Week 9 - Controlling - MGC1010

Controlling

Introduction to Controlling

  • Controlling is a critical management process to monitor goals established during planning.
  • It involves checking if goals are being achieved efficiently and effectively.
  • Appropriate controls help identify performance gaps and areas for improvement.
  • Controlling is essential because things don't always go as planned.
  • The topics covered include the controlling process, control methods, aspects of organizational control, and the use of information.
  • Information is crucial from a strategic perspective, and basic information management is discussed.
  • Case study: ATH Technologies, an American company in medical imaging, highlights the importance of well-designed control systems and the link between controlling and planning.

Control Process

  • Control is a regulatory process of setting standards, comparing performance to standards, and taking corrective action.
  • Control is achieved when behavior and work conform to standards and company goals.
  • Four steps in the controlling process:
    1. Establish performance objectives and standards.
      • Managers set goals and specify performance standards to achieve them.
      • Standards are the basis for measuring organizational performance.
      • Example: Sam wants TQM Auto Repair to increase sales by 100,000100,000 to replace equipment.
      • He aims to improve customer satisfaction from 84%84\% to 90%90\%.
    2. Measure actual performance.
      • Managers acquire information through personal observations, statistical reports, and oral/written reports.
      • Most work activities can be quantified and measured.
      • Example: Sam develops a survey for customers to rate their experience (timeliness, quality, price, friendliness, ease of payment).
    3. Compare actual performance with objectives and standards.
      • Determine the degree of variation between actual performance and the standard.
      • Acceptable range of variation must be determined; deviations exceeding this range require attention.
      • Example: Sam monitors survey results weekly and compares them to the previous year to see positive changes in customer satisfaction.
    4. Take necessary action.
      • Managers can do nothing, correct performance, or revise standards.
      • Correcting performance involves training, disciplinary action, rewards, or punishment.
      • Variance may result from unrealistic standards, requiring standard revision, not performance correction.
      • Example: If customer satisfaction ratings are below standards, Sam changes his pricing structure or provides free coffee.

Examples of Controlling Steps

  • Example 1: Sam reviews total repairs from the logbook to determine if mechanics are reaching their target quota of repairs. (c) Compare actual performance with objectives and standards.
  • Example 2: Sam develops a way to measure how many cars are being repaired weekly, keeping track of daily repairs in a logbook. (b) Measure actual performance.
  • Example 3: Each mechanic must reach the following weekly targets: fix 1010 engines, patch 55 tires, replace 1515 windscreen wipers each week. (a) Establish performance objectives and standards.
  • Example 4: If mechanics are not reaching their production quotes, Sam might reconfigure the shop or discipline the mechanics. (d) Take necessary action.
The Control Process Diagram
  • The diagram illustrates the steps involved in the control process:
    1. Set standards.
    2. Measure performance.
    3. Compare with standards.
    4. Identify deviations.
    5. Analyze deviations.
    6. Develop and implement a program for corrective action.
  • Steps 2 through 6 are a continuous, repetitive cycle.
  • Control is a continuous, dynamic, cybernetic process.
  • Cybernetic: Derives from the Greek word 'kubernetes,' meaning 'steersman,' one who keeps on course.
  • The control process is cybernetic because of the feedback loop, where actual performance is compared to standards to minimize or correct deviations.

Benchmarking

  • Benchmarking is used as a control tool.
  • Goals for Pizza Express:
    • Opening Hours: Goal 1.
    • Competition with competitors: Goal 2.
    • Rating on Menulog, Customer surveys: Goal 3.
    • Number of minutes from order to delivery: Goal 4.

Types of Controls

  • Three types of controls: feedforward, concurrent, and feedback.
  • Feedforward Control: Takes place before a work activity; prevents anticipated problems.
  • Concurrent Control: Takes place while an activity is in progress; corrects problems as they arise.
  • Feedback Control: Takes place after the work is completed; provides useful information for future improvements, but can be costly.
Starbucks Examples
  • Example 1: Starbucks provides training to employees who are required to follow procedures. (c) Feedforward; (b) Before a work activity is done
  • Example 2: Starbucks uses digital timers and order confirmation screens and instructs employees to notify managers of potential dangers. (e) Concurrent; (f) While an activity is in progress
  • Example 3: Starbucks managers analyze transactions by sales mix, discounts, gift vouchers, cup count, trading hours, payments, etc. (g) Feedback; (g) After the work is completed

Control Methods

  • Five different methods managers can use to achieve control:
    1. Bureaucratic Control: Hierarchical authority to influence behavior via rewards/punishments for compliance/noncompliance.
    2. Objective Control: Observable measures of worker behavior or outputs to assess performance and influence behavior.
    3. Normative Control: Regulation of behavior and decisions through shared organizational values and beliefs.
    4. Concertive Control: Regulation of behavior and decisions through work group values and beliefs.
    5. Self-Control: Managers and workers control their own behavior by setting goals, monitoring progress, and self-reward.
Examples of Control Methods
  • Example 1: A fast-food restaurant manager fires an employee for giving away free food and rewards another for helping a customer. Bureaucratic control
  • Example 2: A sales manager requires three calls per day to current customers, two calls on potential customers weekly, and minimum weekly sales of $10,000. Objective control
  • Example 3: Marriott's 'Ladies and Gentlemen serving Ladies and Gentlemen' theme. Normative control
  • Example 4: Cedartree Tech uses sales teams with complete responsibility for customer relationships. Concertive control
  • Example 5: Rafe's manager instructs workers to develop a daily theme like patience and empathy. Normative control

Balanced Scorecard

  • The balanced scorecard encourages managers to look beyond traditional financial measures to four perspectives:
    1. Customer perspective: How do customers see us?
    2. Internal perspective: At what must we excel?
    3. Innovation and learning perspective: Can we continue to improve and create value?
    4. Financial perspective: How do we look to shareholders?
  • Advantages of the balanced scorecard:
    • Forces managers to set specific goals and measure performance in each of the four areas.
    • Minimizes sub-optimization (improving performance in one area at the expense of others).
  • Examples of controlling the balanced scorecard:
    • Financial perspective: budgets, cash flows, and economic value added.
    • Customer perspective: customer defections.
    • Internal perspective: total quality management.
    • Innovation and learning perspective: waste and pollution.
Perspectives
  • Traditional approaches to financial performance focus on accounting tools like cash flow analysis, balance sheets, income statements, financial ratios, and budgets.
  • Customer perspective: Rather than customer satisfaction surveys, companies should monitor customer defections.
  • Internal perspective: Quality is defined and measured in excellence, value, and conformance to expectations.
  • Learning perspective: Involves continuous improvement in ongoing products and services and redesigning processes.
Examples of KPIs
  • Objective 1: Improve service delivery:
    • KPI(s): % Processes optimized; % Active projects running on-time and on-budget
    • Internal
  • Objective 2: Build a culture that encourages innovation
    • KPI(s): # Employee engagement index; # Ideas received for new/improved service from employees
    • Learning
  • Objective 3: Increase company profitability
    • KPI(s): % Net profit margin; $ Net cash flow
    • Financial
  • Objective 4: Increase call handling expertise
    • KPI(s): Average call handling time; % Scheduling adherence
    • Internal
  • Objective 5: Nurture high performing employees
    • KPI(s): % Employee satisfaction; % Employee turnover
    • Learning
  • Objective 6: Optimize revenue and expenses
    • KPI(s): $ Sales to date; $ Cost per call
    • Financial
  • Objective 7: Maintain high levels of customer satisfaction
    • KPI(s): % Survey excellent score; % Call abandon rate
    • Customer
  • Objective 8: Build and improve the customer network
    • KPI(s): # New customers; % Market share
    • Customer
  • Objective 9: Increase customer profitability
    • KPI(s): $ Revenue per client; $ Average new customer acquisition cost
    • Financial
  • Objective 10: Continuously improve skills and competence
    • KPI(s): # Training hours per full-time equivalent; % Employees meeting professional development requirements
    • Learning

Information in Organizations

  • Gordon Moore predicted computer processing power would double every two years and its cost would drop by 50%50\%. This is known as Moore's Law.
  • Data are raw, unprocessed facts (numbers, figures). When data is processed and analyzed, it becomes information.
  • Information is “useful data that can influence people’s choices and behaviour”.
  • Example: The numbers 30, 20, and 50 become information when processed into a final mark and grade (80 out of 100, which is a HD).
    • Strategic importance of information:
    • Information is extremely important in today’s fast-paced and highly competitive business environment.
  • Information contributes towards first-mover advantages and competitive advantage.
First-Mover Advantages
  • An organization has a first-mover advantage when it is the first to use new information technology to substantially lower costs or differentiate a product/service.
  • Organizations with first-mover advantages are better placed to earn high market share and profit.
  • eBay was one of the first companies to enter the online consumer auction market and has first-mover advantages, including strong brand recognition and customer loyalty.
Competitive Advantages
  • A company has a competitive advantage when it provides greater value for customers than competitors.
  • Companies can use resources, such as information, to create and sustain a competitive advantage.
  • The resource-based view is a framework to identify strategic resources that lead to competitive advantage. Resources should be valuable, different from competitors, and not easily created/purchased.
    1. Information technology should create value (lower costs and/or provide higher quality products/services).
    2. Information technology should be different from the information used by other companies.
    3. It should be difficult for other firms to create or buy the same information technology.
Characteristics of Useful Information
  • Four essential characteristics:
    1. Accurate: Correct in detail and free from errors.
    2. Complete: Enough information to make a decision.
    3. Relevant: Answers the problem for which it is being used.
    4. Timely: Available as needed.
Costs of Useful Information
  • Costs associated with useful information:
    1. Acquisition costs: Cost of obtaining data you don't have.
    2. Processing costs: Cost of turning raw data into usable information.
    3. Storage costs: Costs of archiving information for later use and retrieval.
    4. Retrieval costs: Costs of accessing already-stored and processed information.
    5. Communication costs: Cost of transmitting information from one place to another.
Processing Information
  • Managers encounter overwhelming amounts of data and transform raw data into meaningful information.
  • A data warehouse stores huge amounts of data that have been prepared for data mining analysis.
  • Data mining is used to discover patterns and relationships in large amounts of data.
    • Supervised data mining: User tells data mining software to look for specific patterns.
    • Unsupervised data mining: User tells data mining software to uncover whatever patterns it can find.
Accessing and Sharing Information and Knowledge
  • Organizations use information technology to access and share information and knowledge, which can be a source of competitive advantage.
Internal Access and Sharing of Information
  • Information technology tools:
    • Executive information systems: Provide relevant, accurate, and timely information to managers.
    • Intranets: Private company networks that allow employees to easily access, share, and publish information.
External Access and Sharing of Information
  • Information technologies allow organizations to access and share information with external parties (customers and suppliers).
  • Electronic data interchange (EDI) enables direct electronic transmission of purchase and ordering information between companies' systems.
  • Extranets allow companies to exchange information and conduct transactions by providing outsiders access to authorized parts of a company’s intranet.
Sharing Knowledge and Expertise
  • Knowledge is the understanding that one gains from information.
  • Decision support systems (DSS) help managers understand specific problems and potential solutions by acquiring and analyzing information with sophisticated models and tools.
  • Expert systems are created by capturing the specialized knowledge and decision rules used by experts and experienced decision-makers, allowing workers lacking expertise to draw on expert knowledge using ‘if-then’ rules.
Identify Attributes
  1. Why is information strategically important for organizations?
    • A. Information can be used to obtain first-mover advantage
  2. Which of the following statements about data mining is true?
    • D. Data mining typically uses data from a data warehouse.
  3. The data used in data mining typically come from:
    • C. data warehouses
  4. __ is the cost of accessing already-stored and processed information.
    • B. retrieval
  5. Unsupervised data mining:
    • C. identified random patterns

Barcelona Restaurant Case Study

  • To assess Barcelona Restaurant’s daily and weekly operating success, Chief Operating Officer Scott Lawton uses video monitoring, secret shopper reports, customer emails, and on-site observation. Such ongoing assessment is part of:
    • B. Comparison to standards.
  • Which of the following tells Barcelona Restaurant owner Andy Pforzheimer if his restaurants are operating at a profit or loss?
    • D. Income statements.
  • During the weekly managers meeting, Chief Operating Officer Scott Lawton discusses the prior week’s sagging sales, poor customer feedback from secret shoppers, and staffing shortages. Such a review is an example of:
    • C. Feedback control.
  • During Barcelona Restaurant’s weekly ‘War Room’ meetings, managers and chefs evaluate multiple performance measures, from financial numbers and customer feedback to competition between restaurants. This illustrates which of the following approaches to controlling?
    • B. The balanced scorecard.
  • At the end of the meeting, Barcelona Restaurant owner Andy Pforzheimer offers managers worksheets to help them remedy the problem of mismanaged food costs and menu prices at the restaurant. This is an example of:
    • D. Taking corrective action.
  • Barcelona Restaurant Group’s emphasis on customers and customer satisfaction is intended to prevent:
    • A. Customer defections.