Strategic Management

Chapter 18

Foundations of Control

What is control?

Controlling = the process of monitoring, comparing and correcting work performance

3 approaches to designing control systems:o Market control = an approach to control that emphasises the use of

external market mechanisms to establish the control standards Usually used by organisation with highly specified and

distinct product with high marketplace competition Market mechanisms include: price competition, relative

market shareo Bureaucratic Control = an approach to control that emphasises

organisational authority and relies on administrative rules, regulations, procedures and policies

Standardised activities, well-defined job descriptions and budgets

Based on strict hierarchical structureo Clan Control = an approach to control in which employee

behaviour is regulated by organisational culture Used by organisations in which teams are common and

technology is changing rapidly Depends on the individual and the group to identify

appropriate and expected behaviours and performance measures

In reality organisations do not rely on one approach – he key is to design a system that helps the organisation efficiently and effectively reach its goals

Why is control important?

There needs to be assurance that activities are going as planned and that goals are being attained

It is the final link in the management functions Without control you would have no idea whether the organisation as on

track to complete goals and what future actions should be Also, it assists with employee empowerment, allowing eployees to take on

responsibilities (that managers may be tempted to do themselves) and monitor them at the same time

o This is the importance of a control system as it provides feedback and information on employee performance

Protects the organisation and its assets from threats such as natural disasters, financial scandals, workplace violence, supply-chain disruptions, security breaches and even terrorist attacks.

o Plans in place to protect employees, infrastructure, facilities and data.

Control Process

3 step process

1. Measuring actual performance Four sources of information:

a. Personal observations i. Get first-hand knowledge, information isn’t filtered,

intensive coverage of work activitiesii. Subject to personal bias, time consuming, obtrusive

b. Statistical Reportsi. Easy to visualize, Effective for showing relationships,

ii. Provided limited information, ignore subjective factorsc. Oral Reports

i. Fast way to get information, allow for verbal and non-verbal feedback

ii. Information is filtered, Information can’t be documentedd. Written Reports

i. Comprehensive, formal, easy to file and retrieveii. Take more time to prepare

2. Comparing Determine the acceptable range of variation

Range of variation = the acceptable parameters of variance between actual performance and the standard

3. Taking managerial action Correct actual performance

Changing: Structure Strategy Compensation programs Redesigning jobs Firing employees

Needs to make decision between: Immediate corrective action = corrective action that

corrects problems at once to get performance back on track

Basic corrective action = corrective action that looks at how and why performance deviated and then proceeds to correct the source of deviation

Revise the standard

It is possible the deviation was as a result of an unrealistic goal (too high or too low)

Difficult to revise a standard downwards Be aware it is common for employees not meeting

standards to blame the standard instead of their performance

Controlling fro organisational performance

What is organisational performance?

Performance = the end result of an activity Organisational Performance = the accumulated end results of all the

organisation’s work activities

Why is measuring organisational performance important?

Managers measure and control organisational performance because it leads to better asset management

o Asset management = the process of acquiring, managing, renewing and disposing of assets as needed, and of designing business models to take advantage of the value from these assets

Measures of organisational performance have an impact on an organisation’s reputation

Better asset management

Assets are only valuable is they are managed in a way that captures that value

High performance companies manage assets in a way that exploit their value

Managers at all organisational levels are concerned with asset management

Increased ability to provide customer value

Monitor customer value through feedback programs Feedback programs based on:

o Using feedback and complaints as opportunity to learn from our customers

o Making it easy for people to contact us with their concernso Addressing feedback ad complaints promptly, courteously, and

confidentiallyo Monitoring and analysing customer feedback and address issues

through training or a change in procedures

o Providing a full explanation of any adverse event in a timely manner

o Providing positive feedback to staff delivering exceptional service

Impact on organisational reputation

Want customers, suppliers, competitors, community etc. to think highly of them

Advantages include:o Greater consumer trusto Ability to command premium pricing

Strong correlation between financial performance and reputation

Measures of Organisational Performance

Concept of five-point bottom line (Ian Berry)o Economic prosperityo Environmental sustainabilityo Social responsibilityo Spiritual validityo Universal harmony

3 Common Organisational Performance Measureso organisational productivityo organisational effectivenesso industry rankings

Organisational productivity

productivity = the overall output of goods or services produced, divided by the inputs needed to generate outputs

Want the greatest amount of goods and services produced for the least amount of input

Output = sales revenue = sales price x number of sales

Organisational Efectiveness

Organisational effectiveness = a measure of how appropriate organisational goals are and how well an organisation is achieving these goals

Systems resource model – effectiveness is measured by ability to exploit its environment in acquiring scarce and valued resources

Process model – how well the organisation converts inputs into desired outputs

Multiple constituencies model – several different measures should be used

Tools for controlling organisational performance

Control concepts:o Feedforward control = a type of control that takes place before a

work activity is done Anticipates problems Allow managers to prevent problems Require timely and accurate information that is often

difficult to obtaino Concurrent control = a type of control that takes place while a

work activity is in progress Corrects problems as they happen Correct before they become too costly Best form of concurrent control is direct supervision –

management by walking around Management by walking around = a term used to

describe when a manager is out in the work area interacting directly with employees

Technical equipment (computers) can be programmed to include concurrent controls

o Feedback control Corrects problems after they occur Drawback = leads to waste or damage Provides managers with meaningful information on how

effective their planning efforts were People want information on how well they have performed

Financial Controls

Traditional financial control measures

Other Financial control measures

Economic value added (EVA) = a financial tool for measuring corporate and divisional performance, calculated by taking after-tax profit minus total annual cost of capital

Market Value Added (MVA) = a financial tool that measures the share market’s estimate of the value of a firm’s past and expected capital investment project

Balance scorecard approach

Balanced scorecard = a performance measurement tool that looks at four areas – financial, customer, internal processes and people/innovation/growth assets – that contribute to a company’s performance

o Managers should develop goals in each of these areaso Scorecards reflect organisational strategies

Information controls

2 ways to view information controls:o a tool to help managers control other organisational activitieso an organisational area that managers need to control

How is information used in controlling?

Information is critical to monitoring and measuring an organisation’s activities and performance

Need info at the right time and in the right place Most of the information tools that managers use arise out of the

organisation’s management information system

Management Information System

Management information system (MIS) = a system used to provide management with needed information on a regular basis

Provides information not just data Organised data in some meaningful way and can access it in an reasonable

timeo Data = raw, unanalysed factso Information = processed and analysed data

Controlling Information

Protect information – data encryption, system firewalls, data backups

Benchmarking of best practices

Benchmarking = the search for the best practices among competitors or non-competitors that led to their superior performance

Benchmark = the standard of excellence against which to measure and compare

Contemporary issues in control

Adjusting controls for cross-culture differences Workplace Concerns

o Workplace Privacyo Employee Theft

= Any unauthorised taking of company property by employees for their personal use

o Workplace Violence Controlling customer interactions

o Service profit chain = the service sequence from employees to customers to profits

Corporate Governanceo = The system used to govern a corporation so that the interests of

corporate owners are protectedo The role of the board of directors