Chapter 18    Introduction to Controlling

Managers must monitor whether goals that were established as part of the planning process are being accomplished efficiently and effectively. That’s what they do when they control. Appropriate controls can help managers look for specific performance gaps and areas for improvement. Focus on the following learning outcomes as you read and study this chapter.

LEARNING OUTCOMES 

18.1 Explain the nature and importance of control.
18.2 Describe the three steps in the control process.
18.3 Explain how organizational performance is measured.
18.4 Describe tools used to measure organizational performance.
18.5 Discuss contemporary issues in control.

A MANAGER’S DILEMMA 

How can today’s managers develop adequate control systems to safeguard their organizations? How can they effectively measure organizational performance and correct problems?  Chapter 18 introduces and explores basic tools for measuring organizational performance.  Throughout the chapter, students discover the importance of the control process throughout the production and delivery of goods and services in the business world. 
This chapter’s Manager’s Dilemma refers to a tragic event that marred the 2010 Winter Olympics in Vancouver – the death of a young luger on the new Olympic track. The international sanctioning committee on the sport, the FIL, placed the blame for the fatal crash on the young man and on “a complex series of interrelated events.”  The International Olympic Committee’s president, said, “The IOC had a moral responsibility for the luge track where the death happened, but not a legal one . . . blame should be shared by the FIL and the Vancouver Organizing Committee, which built it.”

Could better controls have helped prevent this accident? To address this question, students should find several places in the process for additional controls.  It’s possible the FIL and Olympic officials needed to place more safety controls in how new tracks are designed – was the track designed to be too fast?  The FIL should determine if there is too much emphasis on making a faster track to break Olympic records.  In the testing of equipment the participants use, more safety controls may need to be put into place.  Finally, athletes should be properly trained in the complexities of new tracks before events.  These are all control issues that could have been addressed and may have prevented loss of life.

ANNOTATED OUTLINE 

INTRODUCTION
 Even when managers carefully and thoroughly plan, a program or decision may be poorly or improperly implemented if an effective control system has not been established.
18.1 WHAT IS CONTROLLING, AND WHY IS IT IMPORTANT?
 Control is the process of monitoring, comparing, and correcting work performance.   Control is important for three main reasons:
A. Control serves as the final link in the functional chain of management. Exhibit 18-1 show the planning-controlling link.
B. Controlling is also important to delegation. The development of an effective control system may decrease resistance to delegation.
C. Finally, control serves to protect the company and its assets.
18.2 THE CONTROL PROCESS
 The control process is a three-step process including measuring actual performance, comparing actual performance against a standard, and taking managerial action.  (See Exhibit 18-2)
A. Measuring is the first step in the control process.
1. Measurement is frequently achieved through four common sources of information:
a. Personal observation
b. Statistical reports
c. Oral reports
d. Written reports
2. What we measure is probably more critical than how we measure.  What is measured often determines the area(s) in which employees will attempt to excel.
B. Comparing is the next step in the control process.
1. Comparing determines the degree of variation between actual performance and the standard.
2. Of critical importance to the control process is determining the range of variation.  The range of variation is the acceptable parameters of variance between actual performance and the standard. (See Exhibit 18-4)
3. An example of comparing actual performance to standards is presented in Exhibit 18-5.
C. Taking managerial action is the final step in the control process. Although the manager might decide to “do nothing,” two additional alternatives may be taken.
1. Correct actual performance. Once the manager has decided to correct actual performance, he/she must make another decision:
a. To take immediate corrective action, which is corrective action that corrects problems at once to get performance back on track, or
b. To take basic corrective action, which is corrective action that looks at how and why performance deviated and then proceeds to correct the source of deviation.
c. After analyzing deviations, effective managers identify and correct causes of variance when the benefits of doing so justify the cost involved.
2. Revise the standard. If the standard was set too high or too low, a manager may decide to revise the standard.
D. Summary of Managerial Decisions
 The control process is a continuous flow among measuring, comparing, and managerial action. Exhibit 18-6 summarizes the manager’s decisions in the control process.
18.3 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE
A. What Is Organizational Performance?
 Performance is the end result of an activity. Managers are concerned with organizational performance—the accumulated end results of all the organization’s work activities.
B. Measures of Organizational Performance
 Employees need to recognize the connection between what they do and the outcomes. The most frequently used organizational performance measures include organizational productivity, organizational effectiveness, and industry rankings.
1. Productivity is the overall output of goods or services produced divided by the inputs needed to generate that output. The management of an organization seeks to increase this ratio.
2. Organizational effectiveness is a measure of how appropriate organizational goals are and how well an organization is achieving those goals.
3. Industry and company rankings are often used as a measure to describe organizational effectiveness. Exhibit 18-8 and PowerPoint slide 18-24 list some of the more popular industry rankings used to measure organizational performance.
18.4 TOOLS FOR CONTROLLING ORGANIZATIONAL PERFORMANCE
 Three basic types of controls are used to control organizational performance: feedforward controls, concurrent controls, and feedback controls. (See Exhibit 18-8)
A. Feedforward, Concurrent, and Feedback Control.  Feedforward control is a type of control that takes place before a work activity is done. Concurrent control is a type of control that takes place while a work activity is in progress. Feedback control is a type of control that takes place after a work activity is done.
B. Financial Controls
1. Traditional Financial Control Measures (See Exhibit 18-9)
a. Financial ratios are calculated by taking numbers from the organization’s primary financial statements—the income statement and the balance sheet. Financial ratios can be organized into four categories:
1) Liquidity ratios measure an organization’s ability to meet its current debt obligations.
2) Leverage ratios examine the organization’s use of debt to finance its assets and whether the organization is able to meet the interest payments on the debt.
3) Activity ratios assess how efficiently the firm is using its assets.
4) Profitability ratios measure how efficiently and effectively the firm is using its assets to generate profits.
b. Budgets were discussed in Appendix B as a planning tool. Budgets also function as control tools; budgets provide managers with quantitative standards against which to measure and compare actual performance and resource consumption.
C. The Balanced Scorecard
 The Balanced Scorecard is a performance measurement tool that looks at four areas—financial, customer, internal processes, and people/innovation/growth assets—that contribute to a company’s performance.
D. Information Controls
 Information controls can be viewed in two ways: (1) as a tool for controlling other activities in an organization and (2) as an area that managers should control. The use of management information systems is an important development in the control of information used to monitor and measure an organization’s activities and performance.
1. A management information system (MIS) is a system used to provide management with needed information on a regular basis.
2. Managers need information, not merely data.
3. Data are raw, unanalyzed facts. Information is processed and analyzed data.
E. Benchmarking of Best Practices
 Benchmarking is the search for the best practices among competitors or noncompetitors that lead to their superior performance.
1. The benchmark is the standard of excellence against which to measure and compare.
a. Benchmarking can be used to monitor and measure organizational performance.
b. This practice can be used to identify specific performance gaps and potential areas of improvement.
c. Exhibit 18-10 provides a summary to guide managers in implementing benchmarking programs.

LEADERS WHO MAKE A DIFFERENCE

Bob Iger is CEO of Walt Disney Company, one of the world’s largest entertainment and media companies.  When Mr. Iger became CEO, he had to take control of the perception others had of Disney.  Analysts believed that the Disney brand had become outdated with too many Disney products in the marketplace lacking the quality people expected.  Iger’s plan was to establish the Disney Difference - “high-quality creative content, backed up by a clear strategy for maximizing that content’s value across platforms and markets.”

18.5 CONTEMPORARY ISSUES IN CONTROL
A. Adjusting Controls for Cross-Cultural Differences
 Should global organizations use particular control systems? What should global managers know about adjusting controls for national differences?
1. Methods of controlling people vary in different countries.
2. Technology has an impact on control, depending on the level of sophistication of technology in a particular country.
3. Managers must consider the legal constraints in different countries.
4. Managers face challenges in making comparisons of goods and services among countries, even when comparing similar products and services.
B. Workplace Concerns
 Chapter 18 explores the following three areas of potential concern for managers:  workplace privacy, employee theft, and workplace security.
1. Workplace privacy.  Many employers monitor employees at work.  Employers monitor workers for a number of reasons.
a. Web surfing while at work is thought to cost billions of dollars in lost work productivity each year. Exhibit 18-11 list the most viewed video sites at work. 
b. Employers do not want to risk being sued for creating a hostile workplace environment because of offensive messages or material displayed on an employee’s computer screen.
c. Managers want to ensure that the company’s secrets are not being leaked by employees.
2. Employee theft. Employee theft is any unauthorized taking of company property by employees for their personal use.  Exhibit 18-12 presents actions taken by managers to deal with employee theft.
3. Workplace violence. Anger, rage, and violence in the workplace adversely affect productivity.  Exhibit 18-13 provide results from a survey addressing office rage. Exhibit 18-14 provides actions managers can take in dealing with workplace violence.  A number of primary contributors to dangerously dysfunctional work environments have been identified:
 a. Work driven by TNC (time, numbers, and crises)
 b. Rapid and unpredictable change
 c. Destructive communication styles of managers
 d. Authoritarian leadership
 e. Little or no feedback
 f. Double standards in terms of policies
 g. Unresolved grievances
 h. Emotionally unstable employees
 i. Repetitive, boring work
 j. Faulty equipment or deficient training
 k. Hazardous work environments
 l. Culture of violence
 C. Controlling Customer Interactions
The service profit chain is the service sequence from employees to customers to profit.
D. Corporate governance is the system used to govern a corporation so that the interests of corporate owners are protected.
a. The role of boards of directors is to have a group, independent of management, looking out for the interest of stockholders
b. Financial reporting. Senior managers are now required by law (Sarbanes Oxley Act) to certify their companies’ financial results.

LET’S GET REAL: MY RESPONSE
Mike Stutzman
Rockwell Collins
Cedar Rapids, IA

For Mr. Stutzman, the problem with the Vancouver luge track was not the control systems but how they were managed. In his experience, it’s not that controls don’t exist, but it’s the behavioral side of how people implement and manage them.  To effectively manage controls:
• People need to feel safe to speak up when errors occur or to question a process.
• Criticism is given in a way that does not threaten or create a negative stigma.
• Leaders are skilled in holding high-stakes conversations.
According to Mr. Stutzman, the eventual solution was to move the starting gate for the luge down the hill to reduce the speed. This solution suggests a design flaw that may have been discovered through a more thorough analysis and testing of the control processes.

Answers to Review and Discussion Questions 

1. What is control and how is control related to planning?
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.

2. What are the three steps in the control process? Describe in detail.
The three steps in the control process are measuring, comparing, and taking action. Measuring involves deciding how to measure actual performance and what to measure. Comparing involves looking at the variation between actual performance and the standard (goal). Deviations outside an acceptable range of variation need attention.

3. What is organizational performance?
Organizational performance is the accumulated results of all the organization’s work activities. Three frequently used organizational performance measures include (1) productivity, which is the output of goods or services produced divided by the inputs needed to generate that output; (2) effectiveness, which is a measure of how appropriate organizational goals are and how well those goals are being met; and (3) industry and company rankings compiled by various business publications.

4. Contrast feedforward, concurrent, and feedback controls.
Feedforward controls take place before a work activity is done. Concurrent controls take place while a work activity is being done. Feedback controls take place after a work activity is done.

5. Discuss the various types of tools used to monitor and measure organizational performance.
Financial controls that managers can use include financial ratios (liquidity, leverage, activity, and profitability) and budgets. One information control managers can use is an MIS, which provides managers with needed information on a regular basis. Others include comprehensive and secure controls such as data encryption, system firewalls, data backups, and so forth that protect the organization’s information. Balanced scorecards provide a way to evaluate an organization’s performance in four different areas rather than just from the financial perspective. Benchmarking provides control by finding the best practices among competitors or noncompetitors and from inside the organization itself.

6. What workplace concerns do managers have to deal with? How might those concerns be controlled?
Workplace concerns include workplace privacy, employee theft, and workplace violence. For each of these issues, managers need to have policies in place to control inappropriate actions and ensure that work is getting done efficiently and effectively.

7. Why is control important to customer interactions?
Control is important to customer interactions because employee service productivity and service quality influences customer perceptions of service value. Organizations want long-term and mutually beneficial relationships among their employees and customers.

8. In Chapter 6 we discussed the white-water rapids view of change. Do you think it’s possible to establish and maintain effective standards and controls in this type of environment? Discuss.
An organizational environment that is characterized by the white-water rapids view of change must establish and maintain effective standards and controls in order to provide the stability necessary for effective production of goods and services in the midst of continuous hyperchange. The white-water rapids atmosphere requires the establishment and implementation of a control system that is flexible and clearly focused on the performance measures of significant importance to the success of the company.

9. What are some work activities in which the acceptable range of variation might be higher than average? What about lower than average? (Hint: Think in terms of the output from the work activities, who it might affect, and how it might affect them.)
For some jobs, measuring employee performance is as simple as looking at total sales or the number of units produced in a day.  However, there are many jobs where the uncertainty of outcomes and the unstructured nature of the work create wide variations in performance.  Students might want to think about jobs such as a research scientist, a firefighter, or a police detective.  In these jobs, it is difficult to predict and measure outcomes due to the variability of what they do and how their jobs affect others.
10. “Every individual employee in an organization plays a role in controlling work activities.” Do you agree with this statement, or do you think control is something that only managers are responsible for? Explain.
Every individual employee plays a role in controlling the quality of goods and services produced by their company, particularly in organizations where employees have been empowered by management. Even in organizations where employees have not been extensively empowered, employees play a role in measuring, comparing, and correcting performance. In any case, managers remain responsible for establishing and maintaining standards, approaches, and guidelines for measuring, comparing, and correcting the work of the organization.

ETHICS DILEMMA 

When cashiers pass along free goods to friends, it’s called “sweethearting.”  For organizations, it’s difficult to keep track of this form of pilfering, so retailers are using technology to better detect it. Surveillance cameras are used to record and study cashiers staffing checkout lines. Students are asked what they think about the practice of employee surveillance. Is surveillance less invasive when it’s a computer watching instead of a human? How could organizations make sure they’re monitoring employees’ work activities ethically?

Try to get students to consider both the positive and negatives of this issue. On one side, people may feel that organizations are only protecting their interest by recording the action of employees.  In some cases, these techniques could clear up erroneous allegations against an employee and clear an employee of any wrong doing. On the other side, there is the fear that employee monitoring may go too far.  Some companies have gone as far as placing surveillance equipment in employee locker rooms where they change clothes.  Some companies hire private investigators to monitor what employees do outside of work.  To be more ethical minded, employers need to make employees aware the possibility of which behaviors are being watched.

SKILLS EXERCISE:  DEVELOPING YOUR  PERFORMANCE FEEDBACK SKILLS 

In this exercise, students are to practice ten skills to help develop their performance feedback.  Students are asked to think of a skill they would like to acquire or improve, or a habit they would like to break.  Given that they have three months and the money necessary, they are to draft a plan of action that outlines what they need to do, when they need to do it, and how they will know that they have successfully completed
each step of the plan. Student goals should be realistic and challenging.

WORKING TOGETHER:  TEAM EXERCISE 

How can organizations keep teen workers safe? In this exercise, students should form small groups of three to four and come up with some ideas about things an organization could do to keep its teen workers safe. Ideas should be put in a bulleted list format and students should be prepared to share those ideas with the class.  The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor rules.  The rules vary by age and occupation of the worker.  For more information on workplace safety, students can go to www.osha.gov and for information on laws governing teenage work hours see the Department of Labor’s website www.dol.gov (for information on youth see http://www.dol.gov/dol/topic/youthlabor/index.htm)

Your Turn to be a Manager 

• You have a major class project due in a month. Identify some performance measures that you could use to help determine whether the project is going as planned and will be completed efficiently (on time) and effectively (high quality).

• Survey 30 people about whether they have experienced the violent actions listed in Exhibit 18–13. Compile your findings in a table. Are you surprised at the results? Be prepared to present these in class.

• Pretend you’re the manager of a customer call center for timeshare vacations. What types of control measures would you use to see how efficient and effective an employee is? How about measures for evaluating the entire call center?

• Disciplining employees is one of the least favorite tasks of managers, but it is something that all managers have to do. Survey three managers about their experiences with employee discipline. What types of employee actions have caused the need for disciplinary action? What disciplinary actions have these managers used? What do they think is the most difficult thing to do when disciplining employees? What suggestions do they have for disciplining employees?

• Steve’s and Mary’s recommended readings: Marcus Buckingham, Go Put Your Strengths to Work (The Free Press, 2007); W. Steven Brown, 13 Fatal Errors Managers Make and How You Can Avoid Them (Berkley Business, 1987); and Peter F. Drucker, Management: Tasks, Responsibilities, Practices (Harper Business, 1974). Research “The Great Package Race.” Write a paper describing what it is and how it’s a good example of organizational control.

• Find the latest governmental statistics on workplace injuries, illnesses, and fatalities. Research ways that organizations can control the number of incidents of injuries and fatalities. Compile this information into a report.

• In your own words, write down three things you learned in this chapter about being a good manager.

• Self-knowledge can be a powerful learning tool. Go to mymanagementlab and complete these self-assessment exercises: How Good Am I at Disciplining Others? How Willing Am I to Delegate? What Time of Day Am I Most Productive? How Good Am I at Giving Performance Feedback? Using the results of your assessments, identify personal strengths and weaknesses. What will you do to reinforce your strengths and improve your weaknesses?

Answers to Case Application Questions 

Deepwater in Deep Water
1. What type(s) of control—feedforward, concurrent, or feedback—do you think would have been most useful in this situation? Explain your choice(s).
The explanations for the failure of the Deepwater Horizon point to a number of deficiencies in control systems.  Feedforward control could have been used to provide better testing of deep drilling platforms and machinery used at extreme depths.  Concurrent controls could have been in place to insure timely response of mitigation teams to control the flow of leaked oil and quicker response teams to cap the oil well.  Feedback controls would include steps to determine the deficiencies in processes, equipment and personnel response to ensure that future oil spills are capped in a faster timeframe.

2. Using Exhibit 18-2, explain what BP could have done better.
In this case, the operators could have done a better job of monitoring the pressure in the well and shut the well down before the explosion.  Once the explosion occurred, the size of the spill should have been measured correctly and immediate steps taken to cap the well (for several days the well’s owners did not know if the well was leaking from the bottom).  It took months longer to cap the well than originally thought.  The handling of information regarding environmental and economic impact was slow at first and the company did not put the people and resources in place to monitor the impact of the spill and take action to insure the public of what was being doing to solve the problem.

3. Why do you think company employees ignored the red flags? How could such behavior be changed in the future?
In some respects, the Deepwater Horizon was new technology.  While there are thousands of oil wells in the Gulf of Mexico, there are less than a dozen as deep as the Deepwater Horizon.  Fortunately, some of those wells used duplicate and triplicate systems.  In the case of the Deepwater Horizon, there was only one blowout preventer on the ocean floor – where other deepwater wells use two.  Industry and government pressure will insure that technology and processes change in response to this event.

4. What could other organizations learn from BP’s mistakes?
Periodically, disasters like the Deepwater Horizon remind companies of the danger that their mistakes pose to the environment, society, and the industry.  Companies and their top management teams become complacent – they think that it couldn’t happen to them.  It is from these mistakes that companies learn to put better systems and response protocols into place.
Baggage Blunders
1.  What type of control—feedforward, concurrent, or feedback—do you think would be most important in this situation? Explain your choice.

Students should realize that all three types of control are necessary.  Ask them to give examples of how each type of control could have been implemented in the building and test of the British Airways terminal.

2.  How might immediate corrective action have been used in this situation? How about basic corrective action?
Immediate corrective action could have been used in this situation to avoid further damage to consumer confidence in the new terminal and British Airways. While regulations would prevent actions such as the passengers carrying their luggage to the terminal, greater communication between the terminal staff and customers would have elevated some of the stress and delays from occurring.

3.  Could British Airways’ controls have been more effective? How?
Any project of this scale is bound to have some problems.  It would be unrealistic to have all of the elements working perfectly on the first day and issues like the broken hand dryers are an everyday occurrence. From the last paragraph in the case, students will see that British Airways did attempt to test the terminal.  One area that might have been improved by more effective control mechanisms was the training of terminal personnel.

4.  What role would information controls play in this situation? Customer interaction controls? Benchmarking?
Ask students to consider the necessity of monitoring and correcting incorrect information in the British Airway’s case.  Considering the events of 9-11 in the United States, any problems associated with air travel will spread quickly by way of media outlets.  Bad news spreads quickly and an interview with one delayed customer may be taken that all passengers flying out on that day had similar problems. 
Considering the benefits of benchmarking, a good example of how not to implement a baggage transportation system can be found at Denver International Airport.  The automated baggage system implemented in 1995 at an initial cost of 186 million grew by $1 million per day during months of modifications and repairs.   Over the years, the system never worked well, and in August 2005, the airport eventually abandoned the system.