1. Chapter 7
Control
©2004 by Nelson, a division of Thomson Canada Limited

2. What Would You Do? Howmet opened a new plant in Laval
Aircraft parts market plummeted
Layoffs were a possibility
How can costs be cut to make up for the sales shortage?
©2004 by Nelson, a division of Thomson Canada Limited

3. Learning Objectives: Basics of Control
After reading the next two sections, you should be able to:
1. describe the basic control process
2. answer the question: Is control necessary or possible?
©2004 by Nelson, a division of Thomson Canada Limited

4. The Control Process Establish clear standards
Compare actual to standard performance
Take corrective action, if needed
Control is a continuous, dynamic process
Three basic methods
©2004 by Nelson, a division of Thomson Canada Limited

5. Standards Determine what should be benchmarked
Identify companies against which to benchmark standards
Collect data to determine other companies’ performance standards
©2004 by Nelson, a division of Thomson Canada Limited

6. The Control Process Actual performance Measure performance
Compare with standards
Identify deviations
Analyze deviations
Develop program for corrections
Implement program for corrections
Desired performance
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.1

7. Basic Control Methods Feedback control Concurrent control
Gather information about performance deficiencies after they occur
Concurrent control
Gather information about deficiencies as they occur
Feedforward control
Gather information about performance deficiencies before they occur
©2004 by Nelson, a division of Thomson Canada Limited

8. Guidelines for Feedforward Control
Thorough planning and analysis required
Careful discrimination of input variables
System must be dynamic
System model should be developed
Data regularly collected
Data regularly assessed
Requires action
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.2

9. Is Control Necessary or Possible?
Is more control necessary?
Is more control possible?
Quasi-Control: When control isn’t possible
©2004 by Nelson, a division of Thomson Canada Limited

10. Is More Control Necessary?
Degree of dependence
the extent to which a company needs a particular resource to accomplish its goals
Resource flows
The extent to which a company has easy access to critical resources
©2004 by Nelson, a division of Thomson Canada Limited

11. Is More Control Possible?
Cost of control
direct costs of control
unintended costs
Cybernetic feasibility
the extent to which it is possible to implement each step in the control process
if a step cannot be implemented, then control may not be possible
©2004 by Nelson, a division of Thomson Canada Limited

12. Quasi-Control: When Control Isn’t Possible
Reducing independence
a choice to abandon or change goals
when control over a critical resource is not possible
Restructure dependence
exchange dependence on one critical resource for dependence on another
©2004 by Nelson, a division of Thomson Canada Limited

13. Learning Objectives: How and What to Control
After reading the next two sections, you should be able to:
3. Discuss the various methods that managers can use to maintain control
4. Describe the behaviours, processes, and outcomes tat managers are choosing to control in today’s organizations
©2004 by Nelson, a division of Thomson Canada Limited

14. Control Methods Bureaucratic Objective Normative Concertive
Self-Control
©2004 by Nelson, a division of Thomson Canada Limited

15. Bureaucratic Control Top-down control
Use rewards and punishments to influence employee behaviour
Use policies and rules to control behaviour
Bureaucratically controlled companies are resistant to change and slow to respond to customers
©2004 by Nelson, a division of Thomson Canada Limited

16. Objective Control Use of observable methods Behaviour control
regulate actions and behaviours of employees
Output control
measure employee outputs
coupled with use of rewards and incentives
©2004 by Nelson, a division of Thomson Canada Limited

17. Normative Control
Company values and beliefs guide employee behaviour and decisions.
Created by:
Careful selection of employees
Role-modeling and retelling of stories
©2004 by Nelson, a division of Thomson Canada Limited

18. Concertive Control
Employees are guided by beliefs that are shaped and negotiated by work groups.
Autonomous work groups
operate without managers
Members responsible for controlling work group process, outputs, and behaviour
©2004 by Nelson, a division of Thomson Canada Limited

19. Self-Control Employees control their own behaviour
Employees make decisions within clear boundaries
Managers and employees set goals and monitor their own progress
©2004 by Nelson, a division of Thomson Canada Limited

20. When to Use Different Methods of Control
Use bureaucratic control when
standard operating procedures needed
necessary to establish limits
Use behaviour control when
easier to measure activities than outputs
“cause-effect” relationships are clear
good measures of behaviour are available
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.4

21. When to Use Different Methods of Control
Use output control when
easier to measure outputs than behaviours
good measures of output are available
clear goals and standards are available
“cause-effect” relationships are unclear
Use normative control when
culture is strong
difficult to create behaviour measures
difficult to create output measures
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.4

22. When to Use Different Methods of Control
Use concertive control when
group responsible for task accomplishment
workers take “ownership” of behaviour and outputs
strong worker-based control needed
Use self-control when
workers are intrinsically motivated
difficult to create behaviour measures
difficult to create output measures
workers have self-control and self-leadership
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.4

23. What to Control The Balanced Scorecard Customer perspective
Internal perspective
Innovation and learning perspective
Financial perspective
©2004 by Nelson, a division of Thomson Canada Limited

24. Example of a Balanced Scorecard — Financial Perspective
Goals Measures
Survive Cash flow
Succeed Sales growth
by division
Prosper Increased market share
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.5

25. Balanced Scorecard Managers look beyond traditional financial measures
Managers set specific goals and measure performance in four areas
Helps minimize suboptimization
©2004 by Nelson, a division of Thomson Canada Limited

26. The Financial Perspective: Controlling Economic Value Added
The amount by which company profits exceed the cost of capital in a given year.
Important because:
It shows if a business or profit centre is paying for itself
Focuses attention on specific departments
Encourage creative ways to improve organizational performance
©2004 by Nelson, a division of Thomson Canada Limited

27. The Customer Perspective: Controlling Customer Defections
Which customers are leaving and at what rate
Don’t rely completely on customer satisfaction surveys
Cost of replacing old customers with new ones is great
©2004 by Nelson, a division of Thomson Canada Limited

28. The Internal Perspective: Controlling Quality
Managers focus on quality.
Quality is measured as:
excellence
value
conformance to expectations
©2004 by Nelson, a division of Thomson Canada Limited

29. Quality as Excellence Advantages promotes organizational vision
motivates and inspires
appeals to customers
Disadvantages
provides little practical guidance
what does excellence mean?
difficult to measure and control
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.9

30. Quality as Value Advantages customers recognize differences in value
easy to measure and compare value of different products/services
Disadvantages
difficult to determine which factors account for value
difficult to control balance between excellence and cost
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.9

31. Quality as Conformance to Specifications
Advantages
specifications, if written, are measurable
increased efficiency
consistent quality
Disadvantages
difficult to evaluate some products/services
increased standardization may make change difficult
less appropriate for services
©2004 by Nelson, a division of Thomson Canada Limited
Adapted from Exhibit 7.9

32. Four levels of waste minimization Waste prevention and reduction
The Innovation and Learning Perspective: Controlling Waste and Pollution
Four levels of waste minimization
Waste prevention and reduction
Recycle and reuse
Waste treatment
Waste disposal
©2004 by Nelson, a division of Thomson Canada Limited

33. What Really Happened? Focused on customer satisfaction
Implemented Six Sigma system
Quality and on-time delivery improved dramatically
Howmet is an industry model
©2004 by Nelson, a division of Thomson Canada Limited