The most common sources of information for performance measurement are personal observation, statistical reports, oral reports, and written reports. Personal observation provides first-hand knowledge of an activity, thereby permitting intensive coverage and allowing managers to “read between the lines.” Because it is subjective, however, personal observation may be biased. Also, it is time-consuming and obtrusive. Statistical reports consist of computer print-outs, graphs, bar charts, and numerical displays. Although they represent relationships clearly and accurately, statistical reports provide limited information about an activity and ignore qualitative elements. Oral reports consist of one-on-one conversations, telephone calls, and conferences. The advantages and disadvantages of oral reports are similar to those of personal observation. Written reports can also measure performance. They are more formal, comprehensive, and concise than oral reports. In addition, they are easy to catalog and reference. Comprehensive control efforts by management will require the use of all four of these methods
Managers compare actual performance to a standard to determine the degree of variation. Some variation is normal, but management must determine the acceptable degree of variation.
Managers can take action in three ways: do nothing, take corrective action, or revise the standard. Because “doing nothing” is self-explanatory, this section discusses the other two options. Corrective action can include changing strategy, structure, compensation, and training; redesigning jobs; and replacing personnel. Immediate corrective action corrects problems at once and gets performance back on track. Basic corrective action determines how and why performance has deviated and corrects the problem at the source. Rather than “putting out fires” with immediate corrective action, effective managers analyze deviations and, if justified, permanently correct variances between standard and actual performance. Before revising a standard downward, management must realize that if employees fall significantly short of reaching its target, their natural response will be to shift blame for the variance from themselves to the performance standards. If a manager believes that the standards are realistic, then he or she must explain the position, reaffirm the expectation that future performance will improve, and take appropriate corrective action.
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Management can implement controls proactively (feedforward), during an activity (concurrent), or after the activity has been completed (feedback). Feedforward control is the most desirable because it prevents anticipated problems. Thus, it is proactive. Unfortunately, this type of control requires timely, accurate information that is often difficult to obtain. As a result, managers often rely on concurrent and feedback control mechanisms. Concurrent control occurs while an activity is in progress. The best known form is direct supervision. Even though there is some delay between the activity and the manager’s response, it is minimal. Feedback control , the most commonly used type, occurs after the action. The major drawback is that by the time that the manager has the information, the damage has already been done. But, for many activities, feedback is the type of control that is workable. Compared to feedforward and concurrent control, feedback has two advantages. First, it helps managers to gauge the effectiveness of their planning efforts. Second, feedback can enhance employee motivation.
Effective control systems share certain common qualities, the importance of which varies with the situation. However, we can generalize that the following characteristics should make a control system effective. 1. Accuracy. An effective control system is reliable and produces valid data. 2. Timeliness. An effective control system provides timely information. 3. Economy. Managers should impose only the controls needed to produce the desired behavior. 4. Flexibility. Controls must be adjustable because times and conditions change. 5. Understandability. Employees will misunderstand or ignore a cryptic control system. 6. Reasonable criteria. Control standards must be reasonable and attainable. If they are unreasonable, they no longer motivate. 7. Strategic placement. Management should control the factors that are strategic to the organization. 8. Emphasis on the exception. Effective controls minimize the routine and pinpoint the exceptional. 9. Multiple criteria. Multiple performance measures expedite accurate performance assessments. 10. Corrective action. Effective controls identify the problem and specify the solution.
The differences in control systems of multinational corporations are primarily in the measurement and corrective action steps of the control process. Managers of foreign operations of multinational corporations, for instance, are not closely controlled by the head office. Furthermore, distance promotes formalized goals, and technological differences make control data incomparable. Organizations in technologically advanced nations use indirect control devices (computer-related reports and analyses) in addition to standardized rules and direct supervision. In countries that are less advanced, direct supervision and highly centralized decision making predominate.
When control standards are inflexible or unreasonable, employees may lose sight of the overall goals of the organization. Furthermore, the controls may run the organization instead of the organization running the controls. This situation could produce dysfunctional behavior. For example, workers may concentrate on quantity to the detriment of quality if performance is evaluated on the basis of the number of units produced. Evidence indicates that the manipulation of control data is not a random phenomenon. When being measured on activities that make a difference in a person’s rewards, individuals often distort actual figures, emphasize successes, and suppress evidence of failures. Therefore, failure to design flexibility into a control system can create problems that are more severe than those the controls were intended to prevent.
Technological advances in computer hardware and software have made the process of controlling much easier. As a result, difficult questions have been raised about what managers have the right to know about employees and how far they can go in controlling employee behavior, both on the job and at home. How can organizations benefit from the information provided by computer monitoring systems and yet minimize the behavioral and legal drawbacks? Experts suggest that organizations do the following: Tell employees, both current and new, that they may be monitored for business reasons. Post a written employee-monitoring policy where employees will see it or distribute it to each employee. Have all employees acknowledge in writing that they have received a copy of the policy and that they understand it. Monitor only those situations in which a legitimate business purpose is at stake: for instance, training or evaluating workers, or controlling costs. When used in this manner, computer monitoring can be an effective and ethical management control tool.
What Is Control?• Control Monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations Ensures that activities are completed in ways that lead to the attainment of the organization’s goals.
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.
Steps in the Control Process1. Measuring Actual Performance Personal observation, statistical reports, oral reports, and written reports Management by walking around (MBWA) A phrase used to describe when a manager is out in the work area interacting with employees
Steps in the Control Process (cont’d)2. Comparing actual performance against a standard Comparison to objective measures: budgets, standards, goals Range of variation The acceptable parameters of variance between actual performance and the standard
Steps in the Control Process (cont’d)3. Taking managerial action to correct deviations or inadequate standards Immediate corrective action Correcting a problem at once to get performance back on track Basic corrective action Determining how and why performance has deviated and then correcting the source of deviation Revising the standard Adjusting the performance standard to reflect current and predicted future performance capabilities
Capital Electricals’ Sales Performance for July (number ofsets)
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.
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, productivity is a measure of how efficiently employees do their work.
Organizational Performance Measures• Organizational Effectiveness Measuring how appropriate organizational goals are and how well the organization is achieving its goals. Systems resource model – The ability of the organization to exploit its environment in acquiring scarce and valued resources. The process model – The efficiency of an organization’s transformation process in converting inputs to outputs.
Industry and Company Rankings• Industry rankings on: • Corporate Culture Profits Audits Return on revenue • Compensation and Return on shareholders’ benefits surveys equity • Customer satisfaction Growth in profits surveys Revenues per employee Revenues per dollar of assets Revenues per dollar of equity
Types of Control• Feedforward Control Prevents anticipated problems.• Concurrent Control Takes place while an activity is in progress.• Feedback Control Takes place after an action Provides evidence of planning effectiveness
Tools for Controlling OrganizationalPerformance: 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. – The choice is to use less capital or invest in high-return projects.
Tools for Controlling OrganizationalPerformance: Financial Controls (cont’d)• Other Measures (cont’d) 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.• The Practice of Managing Earnings
Controlling Organizational Performance• Balanced Scorecard Is 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 Is intended to emphasize that all of these areas are important to an organization’s success and that there should be a balance among them.
Information Controls• Purposes of Information Controls As a tool to help managers control other organizational activities. Managers need the right information at the right time and in the right amount. As an organizational area that managers need to control. Managers must have comprehensive and secure controls in place to protect the organization’s important information.
Information Controls• Management Information Systems (MIS) A system used to provide management with needed information on a regular basis.
Controls and Cultural Differences• Methods of controlling employee behavior and operations can be quite different in different countries.
The Dysfunctional Side of Control• Problems with Unfocused Controls Failure to achieve desired or intended results occur when control measures lack specificity• Problems with Incomplete Control Measures Individuals or organizational units attempt to look good exclusively on control measures.• Problems with Inflexible or Unreasonable Control Standards Controls and organizational goals will be ignored or manipulated.
Contemporary Issues in Control• The right to personal privacy in the workplace versus: Employer’s monitoring of employee activities in the workplace Employer’s liability for employees creating a hostile environment Employer’s need to protect intellectual property Remember: The computer on your desk belongs to the company.