Fundamentals Of Management

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Fundamentals Of Management

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  • Control is the process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. An effective system of controls ensures employees are performing the day-to-day activities that are required to obtain the goals of the organization.
  • Control systems can be designed in three ways: market, bureaucratic, and clan controls.
    Market control emphasizes external market mechanisms: for example, price competition or market share.
    Bureaucratic control emphasizes authority and relies on administrative rules, regulations, procedures, and policies.
    Clan control regulates the behavior of employees through the shared values, norms, traditions, rituals, and beliefs of the organization’s culture. Most organizations do not rely on just one of the control systems. The key is to design a system of controls that helps the organization to effectively and efficiently reach its goals.
    Without control, the final link in the functional chain of management, efficient planning, solid organizational structure, and motivated employees are no guarantee of success. However, the value of the control function lies predominantly in its relation to planning and delegating activities.
  • Control is the process of monitoring and correcting activities to ensure that they are being accomplished as planned. The control process consists of three steps: (1) measuring actual performance; (2) comparing actual performance against a standard; and (3) correcting deviations or inadequate standards.
  • 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.
  • In the comparison step, managers determine the degree of discrepancy between actual performance and performance standards. Because some variation between performance outcomes and the standards is inevitable, management must determine an acceptable range of variation. Deviations in excess of this range are significant and warrant the attention of management.
    In the comparison stage, managers are particularly concerned with the size and direction of the variation. The example that is featured on the next slide should help make this clearer.
  • 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.
  • Pat Welsh is the sales manager for South Atlantic Distributors. The firm distributes imported beers in the South. Pat prepares a report each month that describes previous month sales, classified by brand name. The table above displays both the standard and actual sales figures (in hundreds of cases) classified by brand name.
    Should Pat be concerned about the July performance? Sales were higher than originally targeted. Does that mean that there were no significant deviations? Even though overall performance was favorable, several brands need the sales manager’s attention. The number of brands however, depends on what Pat believes to be significant. How much variation should Pat allow before he takes corrective action?
    The deviation on Molson, Moosehead, and Amstel Light is small and not worthy of special attention. Are the shortages for Corona and Dos Equis significant? That’s a judgment call. Since Heineken sales were 15 percent below goal, this brand needs attention. Pat should look for the cause.
    In this case, the loss can be attributed to aggressive advertising and promotion campaigns by Anheuser-Busch and Miller. Since Heineken is the number one-selling import, it is most vulnerable to the promotion clout of the big domestic producers. If the decline is more than a temporary slump, Pat will need to reduce his orders with the brewery and lower his inventory stock.
  • 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.
  • 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 effectiveness of a given system of controls will be influenced by five situational factors.
    First, control systems should vary according to the size of the organization.
    Second, the higher one moves in the organization’s hierarchy, the greater the need for a multiple set of control criteria that are relevant to the unit’s goals.
    Third, the greater the degree of centralization, the more managers will need feedback on the performance of subordinate decision makers.
    Fourth, the organizational culture may promote trust, autonomy, and openness, or it may foster fear and reprisal.
    Fifth, the importance of an activity influences whether, and how, it will be controlled.
  • The effectiveness of a given system of controls will be influenced by five situational factors.
    First, control systems should vary according to the size of the organization.
    Second, the higher one moves in the organization’s hierarchy, the greater the need for a multiple set of control criteria that are relevant to the unit’s goals.
    Third, the greater the degree of centralization, the more managers will need feedback on the performance of subordinate decision makers.
    Fourth, the organizational culture may promote trust, autonomy, and openness, or it may foster fear and reprisal.
    Fifth, the importance of an activity influences whether, and how, it will be controlled.
  • 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:
  • Fundamentals Of Management

    1. 1. Copyright © 2005 Prentice Hall, Inc. All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama Foundations of Control Chapter 13 13 PART V: Controlling
    2. 2. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–2 Learning Outcomes After reading this chapter, I will be able to: 1. Define control. 2. Describe three approaches to control. 3. Explain why control is important. 4. Describe the control process. 5. Distinguish among the three types of control. 6. Describe the qualities of an effective control system. 7. Identify the contingency factors in the control process.
    3. 3. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–3 Learning Outcomes (cont’d) After reading this chapter, I will be able to: 8. Explain how controls can become dysfunctional. 9. Describe how national differences influence the control process. 10. Identify the ethical dilemmas in employee monitoring. 11. Describe how an entrepreneur controls for growth.
    4. 4. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–4 What Is Control? • Control The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations An effective control system ensures that activities are completed in ways that lead to the attainment of the organization’s goals.
    5. 5. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–5 Characteristics of Three Approaches to Control Systems • Market  Uses external market mechanisms, such as price competition and relative market share, to establish standards used in system to gain competitive advantage. • Bureaucratic  Emphasizes organizational authority of administrative and hierarchical mechanisms to ensure appropriate employee behaviors and to meet performance standards. • Clan  Regulates employee behavior by the shared values, norms, traditions, rituals, beliefs, and other aspects of the organization’s culture. Exhibit 13.1
    6. 6. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–6 The Control Process Exhibit 13.2
    7. 7. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–7 Steps in the Control Process • 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
    8. 8. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–8 Steps in the Control Process (cont’d) • 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
    9. 9. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–9 Defining an Acceptable Range of Variation Exhibit 13.3
    10. 10. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–10 Steps in the Control Process (cont’d) • 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
    11. 11. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–11 South Atlantic’s Distributors’ Sales Performance for July (hundreds of cases) BRAND STANDARD ACTUAL OVER (UNDER) Heineken 1,075 913 (162) Molson 630 634 4 Beck’s 800 912 112 Moosehead 620 622 2 Labatt’s 540 672 132 Corona 160 140 (20) Amstel Light 225 220 (5) Dos Equis 80 65 (15) Tecate 170 286 116 Total cases 4,300 4,464 164 Exhibit 13.4
    12. 12. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–12 Types Of Control • Feedforward control Control that prevents anticipated problems • Concurrent control Control that takes place while an activity is in progress • Feedback control Control that takes place after an action  Provides evidence of planning effectiveness  Provides motivational information to employees
    13. 13. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–13 Types of Control Exhibit 13.5
    14. 14. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–14 The Qualities Of An Effective Control System • Accuracy • Timeliness • Economy • Flexibility • Understandability • Reasonable criteria • Strategic placement • Emphasis on the exception • Multiple criteria • Corrective action
    15. 15. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–15 What Contingency Factors Affect the Design of A Control System? • Size of the organization • The job/function’s position in the organization’s hierarchy • Degree of organizational decentralization • Type of organizational culture • Importance of the activity to the organization’s success
    16. 16. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–16 Contingency Factors in the Design of Control Systems Exhibit 13.6 Contingency Variable Control Recommendations
    17. 17. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–17 A Special Case of Control: Sarbanes-Oxley Act • A law establishing procedures for public companies to report their financial status. The CEO and CFO must personally certify the organization’s financial reports. The organization must have in place procedures and guidelines for audit committees. CEOs and CFOs must reimburse the organization for bonuses and stock options when required by restatement of corporate profits. Personal loans or lines of credit for executives are now prohibited.
    18. 18. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–18 A Special Case of Control: Sarbanes-Oxley Act (cont’d) Penalties for noncompliance: Falsely stating corporate financials, can result in the executive being fined up to $1 million and imprisoned for up to 10 years. If the executive’s action is determined to be willful, both the fine and the jail time can be doubled. • Reporting of corporate misdeeds Establish an environment free from reprisals  Protection for employees who come forward (whistle- blowing) and report wrongdoing by executives.
    19. 19. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–19 Controls And Cultural Differences • Methods of controlling employee behavior and operations can be quite different in different countries. • Distance creates a tendency for formalized controls in the form of extensive, formal reports. • In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control. • Local laws constraint the corrective actions that managers can take foreign countries.
    20. 20. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–20 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.
    21. 21. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–21 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.
    22. 22. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–22 Perspective on Employee Theft • Industrial security The opportunity to steal presents itself through lax controls and favorable circumstances. • Criminologists Employees steal to relieve themselves of financial- based or vice-based pressures. • Clinical psychologists Employees steal because they can rationalize whatever they are doing as being correct and appropriate behavior.
    23. 23. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–23 Control Measures for Deterring or Reducing Employee Theft or Fraud Exhibit 13.7 Sources: Based on A. H. Bell and D. M. Smith. “Protecting the Company Against Theft and Fraud,” Workforce Online (www.workforce.com), December 3, 2000; J. D. Hansen, “To Catch a Thief,” Journal of Accountancy, March 2000, pp. 43–46; and J. Greenberg. “The Cognitive Geometry of Employee Theft,” in Dysfunctional Behavior in Organizations: Nonviolent and Deviant Behavior (Stamford, CT: JAI Press, 1998), pp. 147–93.
    24. 24. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–24 Suggestions for Achieving a Supportive Growth-Oriented Culture Keep the lines of communication open—inform employees about major issues. Establish trust by being honest, open, and forthright about the challenges and rewards of being a growing organization. Be a good listener—find out what employees are thinking and facing. Be willing to delegate duties. Be flexible—be willing to change your plans if necessary. Exhibit 13.8
    25. 25. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–25 Suggestions for Achieving a Supportive Growth-Oriented Culture (cont’d) Provide consistent and regular feedback by letting employees know the outcomes—good and bad. Reinforce the contributions of each person by recognizing employees’ efforts. Continually train employees to enhance their capabilities and skills. Maintain the focus on the venture’s mission even as it grows. Establish and reinforce a “we” spirit since a successful growing venture takes the coordinated efforts of all the employees. Exhibit 13.8
    26. 26. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–26 How An Entrepreneur Can Control For Growth • Planning for growth By addressing growth strategies as part of business planning but not being overly rigid in planning. • Organizing for growth The key challenges include finding capital, finding people, and strengthening the organizational culture. • Controlling for growth. Maintaining good financial records and financial controls over cash flow, inventory, customer data, sales orders, receivables, payables, and costs.
    27. 27. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–27 How Does the Entrepreneur Exit the Venture • Reasons for harvesting a venture Cashing out of the investment in a venture Exiting due to poor financial returns or organizational performance of the venture A desire to pursue other ventures • Business valuation methods Asset valuation Earnings valuation Cash flow valuation

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