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 share
o 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 structure
o 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 activities
ii. Subject to personal bias, time consuming, obtrusive
b. Statistical Reports
i. Easy to visualize, Effective for showing relationships,
ii. Provided limited information, ignore subjective factors
c. Oral Reports
i. Fast way to get information, allow for verbal and non-
verbal feedback
ii. Information is filtered, Information can’t be documented
d. Written Reports
i. Comprehensive, formal, easy to file and retrieve
ii. 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 concerns
o Addressing feedback ad complaints promptly, courteously, and
confidentially
o 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 trust
o 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 prosperity
o Environmental sustainability
o Social responsibility
o Spiritual validity
o Universal harmony
 3 Common Organisational Performance Measures
o organisational productivity
o organisational effectiveness
o 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 obtain
o 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 areas
o Scorecards reflect organisational strategies

Information controls
  2 ways to view information controls:
o a tool to help managers control other organisational activities
o 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
time
o Data = raw, unanalysed facts
o 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 Privacy
o 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 Governance
o = The system used to govern a corporation so that the interests of
corporate owners are protected
o The role of the board of directors