G - Control in Organizations
Organizations need controls in order to determine if their goals are being met and to take corrective action if necessary.
The Nature of Control in Organizations.
Control is the regulation of organizational activities so that some targeted element of performance remains within acceptable limits.
The Purpose of Control.
Control provides an organization with ways to :
Adapting to environmental change:
A control system can to anticipate, monitor, and respond to changing environmental conditions.
Limiting the accumulation of error:
A control system will limit the number of errors that can accumulate discovery and problem solution..
Coping with organizational complexity:
A factor increasing dramatically over recent times.
If it is practiced effectively, control can help reduce costs and increase output.
Types of Control.
Organizations establish controls in a number of different areas and at different levels. The responsibility for managing control is extensive.
Areas of control:
The four basic organizational resources usually define the areas of control.
Control includes inventory management, quality control and equipment control.
Control includes selection and placement, training and development, performance appraisal and compensation.
Control includes sales/marketing forecasting, environmental analysis, public relations, production scheduling and economic forecasting.
Control involves managing the organizations debt, cash flow and receivables/payables. Control of financial resources may be the most important control of all.
Control is practiced at many levels in the organization
Responsibilities for control:
Ultimate responsibility for control rests with all managers throughout an organization.
Steps in the Control Process.
A control standard is a target against which subsequent performance will be compared. Such standards need to be measurable and consistent with the organization's goals and should identify performance indicators.
Performance measurement is constant and ongoing in most organizations. Performance measure must be valid for control to be effective.
Comparing performance against standards:
Performance may be higher than, lower than, or identical to the standard.
Considering corrective action:
After performance has been compared to standards, one of three actions is appropriate: do nothing (maintain status quo), correct the deviation, or change the standard.
Control of the processes an organization uses to transform resources into products or services is operations control.
Preliminary control, also known as steering control or feedforward control, focuses on the resources that the organization brings in from the environment. It attempts to monitor the quality or quantity of these resources before they enter the organization.
Screening control, also known as yes/no control or concurrent control, focuses on meeting standards for product or service quality or quantity during the transformation process. Screening control relies on feedback processes. For example, when quality checks are used to provide feedback to workers manufacturing a product, the workers know what, if any, corrective actions to take.
Post action Control.
Post action control, also known as feedback control, focuses on the outputs of the organization after the transformation process is complete. Although postaction control used alone may not be as effective as preliminary or screening control, it can provide management with information for future planning. Post action control also may be used as a basis for rewarding employees.
The control of financial resources as they flow into the organization, are held by the organization, or flow out of the organization is known as financial control.
A budget is a plan expressed in numerical terms: dollars, units of output, time, or any other quantifiable factor. Budgets provide a method for measuring performance across different units within the organization. Budgets have four primary purposes: helping managers coordinate resources and projects, helping define the established control standards, providing clear guidelines about the organization's resources and expectations, and enabling organizations to evaluate the performance of managers and units.
Types of budgets:
Financial budget shows the sources and uses of cash.
Operating budget shows what quantities of products or services the organization intends to create and what financial resources will be used to create them.
Non monetary budget expresses planned operations in non financial terms such as units of output and machine hours.
Many organizations now allow all managers to participate in the budget process.
Strengths and weaknesses of budgeting:
Budgets facilitate effective control and coordination and communication between departments. But budgets may be applied too rigidly; the process of developing them can be time consuming; and they may limit innovation and change.
Other Tools of Financial Control.
Budgets are the most common means of financial control, but there are other useful tools: financial statements, ratio analysis, and financial audits.
A profile of some aspect of an organization's financial circumstances is a financial statement. The two most commonly used financial statements are the balance sheet and the income statement. The balance sheet shows a snapshot profile of the organization's financial position. The income statement summarizes financial performance over a period of time.
Financial ratios compare different elements of a balance sheet or income statement to one another. Ratio analysis is the calculation of one or more financial ratios to assess some aspect of the financial health of an organization. Five commonly used financial ratios are liquidity, debt, return, coverage, and operating.
Audits are independent appraisals of an organization's accounting, financial, and administrative procedures. An external audit is a financial appraisal conducted by experts who are not employees of the organization. An internal audit is an appraisal conducted by employees of the organization. The objective of these audits is to verify the accuracy of financial and account procedures. Internal audits also assess these procedures for efficiency and appropriateness.
Structural control focuses on how well an organization's structural elements serve their intended purpose. Figure 12.6 shows two very different approaches to structural control: bureaucratic control and clan control. Organizations characterized by these opposite approaches differ structurally in terms of foals, degree of formality, performance focus, organization design, reward system, and level of employee participation.
Bureaucratic control is characterized by formal and mechanistic structural arrangements. Organizations that use it tend to rely on strict rules and to have a rigid hierarchy.
Clan control is characterized by informal and organic structural arrangements. The goal of clan control is gaining employee commitment.
Strategic control focuses on how effectively the organization's strategies result in the attainment of goals. The assessment of strategy requires the organization to integrate strategy and control.
Integrating Strategy and Control.
Strategic control generally concentrates on organization structure, leadership, technology, human resources, and information and operations control systems. They often are seen as areas in which a strategy is or is not being effectively implemented. Strategic control focuses on the extent to which implemented strategy achieves the organization's strategic goals. If goals are not being attained, the firm will find it necessary to make changes in one or more areas,
MANAGING CONTROL IN ORGANISATIONS.
Effective control successfully regulates and monitors organizational activities. Managers must be able to recognize effective control and understand how to overcome occasional resistance to control.
Characteristics of Effective Control.
Effective control systems are closely integrated with planning and are flexible, accurate, timely, and objective.
Integration with planning:
The more explicit and precise the linkage between planning and control is, the more effective the control system will be. The best way to integrate control with planning is to prepare control standards as plans are being made.
A control system must be able to accommodate change. Unforeseen situations can create havoc with control systems that are not flexible.
Inaccurate information can lead to inappropriate managerial action. A control system should provide accurate information.
A control system should provide information as often as necessary. Generally, the more uncertain and unstable the environment, the more frequently will information be needed.
A control system should provide information that is as objective as possible. But even when the information is objective, managers need to look beyond the numbers when assessing performance.
Resistance to Control.
In spite of the benefits that control provides, some employees resist control, especially if they feel over controlled, if they think control is inappropriately focused or rewards inefficiency, or if they are uncomfortable with accountability.
When organizations try to control too many things, employees may feel over controlled if the controls directly affect their behavior. When employees think that attempts to limit their behavior are unreasonable, trouble can occur.
If the control system is too narrow or focuses too much on quantifiable variables, leaving no room for analysis or interpretation, it may be judged as having an inappropriate focus. When this happens, employees resist the intent of the control system by focusing their efforts only at the performance indicators being used.
Rewards for inefficiency:
If control systems knowingly or unknowingly reward inefficient activity, employees likely will resist by behaving in ways that run counter to the organization's intent.
Too much accountability:
Effective control lets managers determine whether employees are doing their jobs. People who do not want to be answerable for their mistakes or who do not want to work as hard as their boss might like them to work are likely to resist control.
Overcoming Resistance to Control.
The best way to overcome resistance to control is to design effective controls initially. Two other ways to overcome resistance are encouraging participation and developing verification procedures.
Encouraging employee participation:
When employees are involved with planning and implementing a control system, they are less likely to resist it.
Developing verification procedures:
The accuracy of performance indicators can be verified by having multiple standards and information systems. These checks and balances can be important verification procedures.