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©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 process2. 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
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The Control Process
Actual performance Measure performance Compare with standards Identify deviations Analyze deviations Develop program for corrections Implement program for corrections Desired performance
Adapted from Exhibit 7.1
©2004 by Nelson, a division of Thomson Canada Limited 7
Basic Control Methods Feedback 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
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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
Adapted from Exhibit 7.2
©2004 by Nelson, a division of Thomson Canada Limited 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
control4. 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
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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
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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
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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
Adapted from Exhibit 7.4
©2004 by Nelson, a division of Thomson Canada Limited 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
Adapted from Exhibit 7.4
©2004 by Nelson, a division of Thomson Canada Limited 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
Adapted from Exhibit 7.4
©2004 by Nelson, a division of Thomson Canada Limited 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
Financial perspective
Goals MeasuresSurvive Cash flowSucceed Sales growth
by divisionProsper Increased market
shareAdapted from Exhibit 7.5
©2004 by Nelson, a division of Thomson Canada Limited 25
Balanced Scorecard
Managers look beyond traditional financial measures
Managers set specific goals and measure performance in four areas
Helps minimize suboptimization
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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
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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
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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
Adapted from Exhibit 7.9
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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
Adapted from Exhibit 7.9
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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
Adapted from Exhibit 7.9
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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