Management Control - COB 300

  • What to Control?

    • Six Areas of Control

      • Physical (buildings, equipment)

      • Human resources (hiring, productivity, culture, satisfaction)

      • Informational (forecasts, production schedules)

      • Financial (funding, expenses, budget)

      • Structural (hierarchy, reporting lines)

      • Cultural (norms, values, law abidance, collaboration)

  • The Control Process

    • Establishment of clear standards of performance

    • Comparing performance to those standards

    • Corrective action to repair performance deficiencies

    • The control process is:

      •  Dynamic (continuous over time)

    • Three basic methods: 

      • feedforward control

      • concurrent control 

      • feedback control

    • Control isn’t always worthwhile or possible or you catch some but not all problems

  • Types of Organizational Control

    • Preliminary (Feedforward Control)

      • Focused on organizational inputs

      • Anticipate and prevent deviation from standards

      • Be proactive 

      • Example: preventive maintenance on equipment

    • Concurrent Control

      • Focused on the transformation of inputs to outputs

      • “In-process” or “screening” control applied during the transformation process

      • Problems identified and addressed as they occurs

      • Example: sampling output from product line

    • Reword (Feedback Control)

      • Focused on outputs

      • Fixing a defective output (after product is produced)

      • Used when preliminary and concurrent controls failed

      • Example: touch up of car paint scratched during production or shipping. Editing a document with errors

    • Damage Control 

      • Focused on customer stakeholder satisfaction

      • Actions to minimize negative impacts on stakeholders due to faulty outputs

      • Example: Recalls, compensation, settling lawsuits 

  • Effective Control Systems

    • Controls should focus on key activities

      • Critical success factors (CSFs)

    • Controls must be timely

      • Information should be available to employees in time to take action

    • Controls are not likely to be 100% effective or possible

    • Controls may blind us to moral wisdom

  • Control Isn’t Always Worthwhile or Possible

    • Regulation costs (cost/value analysis—worth it?)

    • Cybernetic feasibility (can you implement each step? If one or more steps cannot be implemented, it fails

    • You can’t control for everything (Expense reports example)

  • Standards

    • Must enable goal achievement

    • Listen to customer’s comments complaints, and suggestions

    • Benchmarking

      • Determining other companies’ standards

  • Comparison to Standards

    • The quality of the comparison depends largely on the measurement

    • The better the system, the easier it is for a company to track performance and identify problems that need to be fixed

    • Is the final product identical to the standard?

  • Corrective Action

    • Identify performance deviations

    • Analyze deviations

    • Development and implement corrective programs

  • Effective Control Systems (cont.)

    • Controls must be effective

      • The benefits must be worth the cost of installation and operation

    • Controls should be accurate

      • Measurement of quantity and quality allows for meaningful comparisons

    • Controls should be accepted by the people they affect

      • Employees must be educated regarding usefulness and benefits

  • 5 basic methods for control

    • Bureaucratic Control

      • Managers try to influence employee behavior by rewarding or punishing

      • Managers emphasize following rules

      • Companies are highly resistant to change and slow to respond to customers and competitors

  • Objective Control

    • The use of observable measures of employee behavior or output to assess performance and influence behavior

    • Behavior control

      • Measures workers’ behaviors

    • Output control

      • Measures quantifiable results

      • Must be reliable, fair, and accurate

    • Warning: 

      • Be careful you don’t ignore one of the two because the other one is ok

  • Normative Controls

    • A company’s widely shared values and beliefs guide workers’ behavior and decisions

    • Control through widely shared beliefs and values

    • Created by…

      • Who companies hire

      • Corporate culture

      • Observing experienced employees

  • Concertive Controls

    • Instead of being based on strong organizational culture as in normative control, concertive control is based on beliefs that are shaped and negotiated by work groups

  • Self- Control: YOU are in the driver’s seat

    • Managers and workers control their own behavior

    • Listen more

    • Dispute irrational beliefs

    • Keep the ego in check...it’s often NOT about you!

    • Be the change you want to see

  • Balanced Scorecard: An integrated framework

    • Originally designed to evaluate strategies from four perspectives:

      • Financial (sales, profits, ROI)

      • Customer (satisfaction, market share)

      • Internal processes (productivity, quality, cost reduction)

      • Learning and growth (R & D) or Innovation and learning perspective

  • Controlling Financial Performance

    • Cash flow analysis

    • Balance sheets

    • Income Statements

    • Financial ratios

    • Budgets

  • Economic Value Added

    • Not the same thing as profits..

    • The amount by which profits exceed the cost of capital in a given year

    • EVA is positive when company’s profits exceed the cost of capital in a given year

    • Includes the cost of capital

  • Controlling Customer Defections

    • Companies can do a better job of answering “How do customers see us?” by identifying which customers are leaving the company and measuring the rate at which they are leaving

    • Customers who have left are much more likely than current customers to tell you what you were doing wrong

    • Not always part of a company’s traditional approach to control, but it SHOULD BE

  • The worth of the brutal facts

    • Which customer is likely to give you more useful feedback?

      • Ferruccio Lamborghini to Enzo Ferrari:

        • “Pazzo, vi mostrerò, la tua macchina è una merda!!”

  • Controlling Quality

    • Quality is measured in three ways

      • Excellence (unsurpassed performance & features)

        • Advantages

          • Being/providing the “best” motivates and inspires managers and employees

        • Disadvantages

          • Excellence is ambiguous. What is it? Who defines it?

      • Value (good value for money as perceived by customer)

        • Advantages

          • Appeals to customers who know excellence “when they see it”

          • Customers recognize differences in value

          • Easier to measure and compare whether products/services differ in value

        • Disadvantages

          • Difficult to measure and control

          • Can be difficult to determine what factors influence whether a product/service is seen as having value

          • Controlling the balance between excellence and cost can be difficult 

  • Conformance to specifications (measure up to standards)

    • Advantages

      • If specification can be written, conformance to specifications is usually measurable 

      • Should lead to increase efficiency

      • Promotes consistency in quality

    • Disadvantages

      • Many products/services cannot be easily evaluated in terms of conformance to specifications

      • Promotes standardization, so may hurt performance when adapting to changes is more important

      • May be less appropriate for services, which are dependent on a high degree of human contact

  • Controlling Waste and Pollution

    • Waste prevention and reduction

      • good housekeeping

      • material/product substitution

      • process modification

    • Recycle and reuse

    • Waste treatment

    • Waste disposal

    • Michael Porter:

      •  “Companies that don’t pollute are more efficient and therefore save money...”