Chapter 15
Foundations of Control
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-1
Learning Outline
After you read this chapter you should know the following
learning objectives:.
• #1: What is control?
• #2: What is the control process?
• #3: When should controls be introduced?
• #4: What methods of control do managers use?
• #5: How do financial and information controls
help managers monitor performance?
• #6: What are some current issues in control?
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-2
What Is Control?
• Control
– The process of monitoring activities to ensure
that they are being accomplished as planned and
of correcting any significant deviations
• The Purpose of Control
– To ensure that activities are completed in ways
that lead to accomplishment of organizational
goals
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-3
Why Is Control Important?
• The final link in management functions:
– Planning
• Controls let managers know whether their goals and
plans are on target and what future actions to take
– Empowering employees
• Control systems provide managers with information and
feedback on employee performance
– Protecting the workplace
• Controls enhance physical security and help minimize
workplace disruptions
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-4
Exhibit 15.1
The Planning–Controlling Link
Planning
Goals
Objectives
Strategies
Plans
Controlling
Organizing
Standards
Structure
Measurements
HumanResource
Comparison Management
Actions
Leading
Motivation
Leadership
Communication
Individualand
Group Behaviour
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-5
The Control Process
• The Process of Control
1. Measuring actual performance
2. Comparing actual performance against a standard
3. Taking action to correct deviations or inadequate
standards
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-6
Exhibit 15.2 The Control Process
Measuring
Step 1 Actual Performance
GOALS
Comparing Actual
Organizational Step 2
Performance
Divisional
Against Standard
Departmental
Individual
Taking
Step 3 Managerial Action
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-7
How and What We Measure
• How: Sources of • What: Control Criteria
Information – Employees
– Personal observations • Satisfaction
– Statistical reports • Turnover
• Absenteeism
– Oral reports
– – Budgets
Written reports
• Costs
• Output
• Sales
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-8
Exhibit 15.3 Common Sources of
Information for Measuring
Performance
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-9
Comparing
• Determining the degree of variation between
actual performance and the standard
– Significance of variation is determined by:
• The acceptable range of variation from the standard
(forecast or budget)
• The size (large or small) and direction (over or under) of
the variation from the standard
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-10
Exhibit 15.4 Defining the Acceptable
Range of Variation
Acceptable
Upper Limit
Standard Acceptable
Range of
Variation
Acceptable
Lower Limit
t t+ 1 t+ 2 t+ 3 t+ 4 t+ 5
Time Period (t)
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-11
Exhibit15.5 Sales Performance
Figures for July, Beer Unlimited
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-12
Taking Managerial Action
• Courses of Action
– “Doing nothing”
• Only if deviation is insignificant
– Correcting actual (current) performance
• Immediate or basic corrective action
– Revising the standard
• Determine whether the standard is realistic, fair, and
achievable
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-13
Exhibit 15.7 Managerial Decisions in
the Control Process
Compare Is Yes
actual standard
being Do nothing
performance
with standard attained?
No
Is Yes
variance Do nothing
acceptable?
Measure
Goals Standard actual
performance No
Is Yes
standard Identify
acceptable? cause of
variation
No
Revise Correct
standard performance
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-14
Controlling for Organizational
Performance
• What Is Performance?
– The end result of an activity
• What Is Organizational
Performance?
– The accumulated end results of all of the organization’s
work processes and activities
• Designing strategies, work processes, and work activities
• Coordinating the work of employees
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-15
Organizational Performance
Measures
• Organizational Productivity
– The overall output of goods and/or services
divided by the inputs needed to generate that
output
– Ultimately, a measure of how efficiently
employees do their work
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-16
Organizational Performance
Measures
• Organizational Effectiveness
• Measuring how appropriate organizational
goals are and how well the organization is
achieving its goals
• Systems resource model: Is organization efficient in
acquiring scarce and valued resources?
• The process model: Is organization efficient in
converting inputs to outputs?
• The multiple constituencies model: Is organization
effective in meeting each constituencies’ needs?
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-17
Organizational Performance
Measures
• Industry Rankings
– Many different lists exist to rank organizations.
Some examples:
• Report on Business Magazine’s Top 1000; Canada’s
Power Book
• Report on Business Magazine’s 50 Best Companies To
Work For in Canada
• Profit’s 100: Canada’s Fastest Growing Companies
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-18
Tools for Controlling
Organizational Performance
• Feedforward Control
– Prevents anticipated problems before they occur
• Building in quality through design
• Requiring suppliers conform to ISO 9002
• Concurrent Control
– Monitoring while activity is in progress
• Direct supervision: management by walking around
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-19
Tools for Controlling
Organizational Performance
• Feedback Control
– Takes place after an activity is done
• Corrective action is after-the-fact, when the problem has
already occurred
– Advantages
• Feedback provides managers with information on the
effectiveness of their planning efforts
• Feedback enhances employee motivation by providing
them with information on how well they are doing
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-20
Exhibit 15.8 Types of Control
Input Processes Output
Feedforward Concurrent Feedback
Control Control Control
Corrects Corrects
Anticipates problems as problems after
problems they happen they occur
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-21
Methods of Control
• Market Control
• Bureaucratic Control
• Clan Control
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-22
Tools for Controlling Organizational
Performance: Financial Controls
• Traditional Controls • Other Measures
– Ratio analysis – Economic value added
• Liquidity (EVA)
• Leverage – Market value added
• Activity (MVA)
• Profitability
– Budget analysis
• Quantitative standards
• Deviations
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-23
Exhibit 15.10 Popular Financial
Ratios
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-24
Exhibit 15.10 Popular Financial Ratios
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-25
Tools for Controlling Organizational
Performance: Financial Controls
• Other Measures
– Economic value added (EVA)
• How much value is created by what a company does with
its assets, less any capital investments in those assets: the
rate of return earned over and above the cost of capital
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-26
Tools for Controlling
Organizational Performance:
Financial Controls
• Other Measures
• Market value added (MVA)
• The value that the stock market places on a firm’s past
and expected capital investment projects
• If the firm’s market value (its stock and debt) exceeds the
value of its invest capital (its equity and retained
earnings), then managers have created wealth
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-27
Controlling Organizational
Performance
• Balanced Scorecard
– A measurement tool that uses goals set by
managers in four areas to measure a company’s
performance:
• Financial
• Customer
• Internal processes
• People/innovation/growth assets
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-28
Information Controls
• Management Information Systems (MIS)
– A system used to provide management with
needed information on a regular basis
• Data: an unorganized collection of raw, unanalyzed facts
(e.g., unsorted list of customer names)
• Information: data that has been analyzed and organized
such that it has value and relevance to managers
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-29
Contemporary Issues in Control
• Cross-cultural Issues
– The use of technology to increase direct
corporate control of local operations
– Legal constraints on corrective actions in foreign
countries
– Difficulty with the comparability of data
collected from operations in different countries
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-30
Contemporary Issues in Control
• Workplace Concerns
– Privacy versus monitoring:
• E-mail, telephone, computer, and Internet usage can all be
monitored
– Employee theft
• The unauthorized taking of company property by employees
for their personal use
– Violence
• Anger, rage, and violence in the workplace is affecting
employee productivity
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-31
Exhibit 15.13 Types of Workplace
Monitoring by Employers
Internet use 54.7%
Telephone use 44.0%
Email messages 38.1%
Computer files 30.8%
Job performance using video cameras 14.6%
Phone conversations 11.5%
Voice-mail messages 6.8%
Source: Based on S. McElvoy, “E-Mail and Internet Monitoring and the Workplace: Do
Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-32
Exhibit 15.14 Control Measures for
Employee Theft or Fraud
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-33
Contemporary Issues in Control
• Customer Interactions
– Service profit chain
• The service sequence from employees to customers to
profit
Service capability service value customer
satisfaction customer loyalty repeat
business (profit)
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-34
Exhibit 15.15 The Service Profit Chain
Operating strategy and
Service concept Target market Outcomes
service delivery system
Loyalty
Revenue
Customers growth
Satisfaction
Productivity
Employees and Service value Satisfaction Loyalty Organization
output
Service quality
capability
Profitability
Service
quality
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-35
Contemporary Issues in Control
• Corporate Governance
– The system used to govern a corporation so that
the interests of the corporate owners are
protected
• Changes in the role of boards of directors
• Increased scrutiny of financial reporting
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-36
Summary and Implications
• What is control?
– Process of monitoring activities to ensure that they
are being accomplished as planned and correcting
deviations
• What is the control process?
– Measuring actual performance, comparing actual
performance against a standard, taking managerial
action to correct deficiencies
• When should controls be introduced?
– Before activity begins, during activity and after
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-37
Summary and Implications
• What methods of control do managers use?
– Market, clan and bureaucratic
• How do financial and information controls help
managers monitor performance?
– Both can be used effectively
• What are some current issues in control?
– Balanced scorecard, corporate governance, cross-
cultural differences, workplace concerns, customer
interactions
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition
Copyright © 2009 Pearson Education Canada 15-38