How and What to Control

blessinghomoeopathAI and Robotics

Nov 30, 2013 (3 years and 4 months ago)

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Chapter 7

Control

2

What Would
You

Do?


Movie theaters have changed greatly in the last 20
years


Should Regal build its own megaplexes?


What resources would be needed for this
expansion?


Would fast expansion threaten their business
model?

3

After discussing this section you
should be able to:

Learning Objectives

Basics of Control

1.
describe the basic

control process

2.
be able to answer the question: Is control
necessary or possible?

4

The Control Process

Compare actual to desired performance

Establish clear standards

Take corrective action, if needed

Is a dynamic process

Consists of three basic methods

5

Setting Standards


Determine what should be benchmarked


Identify companies against which to
benchmark standards


Collect data on other companies’
performance standards

6

Cybernetic Control Process

Actual

Performance

Measure

Performance

Compare

with

Standard

Identify

Deviations

Desired

Performance

Implement

Program

for

Corrections

Develop

Program

for

Corrections

Analyze

Deviations

Adapted from Exhibit 7.1

7

Basic Control Methods


Feedback control


gather information about performance deficiencies
after they occur


Concurrent control


gather information about performance deficiencies
as they occur


Feedforward control


gather information about performance deficiencies
before they occur

8

Is Control Necessary or Possible?

What should be done

if more control is

necessary but not possible?

Is more control necessary?

Is more control possible?

9

Is More Control Necessary?


Degree of dependence


the extent to which a company needs a particular
resource to accomplish its goals


Resource flow


the extent to which a company has easy access to
critical resources

10

Is More Control Possible?


Cost of control


direct costs of the control


unintended costs


Cybernetic feasibility


the extent to which it is possible to implement
each step in the control process


if a step cannot be implemented, then control may
not be possible

11

Quasi
-
Control: When Control Isn’t
Possible


Reducing dependence


choose to abandon or change goals


when control over a critical resource is not
possible


Restructure dependence


exchange dependence on one critical resource for
dependence on another

12

Is Control Necessary or Possible?

Dependence

sufficiently

high?

Expected

resource

flows

unacceptable?

Cybernetics

feasible?

Regulation

cost

acceptable?

Goods

fixed?

Response:

Regulate

Dependence

Restructure

Dependence

Reduce

Dependence

Do Nothing

yes

yes

yes

yes

yes

no

no

no

no

no

Adapted from Exhibit 7.3

S.G. Green & M.A. Welsh, “Cybernetics and Dependence:

Reframing the Control Concept, “
Academy of Management

Review,
13 (1988): 287
-
301

13

After discussing this section you
should be able to:

Learning Objectives

How and What to Control

3.
discuss the various methods that managers
can use to maintain control

4.
describe the behaviors, processes, and
outcomes that managers are choosing to
control in today’s organizations

14

Blast From The Past

From 1870 to the Present

Five Eras of
Management Control


Industrial Betterment, 1870
-
1900


Scientific Management, 1900
-
1922


Human Relations, 1925
-
1955


Systems Rationalism, 1955
-
1980


Organizational Culture and Quality, 1980
-
Present

15

Control Methods

Bureaucratic

Objective

Normative

Concertive

Self
-
Control

16

Bureaucratic


Top
-
down control


Use rewards and punishment to influence
employee behaviors


Use polices and rules to control employees


Often inefficient and resistant to change

17

Objective


The use of observable measures


Behavioral control


regulate employee behaviors and actions


managers monitor and shape employee behaviors


Output control


measure employee outputs


focus is on outcomes not behaviors

18

Normative Control


Company values and beliefs guide employee
behavior and decisions


Cultural norms not rules, guide employees


Created by:


careful selection of employees


role
-
modeling and retelling of stories

19

Concertive Controls


Employees are guided by the beliefs of work
groups


Autonomous work groups


operate without managers


group members control processes, output, and
behaviors

20

Self
-
Control


Employees control their own behavior


Employees make decisions within well
-
established boundaries


Management and employees set goals and
monitor their own progress

21

What to Control

Balanced Scorecard

Financial Perspective

Customer Perspective

Internal Business Perspective

Innovation & Learning Perspective

22

Example of a Balanced Scorecard

Financial


EVA


Ratios and Budgets


Innovation/Learning


Waste minimization


Time to market

Customer


Defections


Partnerships

Internal Business


Quality


Productivity

23

Balanced Scorecard


Managers look beyond traditional financial
measures


Managers set specific goals in each of four
areas


Helps minimize the chances of
suboptimization

24

Controlling Economic Value Added

(Financial Perspective)


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


Important because:


shows if a profit center is paying for itself


focuses attention on specific departments


encourages creative ways to improve
organizational performance

25

Basic Accounting Tools


Basic Cash Flow
Analysis Steps


Forecast sales


Project changes in
anticipated cash flows


Project anticipated cash
outflows


Project net cash flows by
combining anticipated
cash inflows and
outflows


Parts of a Basic
Balance Sheet


Assets


Current assets


Fixed assets


Liabilities


Current liabilities


Long
-
term liabilities


Owner’s equity


Stock


Additional paid in capital


Retained earnings

Adapted from Exhibit 7.6

26

Basic Accounting Tools
(cont’d)


Basic Income Statement


SALES REVENUE

-

sales returns and allowances

+

other income

=

NET REVENUE

-

cost of goods sold

=

GROSS PROFIT

-

total operating expenses

=

INCOME FROM OPERATIONS

-

interest expense

=

PRETAX INCOME

-

income tax

=

NET INCOME

Adapted from Exhibit 7.6

27

Common Financial Ratios

Liquidity Ratios


Current Ratio


Quick Ratio

Profitability Ratios


Gross Profit Margin


Return on Equity

Leverage Ratios


Debt to Equity


Debt Coverage

Efficiency Ratios


Inventory Turnover


Average Collections
Period

Adapted from Exhibit 7.7

28

Common Kinds of Budgets

Revenue

Expense

Profit

Cash

Capital Expenditure

Variable

29

Been There, Done That

EVA at Armstrong World Industries


It allows them to more closely align them with
shareholders’ interests


Augments traditional measures


Reinforced with long
-
term incentives

30

Controlling Customer Defections

(Customer Perspective)


The rate by which customers are leaving the
company


Don’t rely completely on customer
satisfaction surveys


Easier to retain a customer, than get new
ones

31

Controlling Quality

(Internal Business Perspective)


Internal perspective


Quality is usually measured three ways:


excellence


value


conformance to expectations

32

Controlling Waste and Pollution

(Innovation & Learning Perspective)


Often an over
-
looked area


Three strategies for waste prevention and
reduction


good housekeeping


material/product substitution


process modification

33

Four Levels of Waste Minimization

Waste Disposal

Waste Treatment

Recycle & Reuse

Waste

Prevention

& Reduction

Adapted from Exhibit 7.14

34

What
Really

Happened?


Regal built 111 new theaters


Late to the megaplex market, competitors
already had the best locations


Regal uses its information system to control
costs, but that may not be enough


Losses and debt are mounting