Introduction to CONTROLLING deviations or to address inadequate standards.

(See
Exhibit 18-2.) The control process assumes that
Management by Robbins
performance standards already exist, and they do.
1.1. Explain the nature and importance of They’re the specific goals created during the
control. planning process.

CONTROLLING
It’s the process of monitoring, comparing,
and correcting work performance. All managers
should control even if their units are performing as
planned because they can’t really know that unless
they’ve evaluated what activities have been done
and compared actual performance against the
desired standard.
Effective controls ensure that activities are
STEP I. MEASURING ACTUAL PERFORMANCE
completed in ways that lead to the attainment of
goals. Whether controls are effective, then, is  To determine actual performance, a
determined by how well they help employees and manager must first get information about it.
managers achieve their goals. Thus, the first step in control is measuring.
Why is control so important?  HOW WE MEASURE. Four approaches
used by managers to measure and report
Control is important, therefore, because it’s actual performance are personal
the only way that managers know whether observations, statistical reports, oral reports,
organizational goals are being met and if not, the and written reports. Exhibit 18-3 summarizes
reasons why. The value of the control function can the advantages and drawbacks of each
be seen in three specific areas: planning, approach. Most managers use a
empowering employees, and protecting the combination of these approaches
workplace.
The second reason controlling is important is
because of employee empowerment.
The final reason that managers control is to
protect the organization and its assets
PLANNING CONTROLLING LINK

 WHAT WE MEASURE. What is measured is

1.2. Describe the three steps in the control probably more critical to the control process
process than how it’s measured. Why? Because
selecting the wrong criteria can create
The CONTROL PROCESS
serious problems. Besides, what is
is a three-step process of measuring actual measured often determines what employees
performance, comparing actual performance against will do. What control criteria might managers
a standard, and taking managerial action to correct use?
  Some control criteria can be used for any a standard, and taking managerial action to correct
management situation. deviations or inadequate standards.
Range of Variation
The acceptable parameters of variance
between actual performance and the standard.
Example. Chris Tanner is a sales manager for
Green Earth Gardening Supply, a distributor of
specialty plants and seeds in the Pacific Northwest.
 For instance, all managers deal with people, Chris prepares a report during the first week of each
so criteria such as employee satisfaction or month that describes sales for the previous month,
turnover and absenteeism rates can be classified by product line.
measured. Keeping costs within budget is
also a fairly common control measure.
 Other control criteria should recognize the STEP III. TAKING MANAGERIAL ACTION
different activities that managers
supervise. Managers can choose among three possible
 For instance, a manager at a pizza delivery courses of action: do nothing, correct the actual
location might use measures such as performance, or revise the standards.
number of pizzas delivered per day, average
delivery time, or number of coupons
redeemed. A manager in a governmental
agency might use applications typed per day,
client requests completed per hour, or
average time to process paperwork.
 Most work activities can be expressed in
quantifiable terms. However, managers
should use subjective measures when they CORRECT ACTUAL PERFORMANCE
can’t. Although such measures may have
limitations, they’re better than having no Depending on what the problem is, a
standards at all and doing no controlling. manager could take different corrective actions.

STEP II. COMPARING ACTUAL PERFORMANCE IMMEDIATE CORRECTIVE ACTION - corrects

AGAINST THE STANDARD problems at once to get performance back on track

 The comparing step determines the BASIC CORRECTIVE ACTION - looks at how and
variation between actual performance why performance deviated before correcting the
and the standard. Although some variation source of deviation
in performance can be expected in all REVISE THE STANDARD
activities, it’s critical to determine an
acceptable range of variation. It’s possible that the variance was a result of
 Accept or reject the product or outcome. an unrealistic standard—too low or too high a goal.
 Managers must determine why standards In that situation, the standard needs the corrective
were not met. action, not the performance. If performance
 Involves determining whether more control consistently exceeds the goal, then a manager
is necessary or if the standard should be should look at whether the goal is too easy and
changed needs to be raised. On the other hand, managers
must be cautious about revising a standard
Control Process downward. It’s natural to blame the goal when an
employee or a team falls short. For instance,
A three-step process of measuring actual
performance, comparing actual performance against students who get a low score on a test often attack
the grade cutoff standards as too high. Rather than
accept the fact that their performance was What is Organizational Performance?
inadequate, they will argue that the standards are
Performance is the end result of an activity.
unreasonable. Likewise, salespeople who don’t
meet their monthly quota often want to blame what Organizational Performance - the
they think is an unrealistic quota. The point is that accumulated results of all the organization’s work
when performance isn’t up to par, don’t immediately activities. It’s a multifaceted concept, but managers
blame the goal or standard. If you believe the need to understand the factors that contribute to
standard is realistic, fair, and achievable, tell organizational performance. After all, it’s unlikely
employees that you expect future work to improve, that they want (or intend) to manage their way to
and then take the necessary corrective action to help mediocre performance. They want their
make that happen. organizations, work units, or work groups to achieve
high levels of performance

MANAGERIAL DECISIONS IN CONTROLLING

MEASURES OF ORGANIZATIONAL
The standards are goals that were
PERFORMANCE
developed during the planning process. These goals
provide the basis for the control process, which All managers must know which measures will
involves measuring actual performance and give them the information they need about
comparing it against the standard. Depending on organizational performance. Commonly used ones
the results, a manager’s decision is to do nothing, include organizational productivity, organizational
correct the performance, or revise the standard. effectiveness, and industry rankings.
1. ORGANIZATIONAL PRODUCTIVITY
Productivity is the amount of goods or
services produced divided by the inputs
needed to generate that output.
Organizations and individual work units want
to be productive. They want to produce the
most goods and services using the least
amount of inputs. Output is measured by the
sales revenue an organization receives
when goods are sold (selling price X number
sold). Input is measured by the costs of
acquiring and transforming resources into
outputs.
1.3. Explain how organizational performance is Management plays a crucial role in
measured enhancing organizational productivity. While
Controlling for Organizational Performance raising prices is one way to improve the
productivity ratio, it may not be feasible in a
These are few of the important performance competitive environment. Therefore, the
indicators that executives in the intensely alternative is to focus on decreasing the input
competitive call-center service industry measure. side, which involves becoming more efficient
in performing work and reducing
 Cost efficiency.
organizational expenses.
 The length of time customers are kept on
hold.
2. ORGANIZATIONAL EFFECTIVENESS
 Customer satisfaction with service provided. Organizational effectiveness is a
To make good decisions, managers in this measure of how appropriate organizational
industry want and need this type of information so goals are and how well those goals are being
they can manage organizational performance. met. That’s the bottom line for managers and
Managers in all types of businesses are responsible it’s what guides managerial decisions in
for managing organizational performance.
 designing strategies and work activities and The best-known form of concurrent control is
in coordinating the work of employees. direct supervision. Another term for it is
management by walking around, which is when a
3. INDUSTRY AND COMPANY RANKINGS manager is in the work area interacting directly with
Rankings are a popular way for employees.
managers to measure their organization’s
All managers can benefit from using
performance. These rankings give managers
concurrent control because they can correct
(and others) an indicator of how well their
problems before they become too costly.
company performs in comparison to others.
FEEDBACK CONTROL
The most popular type of control relies on
feedback. In feedback control, the control takes
place after the activity is done.
The damage had already occurred even
though the organization corrected the problem once
it was discovered. And that’s the major problem with
this type of control. By the time a manager has the
information, the problems have already occurred,
leading to waste or damage. However, in many work
areas, financial being one example, feedback is the
only viable type of control.
2 ADVANTAGE OF FEEDBACK CONTROL
1. Feedback gives managers meaningful
information on how effective their planning
efforts were. Feedback that shows little
1.4. Describe tools used to measure variance between standard and actual
organizational performance. performance indicates that the planning was
generally on target. If the deviation is
TOOLS FOR MEASURING ORGANIZATIONAL
significant, a manager can use that
PERFORMANCE
information to formulate new plans.
FEEDFORWARD CONTROL 2. Feedback can enhance motivation. People
want to know how well they’re doing and
The most desirable type of control as it feedback provides that information. Now,
prevents problems because it takes place before the let’s look at some specific control tools that
actual activity. managers can use.
The key to feedforward controls is taking
managerial action before a problem occurs. That
way, problems can be prevented rather than having
to correct them after any damage (poor-quality
products, lost customers, lost revenue, etc.) has
already been done.
However, these controls require timely and
accurate information that isn’t always easy to get.
Thus, managers frequently end up using the other
two types of control.
CONCURRENT CONTROL
As its name implies, takes place while a work
activity is in progress.
 FINANCIAL CONTROL Time interest earned
FINANCIAL CONTROL Measures how many times the organization
is able to meet its interest expenses
 Every business wants to earn a profit. To
achieve this goal, managers need financial
controls.
 They might also calculate financial ratios to
ensure that sufficient cash is available to pay ACTIVITY RATIOS
ongoing expenses, that debt levels haven’t Activity ratios assess how efficiently a
become too high, or that assets are being company is using its assets.
used productively.
 Managers might use traditional financial Inventory Turnover
measures such as ratio analysis and budget The higher the ratio, the more efficiently
analysis. inventory assets are being used.
4 Types of Financial Ratios:

1. Liquidity Ratios
2. Leverage Ratios Total asset Turnover
3. Activity Ratios
4. Profitability Ratios The fewer assets used to achieve a given
level of sales the more efficiently.
LIQUIDITY RATIOS
Liquidity ratios measure an organization’s
ability to meet its current debt obligations.
PROFITABILITY RATIOS
Current Ratio
Profitability ratios measure how efficiently
Test the organization’s ability to meet short- and effectively the company is using its assets to
term obligations generate profits
Profit Margin on Sales
Identifies the profits that are being generated
Acid Test
Test liquidity more accurately when
inventories turn over slowly or are difficult to sell Return investement
Measures the efficiency of assets to
generate profits.
LEVERAGE RATIOS

Leverage ratios examine the organization’s

use of debt to finance its assets and whether it’s able
to meet the interest payments on the debt.
BUDJET ANALYSIS
Debt to assets
 Budget are planning and controlling tools.
The higher the ratio, the more leveraged the
 When a budget is formulated, it’s a planning
organization
tool because it indicates which work activities
are important and what and how much
resources should be allocated to those
activities.
 But budgets are also used for controlling
because they provide managers with
 quantitative standards against which to HOW IS INFORMATION USED IN
measure and compare resource CONTROLLING?
consumption. If deviations are significant
MANAGEMENT INFORMATION SYSTEM (MIS)
enough to require action, the manager
examines what has happened and tries to  is a system used to provide managers with
uncover why. needed information on a regular basis.
BALANCED SCORECARD  In theory, this system can be manual or
computer-based, although most
The balanced scorecard approach is a way organizations have moved to computer-
to evaluate organizational performance from more supported applications. The term system in
than just the financial perspective. A balanced MIS implies order, arrangement, and
scorecard typically looks at four areas that contribute purpose.
to a company’s performance:  MIS focuses specifically on providing
managers with information (processed and
1. Financial
analyzed data), not merely data (raw,
2. Customer
unanalyzed facts).
3. Internal processes
4. People/Innovation/Growth assets.  Basically, MIS collects data and turns them
into relevant information for managers to
According to this approach, managers should use.
develop goals in each of the four areas and then
measure whether the goals are being met.
For instance, at IBM Global Services in Houston, CONTROLLING INFORMATION
managers developed a scorecard around an Benchmarking
overriding strategy of customer satisfaction.
However, the other areas (financial, internal  is a process of comparing two or more
processes, and people/innovation/growth) support organizations to identify gaps in services,
that central strategy. The division manager products, and/or processes and increase
described it as follows, “The internal processes part their competitive advantage.
of our business is directly related to responding to  which is the search for the best practices
our customers in a timely manner, and the learning among competitors or noncompetitors that
and innovation aspect is critical for us since what lead to their superior performance.
we’re selling our customers above all is our Benchmarking should identify various
expertise. Of course, how successful we are with benchmarks, which are the standards of
those things will affect our financial component. excellence against which to measure and
compare
Suggestions for Internal Benchmarking:
INFORMATION CONTROLS
1. Connect best practices to strategies and
Managers deal with information controls in goals. The organization’s strategies and
two ways: goals should dictate what types of best
1. As a tool to help them control other practices might be most valuable to others in
organizational activities, and the organization.
2. as an organizational area they need to 2. Identify best practices throughout the
control organization. Organizations must have a way
to find out what practices have been
successful in different work areas and units.
3. Develop best practices reward and
recognition systems. Individuals must be
given an incentive to share their knowledge.
The reward system should be built into the
organization’s culture.
 4. Communicate best practices throughout the on doing harm, managers need controls to ensure
organization. Once best practices have been that work can be done efficiently and effectively as
identified, that information needs to be planned.
shared with others in the organization.
5. Create a best practices knowledge-sharing  Workplace Privacy
system. There needs to be a formal  Employee Theft
mechanism for organizational members to
continue sharing their ideas and best  1.7 hours a day is what employees spend
practices. doing nothing, costing businesses $4.4
6. Nurture best practices on an ongoing basis. billion a day.
 29 percent of fraud cases are in the amount
Create an organizational culture that
of $100,000 to $499,999.
reinforces a “we can learn from everyone”
 42percent of employees who have stolen
attitude and emphasizes sharing information.
items from work say it’s because they need
the items.
 88percent of all data breaches involve insider
1.5 Discuss contemporary issues in control. negligence.
 7 percent of revenues is what insider fraud is
ISSUES IN CONTROL
equal to.
Control is an important managerial function.  58percent of employees say they have a
We’re going to look at four control issues that boss who Plays online games at work.
managers face today:  2 years is the average length of time from
fraud start to detection.
 Cross-cultural differences
 Workplace concerns WORKPLACE PRIVACY
 Customer interactions If you work, do you think you have a right to
 Corporate governance privacy at your job? What can your employer
find out about you and your work?

CROSS CULTURAL DIFFERENCES  In fact, some 26 percent of companies have

fired an employee for e-mail misuse; 26
 The concepts of control that we’ve been percent have fired workers for misusing the
discussing are appropriate for an Internet; 6 percent have fired employees for
organization whose work units are not inappropriate cell phone use; 4 percent have
geographically separated or culturally fired someone for instant messaging misuse;
distinct. But control techniques can be quite and 3 percent have fired someone for
different for different countries. The inappropriate text messaging.
differences are primarily in the measurement
and corrective action steps of the control Why do managers feel they need to monitor what
process. employees are doing?
 Technology’s impact on control is also seen  A big reason is that employees are hired to
when comparing technologically advanced work, not to surf the Web checking stock
nations with less technologically advanced prices, watching online videos, playing
countries. fantasy baseball, or shopping for presents for
 Another challenge for global managers in family or friends.
collecting data for measurement and  Another reason that managers monitor
comparison is comparability. employee e-mail and computer usage is that
WORKPLACE CONCERNS they don’t want to risk being sued for creating
a hostile workplace environment because of
Today’s workplaces present considerable offensive messages or an inappropriate
control challenges for managers. From monitoring image displayed on a coworker’s computer
employees’ computer usage at work to protecting screen.
the workplace against disgruntled employees intent
  Managers want to ensure that company WORKPLACE VIOLENCE
secrets aren’t being leaked.
 Some List of Violence in History:
 In August 2010, a driver about to lose his job
at Hartford Distributors in Hartford,
Due to potential serious costs and given the fact
Connecticut, opened fire killing eight other
that many jobs now entail computers, many
employees and himself. In July 2010, a
companies have workplace monitoring policies.
former employee at a solar products
Such policies should control employee behavior in a
manufacturer in Albuquerque, New Mexico,
nondemeaning way and employees should be
walked into the business and opened fire
informed about those policies.
killing two people and wounding four others.
 On November 6, 2009, in Orlando, Florida,
an engineer who had been dismissed from
EMPLOYEE THEFT his job for poor performance returned and
Would you be surprised to find that up to 85 shot and killed one person while wounding
percent of all organizational theft and fraud is five others. This incident happened only one
committed by employees, not outsiders? day after an Army psychiatrist went on a
shooting rampage at Fort Hood Army post
EMPLOYEE THEFT killing 13 and wounding 27.
 Defined as any unauthorized taking of  On June 25, 2008, in Henderson, Kentucky,
company property by employees for their an employee at a plastics plant returned
hours after arguing with his supervisor over
personal use.
his not wearing safety goggles and for using
 It can range from embezzlement to
his cell phone while working on the assembly
fraudulent filing of expense reports to
line. He shot and killed the supervisor, four
removing equipment, parts, software, or
other coworkers, and himself.
office supplies from company premises.
 On January 30, 2006, a former employee
 The concept of feedforward, concurrent, and
who was once removed from a Santa
feedback control is useful for identifying
Barbara, California, postal facility because of
measures to deter or reduce employee theft.
“strange behavior” came back and shot five
Why do employees steal? The answer depends workers to death, critically wounded another,
on whom you ask. and killed herself.
 more…
 The industrial security people propose that
people steal because the opportunity What factors are believed to be contributing to
presents itself through lax controls and workplace violence?
favorable circumstances.
Stress are caused by:
 Criminologists say that it’s because people
have financial-based pressures (such as  An uncertain economic environment
personal financial problems) or vice-based  Job uncertainties
pressures (such as gambling debts).  Declining value of retirement accounts,
 And the clinical psychologists suggest that  Long working hours,
people steal because they can rationalize  Information overload,
whatever they’re doing as being correct and  Other daily interruptions,
appropriate behavior (“everyone does it,”  Unrealistic deadlines;
“they had it coming,” “this company makes
 and uncaring managers play a role.
enough money and they’ll never miss
 Even office layout designs with
anything this small,” “I deserve this for all that
 small cubicles where employees work amidst
I put up with,” and so forth).
the noise and commotion from those around
them have been cited as contributing to the
problem.51
Dysfunctional work environments characterized explosive role models; or tolerance of on-the-
by the following as primary contributors to the job alcohol or drug abuse.
problem:
CONTROLLING CUSTOMER INTERACTIONS
 Employee work driven by TNC (time,
 Each branch earns a ranking based on the
numbers, and crises).
percentage of its customers who say they
 Rapid and unpredictable change where
were “completely satisfied” with their last
instability and uncertainty plague employees.
Enterprise experience—a level of
 Destructive communication style where
satisfaction referred to as “top box.” Top box
managers communicate in an excessively
performance is important to Enterprise
aggressive, condescending, explosive, or
because completely satisfied customers are
passive-aggressive styles; excessive
far more likely to be repeat customers.
workplace teasing or scapegoating.
 By using this service quality index measure,
 Authoritarian leadership with a rigid,
employees’ careers and financial aspirations
militaristic mind-set of managers versus
are linked with the organizational goal of
employees; employees aren’t allowed to
providing consistently superior service to
challenge ideas, participate in decision
each and every customer.
making, or engage in team-building efforts.
 Defensive attitude where little or no
performance feedback is given; only
numbers count; and yelling, intimidation, or
avoidance is the preferred way of handling
conflict.
 Double standards in terms of policies,
procedures, and training opportunities for
managers and employees.
 Unresolved grievances because the
organization provides no mechanisms or
only adversarial ones for resolving them;
dysfunctional individuals may be protected or
ignored because of long-standing rules,
union contract provisions, or reluctance to
take care of problems.
 Emotionally troubled employees and no
attempt by managers to get help for these
people.
 Repetitive, boring work with no chance for There’s probably no better area to see the
doing something else or for new people link between planning and controlling than in
coming in. customer service. If a company proclaims customer
 Faulty or unsafe equipment or deficient service as one of its goals, it quickly and clearly
training, which keeps employees from being becomes apparent whether that goal is being
able to work efficiently or effectively. achieved by seeing how satisfied customers are with
 Hazardous work environment in terms of their service! How can managers control the
temperature, air quality, repetitive motions, interactions between the goal and the outcome when
overcrowded spaces, noise levels, excessive it comes to customers?
overtime, and so forth. To minimize costs, no
additional employees are hired when Service Profit Chain
workload becomes excessive, leading to The service sequence from employees to
potentially dangerous work expectations and customers to profit. According to this concept, the
conditions. company’s strategy and service delivery system
 Culture of violence that has a history of influence how employees deal with customers; that
individual violence or abuse; violent or is, how productive they are in providing service and
the quality of that service. The level of employee The three steps in the control process:
service productivity and service quality influences
customer perceptions of service value. When  Measuring – deciding how to measure
service value is high, it has a positive impact on actual performance and what to measure.
customer satisfaction, which leads to customer  Comparing - involves looking at the variation
loyalty. And customer loyalty improves between actual performance and the
organizational revenue growth and profitability. standard (goal).
 Taking Action - can involve doing nothing,
CORPORATE GOVERNANCE correcting the actual performance, or
revising the standards.
The system used to govern a corporation so
that the interests of corporate owners are protected, How Organizational Performance is measured.
failed abysmally at Enron, as it has at many
companies caught in financial scandals. In the 1. Productivity - is the output of goods or
aftermath of these scandals, corporate governance services produced divided by the inputs
has been reformed. Two areas where reform has needed to generate that output.
taken place are the role of boards of directors and 2. Effectiveness - a measure of how
financial reporting. appropriate organizational goals are and
how well those goals are being met.
The Role Of Boards Of Directors 3. Industry and Company Rankings –
compiled by various business publications.
The original purpose of a board of directors
was to have a group, independent from Tools Used to Measure Organizational
management, looking out for the interests of Performance.
shareholders who were not involved in the day-to-
day management of the organization. However, it 1. Feedforward Controls - take place before a
didn’t always work that way. Board members often work activity is done.
enjoyed a cozy relationship with managers in which 2. Concurrent Controls - take place while a
each took care of the other. work activity is being done.
3. Feedback Controls - controls take place
Financial Reporting and the Audit Committee after a work activity is done.
In addition to expanding the role of boards of
Balanced Controls - provide a way to
directors, the Sarbanes-Oxley Act also called for
evaluate an organization’s performance in
more disclosure and transparency of corporate
four different areas rather than just from the
financial information. In fact, senior managers in the
financial perspective.
United States are now required to certify their
Benchmarking – provides control by finding
companies’ financial results. Such changes have led
the best practices among competitors or
to better information—that is, information that is
noncompetitors and from inside the
more accurate and reflective of a company’s
organization itself.
financial condition.
Contemporary Issues in Control:

SUMMARY  Adjusting controls for cross cultural

differences.
The nature and importance of control:  Workplace Concerns.
Controlling is the process of monitoring,
comparing, and correcting work performance. As the
final step in the management process, controlling
provides the link back to planning. If managers didn’t
control, they’d have no way of knowing whether
goals were being met.