Organizational Controlling

Management Functions

Planning
Resources
- Human Performance
- Attain goals
- Financial
Controlling Organizing - Products
- Raw - Services
material - Efficiency
- Technology - Effectiveness
- Information Leading
 Organizational Control
• Organizational Control
– Managers monitor and regulate how efficiently
and effectively an organization and its members
are performing the activities necessary to
achieve organizational goals

– The essence of control is action which adjusts

operations to predetermined standards, and its
information in the hand of managers.
Effectively controlling requires;
- Information about performance standards and actual
performance

- Action taken to correct any deviations from the

standards.

Managers need to decide;

- What information is essential?

- How they will obtain that information?

- How they can and should respond to it ?
 Organizational Control
Managers must monitor and evaluate:

– Is the firm efficiently converting inputs into outputs?

• Are units of inputs and outputs measured
accurately?

– Is product quality improving?

• Is the firm’s quality competitive with other firms?

– Are employees responsive to customers?

• Are customers satisfied with the services offered?

– Are our managers innovative in outlook?

• Does the control system encourage risk-taking?
 Control Systems
• Control Systems
– Formal, target-setting, monitoring, evaluation
and feedback systems that provide managers
with information about whether the
organization’s strategy and structure are
working efficiently and effectively.
 Control Systems
• A good control system should:

– Be flexible so managers can respond as needed.

– Provide accurate information about the

organization.

– Provide information in a timely manner.

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Three Types of Control
 Organization control focus
Concurrent control Feed back control
Feed forward control
Solves problems as Solves problems after
anticipates problems
They happen Occur
Examples Examples Examples
• per – employment • adaptive culture • analyze sales per
drug testing • total quality employee
• inspect raw materials management • final quality inspection
• hire only collage • employees • survey customers
graduates self - control

Focus is on
Focus is on

Focus is on

Inputs Ongoing processes Outputs

 01. Feed forward control

- Control that attempts to identify and prevent

problems before they occur is called Feed
forward control.

- Preliminary or prevent control, it focuses on

human, material, and financial resources that
flow into the organization.

- Purpose ensure that input quality is high

enough to prevent problems when the
organization performs its tasks.
 02. Concurrent control
- Control that monitors ongoing employee
activities to ensure they are consistent with
Performance standard is called concurrent
control

- Control assesses current work activities, relies

on performance standards, and includes rules
and regulations for guiding employee takes
and behaviors.

- Manufacturing measure whether the items

being produces meet quality standards.
 [Link] control
• Sometimes called post action or output control,
feedback control focus on the organization’s
outputs – in particular, the quality of an end
product or service.

• Feedback controls focus on financial measurement

budgeting, for example, is a from of feedback
control because managers monitor whether
they have operated within their budget targets
and make adjustments accordingly.
 Control Process Steps - Feedback control model

Feedback

Adjust standards Adjust performance

If
Establish 1. Establish 2. Measure 3. Compare 4. Take
Strategic stands of Actual performance Corrective
Goals performance performance to standards action

inadequate
If Adequate

5. Do nothing or provide reinforcement.

 The Control Process
1. Establish standards of performance, goals, or
targets against which performance is to be
evaluated.

2. Managers at each organizational level need to

set their own standards. Measure actual
performance
– Managers can measure outputs resulting from
worker behavior or they can measure the
behavior themselves.
• The more non-routine the task, the harder it is to
measure behavior or outputs
 The Control Process
3. Compare actual performance against
chosen standards of performance
– Managers evaluate whether – and to what
extent – performance deviates from the
standards of
performance
chosen in step 2

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 The Control Process
4. Evaluate result and initiate corrective action
if the standard is not being achieved
– If managers decide that the level of performance
is unacceptable, they must try to change the
way work activities are performed to solve the
problem

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 The Control Process
Take corrective action
Managers also determine what changes, if any,
are necessary.

Corrective actions,
• work hard, redesign the production process, or fire
employees.

• Contrast, participative control approach collaborate

with employees to determine the corrective action
necessary
Three Organizational Control Systems
 01. Output Control
• A system that focuses on measuring results or
outcomes to evaluate performance.

• Managers set goals, performance targets, or

quotas and compare them to actual outcomes.

• Examples:
– Sales targets for employees or departments
– Production quantity goals in a factory
– Profit margins or market share expectations
 01. Output Control
1.1 Financial Measures of Performances
• Financial measures are quantitative tools used
to assess an organization’s profitability, liquidity,
efficiency, and solvency, helping managers track
performance and make informed decisions.

• Profit Ratios
• Return on Investment (ROI)
• Operating margin
• Liquidity ratios
 01. Output Control

1.2 Organizational Goals

– Each division within the firm is given specific
goals that must be met in order to attain overall
organizational goals.

• Goals should be set appropriately so that managers

are motivated to accomplish them
 Output Control
1.3 Operating Budgets
– Blueprint that states how managers intend to use
organizational resources to achieve organizational
goals efficiently.

• Each division is evaluated on its own budgets for cost,

revenue or profit.
• Managers are evaluated by how well they meet goals
for controlling costs, generating revenues, or
maximizing profits while staying within their budgets.
 Effective Output Control
1. Objective financial measures
2. Challenging goals and performance
standards
3. Appropriate operating budgets
 Problems with Output Control
• Managers must create output standards that
motivate at all levels

• Should not cause managers to behave in

inappropriate ways to achieve organizational
goals
 02. Behavior Control
• Behavior control refers to the systems, rules,
procedures, and supervision that guide how
employees behave while performing their
tasks.

• Instead of focusing on results (like output

control), behavior control focuses on how
work is done
 02. Behavior Control
2.1 Direct supervision
– Managers who actively monitor and observe the
behavior of their subordinates
– Teach subordinates appropriate behaviors
– Intervene to take corrective action
– Most immediate and strong form of behavioral
control
– Can be an effective way of motivating employees
 Problems with Direct Supervision
• Very expensive because a manager can
personally manage only a relatively small
number of subordinates effectively

• Can demotivate subordinates if they feel that

they are under such close scrutiny that they
are not free to make their own decisions
2.2 Management by Objectives (MBO)

– Formal system of evaluating subordinates for their

ability to achieve specific organizational goals or
performance standards and to
meet operating
budgets
2.3 Bureaucratic Control

– Control through a system of rules and standard

operating procedures (SOPs) that shapes and
regulates the behavior of divisions, functions,
and individuals.
 Bureaucratic Control
• Problems with Bureaucratic Control
– Rules easier to make than discarding them,
leading to bureaucratic “red tape” and slowing
organizational reaction times to problems.

– Firms become too standardized and lose

flexibility to learn, to create new ideas, and
solve to new problems.
 03. Clan Control
• Clan Control
– The control exerted on individuals and groups in
an organization by shared values, norms,
standards of behavior, and expectations.