Man org session 10_org control_27th july 2012


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Man org session 10_org control_27th july 2012

  1. 1. MANAGING ORGANIZATIONS Session 10: Control Systems in Organizations Sourav MukherjiPGP 2012-14 Section C & E Associate Professor of Organization & StrategyTerm 1:June-September 2012 Indian Institute of Management Bangalore, India
  2. 2. RECAPITULATING WHAT WE SET OUT TO DO 2 STRATEGY DEPENDENCY IMPACT OF ON TECHNOLOGY ENVIRONMENT STRUCTURE & PROCESSES 1. Centralization 2. Formalization 3. Specialization CULTURE 4. Coordination SIZE POWER 5. Control systems AND POLITICS 6. Learning GROWTH 7. Decision Making 8. Change management Remaining sessions will be focused on some critical organizational processes and their relationships with structure © S Mukherji
  3. 3. 3CONTROLS ARE FUNDAMENTAL TO ORGANIZATION DESIGN Organizations are means to achieve “principal’s” (one or a few individuals) goal through the efforts of many “agents” . For agents, the organizational objective might be means to other objectives, not all of which would be aligned to the organizational objective. PRINCIPAL AGENT Organizational control systems try to achieve organizational objectives despite partial convergence between the goals of the principal and the agents © S Mukherji
  4. 4. 4CONTROL SYSTEMS OPERATE AT ALL LEVELS IN THE SOCIETY  What are the control systems deployed within the class at IIM Bangalore ? What are the control systems deployed at the hostel? How are they different ? Why ?  What are the control systems that are deployed over faculty members at IIMB?  What are the control systems a mother would deploy if she employs a driver to take her young children to school everyday? Will the systems change over a period of time ? Why?  What are the control systems that society imposes on individuals? Why are they necessary? © S Mukherji
  5. 5. 5THERE ARE TWO WAYS TO DEAL WITH THE P-A PROBLEM 1. Live with the goal divergence and 2. Increase goal-congruence try to achieve objectives despite goal-incongruence PRINCIPAL AGENT PRINCIPAL AGENT • Direct supervision • Recruitment, socialization • Rules and regulations • Inspiration, motivation • Financial incentives and penalties • Peer pressure, mentoring related to rule adherence or performance targets © S Mukherji
  6. 6. 6DEVISING CONTROL SYSTEMS FOR A GROWING ORGANIZATION VFM pharmaceuticals is an entrepreneurial organization that has seen high growth in the first two years since inception. It has now decided to get more process oriented and abandon its earlier generalist structure. The senior management has divided the organization into three divisions – sales, product development and support services (comprising finance and accounting, human resource management and administration). What are the control systems that they should deploy for the three different divisions? Should these systems be uniform or should they be different? What are the characteristics on which these would depend? © S Mukherji
  7. 7. TASK CHARACTERISTICS DETERMINE 7APPROPRIATENESS OF CONTROL SYSTEMS Output control is close High to market based control Behaviour Behaviour / • Process Output Needs little or no • Hierarchy goal congruenceTASK Risky for agents underPROGRAMMABILITY conditions of uncertainty or absence of information Output Clan or cultural control is Clan most difficult to implement but can be • Recruitment Low • Socialization the most effective Low High OUTPUT MEASURABILITY © S Mukherji
  8. 8. ORGANIZATIONS SEEK BALANCE BETWEEN 8EMPOWERMENT AND CONTROL Belief Boundary System Systems Core values Risks to be Culture avoided What NOT to do control Organizational objective Critical Strategic performance uncertainties variable Diagnostic Interactive Output & Process control Control Control Direct supervision Systems Systems Increasing uncertaintySource: Control in an Age of Empowerment, © S Mukherji R Simons, Harvard Business Review, 1995
  9. 9. 9EVALUATING ORGANIZATIONS: THE BALANCED SCORECARD No single measure can provide a clear performance target How do we look to shareholders ? Financial Perspective • Cash flow What must we excel at ? • Sales growth • Market share • ROE / ROCE Internal Business Innovation & Learning • Efficiency • Patents / copyrights • Target vs. actual • Improvement on • New product launch existing products • Exploiting opportunity • New product sales Customer Perspective • Service levels Can we continue to • Customer satisfaction improve & create value? • Repeat customers • Reference customers How do customers see us ?Source: The Balanced Scorecard: Measures that Drive Performance, © S Mukherji R S Kaplan & D P Norton Harvard Business Review, 1992