Managerial Control The Learning House, Inc. Page 1

Transcription

1 2007 The Learning House, Inc. Page 1

2 Introduction This lesson deals with the last of the four main functions of a manager control. An organization that plans well, organizes well and has placed individuals with excellent leadership skills over the affairs of the business will still experience problems if controls are not administered to make sure planned goals are met. This lesson details the scope of control that is needed from finance to manufacturing or service, from human resource issues to suppliers, from work teams to customers. In one way or another, control is included in every aspect of organizational performance. From the foundations of control, the lesson then delves into operations management, what it is and how it is applied. The lesson concludes by introducing the student to the concept and application of value chain management. What is Control? At this point, a reminder of the definition of control as it applies to this course is appropriate. Control, then is the process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. In monitoring these activities, the manager must have some method of evaluation to determine if what is being done is in line with the standard outlined by the planning process that is, if activities performed meet goals that were set. Depending upon the type organization, different approaches to control are applied. There are three different approaches to designing control that have been identified by researchers: Market control control that emphasizes the use of external market mechanisms to establish the standards used in the control system. Bureaucratic control control that emphasizes organizational authority and relies on administrative rules, regulations, procedures, and polices. MARKET CONTROL BUREAUCRATIC CLAN CONTROL PROFIT CENTER ORGANIZATIONA L AUTHORITY CULTURAL REGULATED Clan control employee behaviors are regulated by the shared values, norms, traditions, rituals, beliefs, and other aspects of the organization s culture. Most organizations do not use just one of these methods but are usually combine either bureaucratic and market or clan and market approaches. Why is Control Important? Control is important for at least three main reasons. First, it is a way to make sure that goals that have been set are being met. Great intentions are just that - great. But if intentions don t materialize into action, they are worthless. Control is important also because it allows employees to be empowered. When managers use control to train, provide information to employees and give them feedback, they are no longer tied down to do everything themselves and are freed up to see to work that is more in line with the position to which they have been appointed. Finally, managers use control to protect the organization, both its purpose and its physical location. Especially today, managers must be aware of threats to the organization from terrorists, foreign and domestic and financial scandals that could destroy an organization The Learning House, Inc. Page 2

3 The Control Process The control process is defined as a three-step process including: measuring actual performance, comparing action performance against a standard, and taking managerial action to correct deviations or inadequate standards. None of the three parts can be eliminated is the process is to accomplish its task that is to ensure that planned goals are achieved. Measuring represents the first component of the control process because without measuring a performance, there is no evidence to support if standards were met or not. Measurement is done in any number of ways including personal observations, statistical reports, oral reports and written reports. There are advantages as well as disadvantages associated with each. For instance, oral reports provide rapid feedback but the information included is usually condensed. Written reports are comprehensive but they take more time. Most jobs can be measured but for those that can t be measured in terms of tangibles, subjective measurement is appropriate. Although this type measurement may be difficult to do, it is important if the job being measured is important. How measurement is done is not as important as what is measured. Managers take measurements on any number of different organizational functions. They measure budgets, employee behavior such as job satisfaction, turnovers and absenteeism and various aspects of service and production that are dependent on the type of organization. Following measurement, managers compare the actual performance to the standard performance decided upon during the planning process. Performance that is outside the standard is reviewed to determine what if any action is required. Managers are concerned about how much actual performance deviates from the norm or standard as well as what direction that variance is going. The planning process set an acceptable range of variation from the standard. The manager then proceeds to the next step in the control process or taking managerial action. During this final step, managers will check the information on actual performance to make sure that it is correct. Once that is determined, the manager can do one of three things: Take no action if variance is within an acceptable range, the manager does not have to take action or the manager for some other reason may decide to do nothing 2007 The Learning House, Inc. Page 3

4 Correct the actual performance either through an immediate corrective action or a basic corrective action (determining the cause and then correcting it) Revise the standard sometimes the manager may feel that standards are too high or too low and the manager will revise these standards Controlling for Organizational Performance Annual school plays are a must for parents to attend. Children either rehearse for these plays during or after school. A lot of activity goes into these productions making costumes, stage props, getting the lines right. But when parents see their children on stage in the final production, the performance was worth the effort. Generally speaking, performance is the end result of an activity. Organizational performance is defined similarly as it is the accumulated end results of all the organization s work processes and activities. Since the topic of this section is controlling organizational performance, obviously, this function can be measured, compared and corrected, if necessary. There are at least three organizational performance measures that are frequently used. They are Organizational productivity Organizational effectiveness Industry rankings The first instrument of measure for organizational performance, productivity, is the overall output of goods or services produced divided by the inputs needed to generate that output. Clearly, organizations want to maximize output and minimize input. Managers always want to see this ratio greater than one and in fact, it is a manager s job to increase this ratio. The manager can either take a chance and raise selling prices or reduce the amount of input required to perform the production this amounts to efficiency. Goals should reflect what the organization is trying to accomplish besides the obvious one of making profits. Organizational effectiveness is a measure of how appropriate organizational goals are and how well an organization is achieving those goals. There are other descriptions of what organizational effectiveness including The systems resource model ability of organization to exploit its environment to acquire scarce and valued resources The process model transformation and converting inputs into desired outputs The multiple constituencies model several different measures should be used The last measure, which is industry rankings, is supplied by magazines and consumer advocacy groups. Fortune has not less than ten different rankings of organizations while Business Week has only two. They rank businesses using varied criteria. Some use wealth as criteria while some use employee questionnaires to determine the best companies to work for. Some rank 2007 The Learning House, Inc. Page 4

5 companies according to organizational accomplishments and demonstrations of superior management skills. The American Customer Satisfaction Index measures customer satisfaction with quality of goods and services available. Tools for Controlling Organizational Performance Feedforward, concurrent and feedback - they sound like buttons on a DVD or CD player. In actuality, they are terms that are used to refer to the type of control tool that managers might use to control organizational performance. Managers can control a performance before it happens (feedforward), while it is occurring (concurrent) or after the fact (feedback). Undoubtedly, managers would like to control an activity before it takes place (feedforward) since it will prevent problems from taking place. If managers can correct a situation before it causes any harm, it may keep them from releasing an inferior product or losing customers or revenue. With concurrent control, managers are able to identify a potential problem, correct the activity and minimize cost to the organization. One such concurrent control is called management by walking around. In this type control, managers interface directly with the employees and oversee the work. Organizations also have equipment in place that is used for concurrent control which will signal inconsistencies to the employee and allow the employee to correct the inconsistencies before any damage is done. Feedback as its name implies, takes place after the fact. It is the most popular of the three controls although it takes place after the damage has occurred. There are advantages to feedback control, however. It gives managers information on how effective their planning efforts were and can enhance employee motivation. Besides the three controls mentioned in the previous section, there are financial controls, the balanced scorecard and information controls. Among the many types of financial controls are the traditional ones like various liquidity, various leverage, various activity and various profitability ratios. Managers use these ratios as internal control devices to monitor how efficiently and profitably the organization uses its assets, debt, inventories and other things of a financial nature. Budgets, too, are used for controlling. They give managers quantitative standards to measure resource consumption such as expenses. Along with the traditional methods of financial control are the EVA, which is economic value added and the MVA, which is market value added. EVA measures corporate and divisional performance. It takes after-tax operating profit minus the total annual cost of capital. MVA measures the stock market s estimate of the value of a firm s past and expected capital investment projects. Unethical behavior has been associated with the practice of managing earnings. When organizations manage earnings, they time income and expenses to enhance current financial performance, giving an unrealistic picture of the organization s financial performance. To discourage practices like these, the U.S. Congress the Sarbanes-Oxley Act in 2002 requiring 2007 The Learning House, Inc. Page 5

6 more financial disclosure by publicly owned companies and making senior managers certify the financial statements. The balanced scorecard is a method developed to measure organizational performance with one twist it looks at more than just the financial aspect. It looks at four areas including financial, customer, internal processes, and people/innovation/growth assets that contribute to an organization s performance. Even though it is feasible to look at all of these areas, most managers concentrate only on those that affect their organization s success. The right information at the right time and right amounts is crucial to how effective a manager is in performing his job. Management information systems are used to supply that information. Although it can be any source that provides the information, today it is normally computer generated. Management information systems (MIS s) take raw data, organize it into a usable format and generate information. Previously, the statistical and written reports referred to are examples of MIS generated information. They provide the manager with the measurements of actual performance and compare these actuals with the standard. With the actual measurements in hand and the comparison made to the standard, the manager has the information needed to take action. The student should recall that benchmarking is the search for the best practices among competitors or non-competitors that lead to their superior performance. Managers use benchmarking to determine specific performance gaps and potential areas of improvement. It is a control mechanism in that it helps the manager train employees to do things more efficiently. Benchmarking does not always have to come from an external source but employees can discover better ways of doing things by observing different areas of the same organization. Suggestion boxes have provided excellent ideas on how to do things more efficiently thus improving organizational performance. Contemporary Issues in Control Today, a varied number of contemporary issues present a challenge to the manager causing the manager to be very creative in his or her control efforts. Four very pronounced issues are those of cross-cultural differences, workplace concerns, customer interactions and corporate governance. Controls, especially with respect to correction and measurement, present a particularly difficult challenge to managers. Controls that work in the country where the home office resides won t work on foreign soil. Therefore, these controls must be adjusted to fit. More formal controls are put in place in an effort to measure productivity, and effectiveness. Managers may not have the leverage to discipline employees in foreign facilities, as well, making the manager s job further complicated. In addition, measurement methods may need to be adjusted since production may 2007 The Learning House, Inc. Page 6

7 be done using equipment in a technologically advanced country but done manually in those countries that lack the same technology. Being a manager in today s environment means more than just overseeing the work of the business, training employees and hiring and firing individuals. It also means being a steward over the assets of the organization, tangible and intangible and protecting the privacy of the individuals that work for you. It s a rare company that does not provide some type access to a computer with its many files as well as the Internet to some extent. Many employees rely on access to the Internet to perform their jobs. But do employees have a right to surf the Internet on company time using a company computer? Also, do companies have a right to spy on employees via their intranet? Because companies own the equipment that the employees use, they do have a right to monitor activities taking place on their equipment. Managers can and do monitor s to protect themselves from lawsuits due to the offensive messages or images that may be sent via their facilities. Managers do monitor computer usage because employees are there to do a job which does not include taking care of personal business during company time. Managers also have to be aware of thefts that may and do take place in the workplace. Most workplace thefts are committed by employees. Employees feel justified in stealing company supplies for a number of reasons. Then again, some employees don t consider taking small things such as pens and tablets as actual theft. Although most company thefts are inside jobs, security in workplaces has been increased partly because of thefts that may have been committed by people walking in off the street. You can hardly pick up a newspaper or watch the news on television within a six month span and not see some incident of violence that occurred at the workplace. These account for the major incidences. But violence in the workplace can be as small as fights breaking out between individuals that go unreported in the news. Experts believe that this violence is the result of a number of things, with one of the major culprits being stress. Below is the short list of things that may cause situations to erupt into workplace violence: Office layouts with small cubicles Employee work driven by time, numbers and crises Rapid and unpredictable change (environment) Destructive communication style by managers or co-workers Authoritarian leadership with a rigid militarist mind-set Culture of violence where there s a history of individual violence or abuse What can managers do to stop or lessen the possibility of violence occurring in the workplace? Suggestions may be derived through the feedforward, concurrent and feedback concepts. In Section 8.7 where these concepts were introduced, one suggestion, associated with the concurrent control approach, might be to use management by walking. By keeping in touch with employees the manager might possibly see conditions that may cause a situation to explode The Learning House, Inc. Page 7

8 Other suggestions include not ignoring any threats, either overheard by others or that have come directly to you, reinforce company policy and be a good role model. You ve probably heard the statement, the customer is always right. Whether the customer is right or not, it is the responsibility of the manager to make sure that each customer is treated with respect and courtesy. How does the manager do this? There is another concept called service profit chain and refers to the service sequence from employees to customers to profit. Good employee relations (serviceability) with customers will keep customers coming back. The manager controls this sequence by making sure that the employee is well trained, exudes the right attitude and behaves in a manner that is representative of exemplary customer service. Additionally, the manager makes sure that the employee is provided with an environment that is conducive to the employee doing the job as well as encourages his or her efforts. Corporate governance is the system used to govern a corporation so that the interests of corporate owners are protected. The responsibility of a Board of Directors is corporate governance. When the Board of Directors fails to do its job, incidences like the Enron Corporation scandal and others take place. Who should be held accountable? Certainly, the ones that profited from others losses. But some fault must lie with those that were appointed to do the job of protecting the interests of the corporate owners. Since the time of the Enron scandal, legislation has been put in place called the Sarbanes- Oxley Act which called for more disclosure and transparency of corporate financial information. Senior managers in the United States are now required to certify their companies financial results. Requirements for board of directors have also been revised. What is Operations Management and Why is it Important? This lesson so far has talked about theories, approaches and suggestions on how to control (that is, direct, manage, organize or run) the various components of an organization. This lesson addressed the fact that control refers to the measurement, comparison and action that is required to make an organization accomplish the goals outlined in the planning process. The lesson mentions control of employees, control of finances, control of the workplace, etc. The lesson will still focus on controlling but in a different aspect operations management. Operations management is the design, operation, and control of the transformation process that converts resources into finished goods or services. Resources can be raw material, technology, people, capital, etc. The process can include such things as procedures, work activities, etc. Products are anything that you wear, anything that you eat, anything that you use including the tangible or intangible. This answers the question about what operations management is. But why is operations management so important? The answer is threefold: 2007 The Learning House, Inc. Page 8

9 It includes both services and manufacturing It s important in effectively and efficiently managing productivity It plays a strategic role in an organization s competitive success A bakery makes breads and pastries. A computer geek services computers. A network transmits signals to your television for viewing of your favorite shows. Every organization either produces a product or provides a service. Manufacturing organizations produce physical goods while service organizations produce nonphysical outputs in the form of services. The United States relies so much on technological innovations that it has now moved from an economy based on manufacturing to one based on service. The United States is not alone in this move. Most industrialized nations are predominantly service economies. Robotics has played a major role in increasing productivity. Functions that used to require human interface are now handled entirely by computer controlled machinery. Manual calculations that used to take hours and even days to complete are now handled using spreadsheets and sophisticated programs. Although most companies can t work without some human interface, the workforces that were previously required have been greatly reduced due to technological innovations. Productivity is the overall output of goods or services produced divided by the inputs needed to generate that output. High productivity can mean higher wages for employees, and bigger profits for companies, all without causing inflation. Higher productivity also means that organizations will be able to be more competitive with their prices that will result in a savings to the consumer. Productivity has both a people and an operations component and to improve productivity, managers must take both into consideration. Organizations should remain aware of the importance of operations management. Failure to do so can cause an organization to lose its competitive advantage. For every type business that someone has thought of, someone is waiting in the wings to do it and do it better. That s the nature of competition. Successful organizations never take their eyes off the ball and are always looking for more effective and efficient ways to do what they do. Value Chain Management If you produce a product or provide a service you would like to sell it because you feel it has value. Value is seen as the performance characteristics, features and attributes, and any other aspects of goods and services for which customers are willing to give up resources. Value is provided to customers when raw materials go through a process and are transformed into products or services which customers would like to have when, where, and how they want. A 2007 The Learning House, Inc. Page 9

10 value chain is made up of different participants including customers, suppliers and manufacturers. Value chain management is the process of managing the entire sequence of integrated activities and information about product flows along the entire value chain. Since the customer ultimately is the one with the power in a value chain as they are the ones that will choose either to buy the service or product or not, the goal of value chain management is to please the customer by providing a value chain strategy that meets and exceeds customers needs and desires with seamless integration amongst the members in the chain. Six ingredients that should be included in a successful value chain are: 1. Coordination and collaboration discover what customers value, share that information, be flexible as far as who does what 2. Technology investment invest in information technology 3. Organizational processes look at processes to determine what skills, capabilities and resources are needed and eliminate the ones that are not 4. Leadership strong and committed leaders, outline expectations involved in pursuing value chain management, clarify the expectations for the roles of both employees and external partners 5. Employees flexible jobs, flexible employees, identification of people capable of learning and adapting, ongoing training 6. Organizational culture and attitudes supportive organizational culture and attitudes such as sharing, collaborating, openness, flexibility, mutual respect and trust for both employees and external partners Benefits of Value Chain Management Organizations that participate in value chain management reported that they benefit from it in a number of ways. Following are some of the benefits that they reported Increased sales Cost savings Increased market share Inventory reductions Improved quality Accelerated deliver times Improved logistics management Improved customer service Obstacles to Value Chain Management Several obstacles can represent problems to the success of value chain management as: Organizational barriers reluctance or refusal to share information among partners in the chain Cultural attitudes unsupportive cultural attitudes, like trust and control between partners Required capabilities lack of the capabilities to collaborate or configure products to the customer s satisfaction 2007 The Learning House, Inc. Page 10

11 People lack of commitment, lack of managerial experience, lack of motivation Current Issues in Operations Management When you go to the eye doctor for contact lenses, your eyes are examined for vision as well as various disorders and measurements are taken in order to customize your contact lenses to your needs. Customization is one of the three most important operations management issues today, along with technology and quality. Technology s Role in Manufacturing From the creative mind have come a vast number of innovations that have helped to simply the operations management process. Systems that do analyses of various sorts, programs that generate reports, devices that have the ability to initiate s or signal a pager or a supplier. These have all made the job of operations management a little easier. Managers that recognize this and take advantage of new technology will advance their organization s efficiency and effectiveness. Quality Initiatives Managers need to think of quality in terms of the basic and fundamental functions that a manager performs leading, planning, organizing and controlling. Quality is the ability of a product or service to reliably do what it s supposed to do and to satisfy customer expectations. Quality does not just happen. Thought has to be put into how to achieve quality. Standards must be set at the beginning before any process is begun. Planning for quality takes time and effort on the part of those managers who are charged with making sure that the product or service that they produce is something that meets or exceeds the customer s expectations. Once the planning process has been completed, then managers need to determine how best to organize the work that needs to be done. For instance, should the employees be organized into teams or should the employees be empowered to do the job independently. How much leading to the individuals or teams need? If leading, will the manager be facilitator only or will he or she sit in on meetings, etc. Proper organizing and leadership will go a long way in producing a quality product or service. The last but not the least of the manager s primary functions is controlling. The student will recall the in controlling there is measurement, comparison and action. The manager must measure the actual quality against the standard set forth by the planning process and take corrective action, if necessary. Recall that controlling approaches can be feedforward, concurrent or feedback. If the manager can identify possible quality problems beforehand, it will save the organization money in the long run. If not, employees can and should learn from their mistakes by the feedback that they are supplied by the manager The Learning House, Inc. Page 11

12 Quality Goals Organization s goals are ultimately to convince customers through their product and PR that they are honest and sincere in their efforts to bring quality products and services at affordable prices. To that end, many have pursued challenging goals two of which are ISO 000 and Six Sigma. ISO 9000 is a series of international quality management standards that set uniform guidelines for processes to conform to customer requirements. An organization that meets these standards receives certification, which is becoming a prerequisite for doing business globally. The standards are set covering everything from regarding contract review to product design to product delivery. Six Sigma, a Motorola trademarked quality improvement program, sets a quality standard that establishes a goal of no more than 3.4 defects per million parts or procedures. At Six Sigma, you re almost defect-free. The higher the sigma, the higher the score and the less defects you have. Many of the most globally well-known companies use Six Sigma as their standard for quality. Mass Customization Burger King at one time used the slogan have it your way. This is what many organizations are adopting today. Although Dell does not use the slogan, it does use the concept. When you call Dell, they will ask you several questions about what you want, how you will use your computer and then load your customized computer with the peripherals and software that will meet the needs that you requested. They are not the only ones either. In this world of instant everything, organizations have to stay ahead of the game in order to maintain a competitive advantage, trying to meet the request of the customers when they need it, how they need it and where they need it The Learning House, Inc. Page 12