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Organizational Control Methods Explained

Controlling in Organizations discusses various methods of organizational control including preventive and corrective controls, linking controls to strategic goals, cost-benefit models, primary control methods like mechanistic and organic control, market control, financial and accounting controls, automation-based control, and corporate governance mechanisms like boards of directors and external regulations. The purpose of controls is to ensure behaviors and performance conform to standards and rules to help organizations achieve their goals.

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Sathya Varathan
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9 views13 pages

Organizational Control Methods Explained

Controlling in Organizations discusses various methods of organizational control including preventive and corrective controls, linking controls to strategic goals, cost-benefit models, primary control methods like mechanistic and organic control, market control, financial and accounting controls, automation-based control, and corporate governance mechanisms like boards of directors and external regulations. The purpose of controls is to ensure behaviors and performance conform to standards and rules to help organizations achieve their goals.

Uploaded by

Sathya Varathan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Controlling

in
Organizations
Foundations of Control

• Control involves the processes for ensuring that


behaviors and performance conform to an
organization’s standards, including rules, procedures,
and goals.
• Preventive controls are mechanisms intended to
reduce errors and thereby minimize the need for
corrective action.
• Corrective controls are mechanisms intended to
reduce or eliminate unwanted behaviors or results and
thereby achieve conformity with the organization’s
regulations and standards.
Linkage to Strategic Goals

• Controls should be linked to the strategic goals


of the organization.
• A good organizational control will be:
– Objective
– Complete
– Timely
– Acceptable
Cost-Benefit Model of Organizational Control
Corrective Control Model

1. Define the 2. Identify Key 3. Set 4. Collect


System Characteristics Standards Information

If okay
continue
5. Make
Comparisons
6. Diagnose
And Correct If deviations
Problems
Primary Organizational Control Methods

Mechanistic
And Organic
Control

Automation-
Organizational Market
Based
Control Control
Control

Financial and
Accounting
Controls
Mechanistic and Organic Control Methods

Mechanistic Control Methods Organic Methods

Use of detailed rules and procedures Use of detailed rules and procedures only
whenever possible when necessary
Top-down authority, with emphasis on Flexible authority, with emphasis on expert
positional power power and networks of influence
Activity-based job descriptions that Results-based job descriptions that
prescribe day-to-day behaviors emphasize goals to be achieved
Emphasis on extrinsic rewards (wages, Emphasis on both extrinsic and intrinsic
pensions, status symbols) rewards (meaningful work)
Distrust of teams, based on an assumption Use of team, based on an assumption that
that team goals conflict with team goals and norms assist in
organizational goals achieving organizational goals
Market Control

• Market control involves the collection of data related to


sales, prices, costs, and profits for guiding decisions and
evaluating results.
– Marketing control requires that:
• the costs of the resources used in producing outputs be measured
monetarily,
• the value of the goods and services produced be defined clearly and
priced monetarily, and
• the prices of the goods and services produced be set competitively
– Two control mechanisms that meet these requirements are:
• Profit-Sharing Plans
• Customer Monitoring
Financial and Accounting Controls

• Financial control includes the mechanisms for


preventing or correcting the misallocation of
resources.
• Comparative financial analysis is the
evaluation of a firm’s financial condition for
two or more time periods.
Activity-Based Costing Model

Cost View

Resources

Resource
Cost Assignment

Process Input Performance


Activities
View Information Evaluation

Activity
Cost Assignment

Goods
And Services
Automation-Based Control

• Automation involves the use of self-regulating


devices and processes that operate
independently of people.
• Machine control utilizes self-regulating
instruments or devices to prevent and correct
deviations from preset standards.
Corporate Governance

• A corporation is a government-approved form


of organization that allows different parties to
contribute capital, expertise, and labor for the
benefit of all of them.
• Corporate governance is the pattern of
relations and controls between the
stockholders, the board of directors, and the
top management of a company.
Corporate Governance (cont.)
• External control mechanisms
– Sarbanes-Oxley Act
 Criminal Accountability
 Whistleblower Protection
• Internal control mechanisms
– Board of Directors
 Independent
 Self-Assessment
 Executive Compensation
 Evaluation of CEO
 Resource Allocation
 Fiduciary Responsibility and Control

Common questions

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The Sarbanes-Oxley Act serves as an external control mechanism in corporate governance by enforcing criminal accountability for corporate misdeeds and offering whistleblower protection, which enhances the transparency and accountability of corporate actions . This law ensures that companies maintain high standards of ethics and integrity, thereby protecting the interests of stockholders and other stakeholders.

Maintaining a balance between preventive and corrective controls is vital for organizational effectiveness because preventive controls reduce errors and minimize the need for corrective actions, thereby enhancing efficiency and reducing costs . Corrective controls, meanwhile, address unwanted behaviors and deviations from set standards, ensuring conformity with organizational regulations when preventive measures have failed. Together, they create a comprehensive control system that maximizes performance and minimizes disruptions .

Market control mechanisms support effective decision-making by collecting and analyzing data related to sales, prices, costs, and profits. This data-driven approach allows managers to evaluate results, set competitive prices, and make informed decisions that align with market demands . Mechanisms like profit-sharing plans and customer monitoring ensure that decisions reflect both consumer needs and organizational capabilities, promoting alignment between market opportunities and strategic goals .

The key components of the Cost-Benefit Model of Organizational Control include defining the system, identifying key characteristics, setting standards, collecting information, making comparisons, and diagnosing and correcting problems when deviations occur . These steps ensure that the control systems are aligned with the organization's standards and goals while maintaining an effective cost-benefit balance.

Mechanistic control methods rely on detailed rules, top-down authority, and positional power with a focus on extrinsic rewards, such as wages and status symbols. They prescribe activity-based job descriptions and show distrust in teams based on the assumption that team goals conflict with organizational ones . In contrast, organic control methods use rules only when necessary, allow flexible authority with emphasis on expert power, and promote results-based job descriptions that focus on achieving set goals. They encourage the use of teams and combine both extrinsic and intrinsic rewards, assuming that team goals align with organizational objectives .

The inclusion of both intrinsic and extrinsic rewards in organic control methods is important because it addresses diverse employee motivation needs, enhancing job satisfaction and performance. Extrinsic rewards, such as salaries and benefits, satisfy basic financial needs, whereas intrinsic rewards, such as meaningful work, fulfill psychological needs for achievement and recognition . This combination supports a motivated workforce aligned with organizational objectives, fostering a positive work environment and improving retention and productivity.

Financial and accounting controls prevent or correct resource misallocation by using comparative financial analysis to evaluate a firm's financial condition across time periods, enabling better resource allocation decisions . Activity-based costing models also play a critical role by assigning costs to resources and activities, providing a more accurate view of where resources are being efficiently used and where adjustments might be necessary .

Automation-based control plays a crucial role in maintaining organizational standards by using self-regulating devices and processes to operate independently of people. Machine control within this system prevents and corrects deviations from preset standards without human intervention . This independence ensures consistency and precision in following organizational rules and objectives, reducing the need for constant human oversight.

Corporate governance affects the relationship between stockholders, the board of directors, and top management by establishing a structured pattern of controls and interactions that govern decision-making and accountability. Effective governance ensures that stockholder interests are protected through oversight by an independent board, strategic direction is maintained, and management is held accountable for its actions . This balanced interaction fosters trust and ensures efficient organizational operations.

Linking organizational control mechanisms to strategic goals is significant because it ensures that every control measure aligns with the overall direction and objectives of the organization. This alignment facilitates consistent decision-making across various departments, enhancing goal achievement and resource optimization. It also ensures that control systems are objective, complete, timely, and cost-benefit effective, making them acceptable and sustainable for long-term success .

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