has a choice when examining the standard:
Manager may want to uphold the validity of the standard—which suggests that employees were not performing adequately.
If the standard was set too high or too low, a manager may decide to reset goals that were initially set too low or too high.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

12. Exhibit 15.7 Managerial Decisions in the Control Process
Goals
Standard
Measure
actual
performance No Y es
Compare
with standard
Do nothing
Identify
cause of
variation
Correct
Revise
standard Is
being
attained?
variance
acceptable?
The control process is a continuous flow between measuring, comparing, and managerial action. Exhibit 15.7 summarizes the manager’s decisions in the control process.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

13. 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
Designing strategies, work processes, and work activities
Coordinating the work of employees
Performance is the end result of an activity. Managers are concerned with organizational performance—the accumulated end results of all the organization’s work processes and activities.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

14. Organizational Performance Measures
Organizational Productivity
The overall output of goods and/or services divided by the inputs needed to generate that output
Ultimately, a measure of how efficiently employees do their work
Employees need to see the connection between what they do and the outcomes. The most frequently used organizational performance measures include organizational productivity, organizational effectiveness, and industry rankings.
Organizational productivity is the overall output of goods or services produced divided by the inputs needed to generate that output. It’s the management’s job to increase this ratio.
Output: sales revenues
Inputs: costs of resources (materials, labour expense, and facilities)
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

15. Organizational Performance Measures
Organizational Effectiveness (cont’d)
Measuring how appropriate organizational goals are and how well the organization is achieving its goals
Systems resource model: Is organization efficient in acquiring scarce and valued resources?
The process model: Is organization efficient in converting inputs to outputs?
The multiple constituencies model: Is organization effective in meeting each constituencies’ needs?
Organizational effectiveness is a measure of how appropriate organizational goals are and how well an organization is achieving those goals.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

16. Tools for Controlling Organizational Performance
Feedforward 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
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
There are three basic types of controls: feedforward, concurrent, and feedback (see Exhibit 15.8).
1. Feedforward control is control that prevents anticipated problems.
2. Concurrent control is control that occurs while an activity is in progress.
a. The best-known form of concurrent control is direct supervision.
b. When managers use management by walking around, which is a term used to describe a manager being out in the work area, interacting directly with employees, they’re using concurrent control.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

17. Tools for Controlling Organizational Performance: Financial Controls
Traditional Controls
Ratio analysis
Liquidity
Leverage
Activity
Profitability
Budget analysis
Quantitative standards
Deviations
Other Measures
Economic value added (EVA)
Market value added (MVA)
1. Traditional Controls
a. Financial ratios are calculated by taking numbers from the organization’s primary financial statements—the income statement and the balance sheet. The four key categories of financial ratios are as follows:
1) Liquidity ratios measure an organization’s ability to meet its current debt obligations.
2) Leverage ratios examine the organization’s use of debt to finance its assets and whether it’s able to meet the interest payments on the debt.
3) Activity ratios measure how efficiently the firm is using its assets.
4) Profitability ratios measure how efficiently and effectively the firm is using its assets to generate profits.
b. We discussed budgets in Chapter 8 as a planning tool. However, budgets are also control tools. They provide managers with quantitative standards against which to measure and compare actual performance and resource consumption.
2. Other Financial Control Measures
a. Economic value added is a tool for measuring corporate and divisional performance by calculating aftertax operating profit minus the total annual cost of capital.
b. Market value added adds a market dimension by measuring the stock market’s estimate of the value of a firm’s past and expected capital investment projects.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

18. Exhibit 15.9 Popular Financial Ratios
Financial ratios are calculated by taking numbers from the organization’s primary financial statements—the income statement and the balance sheet. The four key categories of financial ratios are illustrated on Exhibit 15.9.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

19. Exhibit 15.9 Popular Financial Ratios (cont’d)
Financial ratios are calculated by taking numbers from the organization’s primary financial statements—the income statement and the balance sheet. The four key categories of financial ratios are illustrated on Exhibit 15.9.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

20. Tools for Controlling Organizational Performance: Financial Controls (cont’d)
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
Market value added (MVA)
The value that the stock market places on a firm’s past and expected capital investment projects
If the firm’s market value (its stock and debt) exceeds the value of its invest capital (its equity and retained earnings), then managers have created wealth
Balanced Scorecard
A measurement tool that uses goals set by managers in four areas to measure a company’s performance:
Financial
Customer
Internal processes
People/innovation/growth assets
Economic value added is a tool for measuring corporate and divisional performance by calculating aftertax operating profit minus the total annual cost of capital.
Managers can choose to use less capital or invest in high-return projects.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

21. Benchmarking of Best Practices
The search for the best practices among competitors or noncompetitors that lead to their superior performance
A control tool for identifying and measuring specific performance gaps and areas for improvement
1. Remind students that benchmarking was first introduced in Chapter 8. Benchmarking is the search for the best practices among competitors or noncompetitors that lead to their superior performance.
2. The benchmark is the standard of excellence against which to measure and compare.
a. Can be used to monitor and measure organizational performance
b. Can be used to identify specific performance gaps and areas of improvement.
c. Exhibit provides a summary to guide managers in implementing programs.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

22. Exhibit 15.10 Steps to Implementing a 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
Create best practices
knowledge sharing system
Nurture best practices
on an ongoing basis
Exhibit provides a summary of what managers must do to implement an internal benchmarking best practices program.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

23. Contemporary Issues in Control
Cross-cultural Issues
Workplace Concerns
Privacy versus monitoring:
Employee theft
Violence
Customer Interactions
Service profit chain
The service sequence from employees to customers to profit
Service capability  service value  customer satisfaction  customer loyalty  repeat business (profit)
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
What should managers know about adjusting controls for national differences?
1. Methods of controlling people vary in different countries.
2. Technology has an impact on control relative to the level of sophistication of technology in a particular country.
3. There may be legal constraints for managers in different countries.
4. Challenge of comparability from one country to another even when comparing similar products.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

24. That’s all the theory for Mgmt 192
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.