Organizational Control and Change (MGM3103 Chapter 8) PDF

Organizational Control and Change CHAPTER 8 Learning Objectives 1.Define organizational control, and explain how it increases organizational effectiveness. 2.Describe the four steps in the control process and the way it operates over time. 3.Identify the main output controls, and discuss their...

Organizational Control and Change CHAPTER 8 Learning Objectives 1.Define organizational control, and explain how it increases organizational effectiveness. 2.Describe the four steps in the control process and the way it operates over time. 3.Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees. 4.Identify the main behavior controls, and discuss their advantages and disadvantages as a means of managing and motivating employees. 5.Explain how organizational culture or clan control creates an effective organizational architecture. 6.Discuss the relationship between organizational control and change and explain why managing change is a vital management task. WHAT IS ORGANIZATIONAL CONTROL? CONTROLLING Process where managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. WHAT IS ORGANIZATIONAL CONTROL? THE IMPORTANCE OF ORGANIZATIONAL CONTROL To determine how efficiently they are using their resources, managers must be able to accurately measures how many units of inputs (raw materials, human resources, and so on) are being used to produce a unit of output WHAT IS ORGANIZATIONAL CONTROL? THE IMPORTANCE OF ORGANIZATIONAL CONTROL To determine how efficiently they are using their resources, managers must be able to accurately measures how many units of inputs (raw materials, human resources, and so on) are being used to produce a unit of output CONTROL SYSTEMS AND TECHNOLOGY CONTROL SYSTEM Formal, target -setting, monitoring, evaluation and feedback systems that provide managers with information about how well the organization’s strategy and structure are working. good control system should : Be flexible so managers can respond as needed. Provide accurate information about the organization. Provide information in a timely manner. CONTROL SYSTEMS AND TECHNOLOGY TECHNOLOGY Facilitate the flow of accurate and timely information up and down the organizational hierarchy and between function and divisions Control and information systems are developed to measure performance at each stage in the process of transforming inputs into finished goods and services THREE TYPES OF CONTROL Access the text alternative for slide images.  THREE TYPES OF CONTROL FEEDFORWARD CONCURRENT FEEDBACK CONTROL CONTROL CONTROL Control that allows Give managers Provide information immediate feedback on about customer’s managers to reaction to goods and anticipate problems how efficiently inputs services to correct before they arise. are being transformed action can be taken if Technology can be into outputs so that necessary. used to keep in managers can correct MIS used to measures contact with suppliers problems as they arise. increases or an to monitor their Technology alerts decreases in relative progress managers need to react sales of different quickly to whatever is products. the source of problem, e.g if defective batch or machine out of alignment. THE CONTROL PROCESS Four Steps in Organizational Control Access the text alternative for slide images.  THE CONTROL PROCESS Three Organizational Control Systems Type of control: Mechanisms of control: Financial measures of performance. Output control: Organizational goals. Operating budgets. Direct supervision. Behavior control: Management by objectives Rules and standard operating procedures Values. Organizational Norms. culture/clan control: Socialization. OUTPUT CONTROL Financial Measures of Performance PROFIT RATIOS Measures of how efficiently managers convert resources into profits. Return on investment (R.O.I) - to compare performance 𝑁𝑁𝑁𝑁𝑁𝑁 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑅𝑅𝑅𝑅𝑅𝑅 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 Operating Margin- how efficiently an organization using its resources 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 OUTPUT CONTROL Financial Measures of Performance LIQUIDITY RATIOS Measures of how well managers protect resources to meet short term debt—current and quick ratios. Current Ratio - how well managers have protected organizational resources 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 Quick Ratio - shows whether they can pay these claims without selling inventory 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 − 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 OUTPUT CONTROL Financial Measures of Performance LEVERAGERATIOS Measures of how much debt or equity is used to finance operations: debt–to–asset and times– covered ratios. Debt-to-asset ratio - the extent managers have used borrowed funds to finance investment 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 − 𝑡𝑡𝑡𝑡 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 Times-covered ratio - how far profits can decline before managers cannot meet interest charges 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 − 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 − 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 OUTPUT CONTROL Financial Measures of Performance ACTIVITY RATIOS Measures of how efficiently managers are creating value from assets: inventory turnover, days sales outstanding ratios. Inventory turnover - how efficiently managers are turning over inventory 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑜𝑜𝑜𝑜 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 Days sales outstanding - how efficiently managers are collecting revenues from customers to pay expenses 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 = 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑓𝑓𝑓𝑓𝑓𝑓 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑏𝑏𝑏𝑏 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑖𝑖𝑖𝑖 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 OUTPUT CONTROL Organizational Goals Goals should be specific and difficult but attainable. STRETCH GOALS Goals that challenge and stretch managers’ ability but are not out of reach and do not require an impossibly high expenditure of managerial time and energy. OUTPUT CONTROL Organizational Goals - Organization wide Goal Setting Access the text alternative for slide images.  OUTPUT CONTROL Operating Budgets A blueprint that states how managers intend to allocate and use the resources they control to attain organizational goals effectively and efficiently. Lower-level managers are evaluated for their ability to stay within the budget and to make the best use of available resources.  OUTPUT CONTROL Operating Budgets Three components are the essence of effective output control: Objective financial measures. Challenging goals and performance standards. Appropriate operating budgets. PROBLEMS WITH OUTPUT CONTROL Managers must create output standards that motivate at all levels. Standards should not cause managers to behave in inappropriate ways to achieve organizational goals. BEHAVIOR CONTROL DIRECT SUPERVISION involves managers who: Actively monitor and observe the behavior of their subordinates. Teach subordinates the behaviors that are appropriate and inappropriate. Intervene to take corrective action as needed. Problems: Expensive Demotivate employees Not feasible for complex job BEHAVIOR CONTROL MANAGEMENT BY OBJECTIVES (M B O) A goal-setting process in which managers and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals. 1. Specific goals and objectives are established at each level of the organization. 2. Managers and their subordinates together determine the subordinates’ goals. 3. Managers and their subordinates periodically review the subordinates’ progress toward meeting goals. BEHAVIOR CONTROL THE BALANCED SCORECARD Four measures to look at overall performance: financial, customer service, internal business processes, and organizations capability for strategic learning and growth. BEHAVIOR CONTROL BUREAUCRATIC CONTROL Control of behavior by means of a comprehensive system of rules and standard operating procedures. Rules and SOPs guide behavior and specify what employees are to do when they confront a problem that needs a solution. PROBLEMS WITH BUREAUCRATIC CONTROL Rules easier to make than to discard, leading to bureaucratic “red tape” and slowing organizational reaction times to problems. Loss of flexibility, new ideas, and creative problem solving. ORGANIZATIONAL CULTURE AND CLAN CONTROL ORGANIZATIONAL CULTURE The shared set of beliefs, expectations, values, norms, and work routines that influences how members of an organization relate to one another and work together to achieve organizational goals. CLAN CONTROL Control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations. ORGANIZATIONAL CULTURE AND CLAN CONTROL Adaptive versus Inert Culture ADAPTIVE CULTURE Culture whose values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective. INERT CULTURE Culture that leads to values and norms that fail to motivate or inspire employees. Leads to stagnation and often failure over time. ORGANIZATIONAL CHANGE Movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness. ORGANIZATIONAL CHANGE Organizational Control and Change Access the text alternative for slide images. ORGANIZATIONAL CHANGE Lewin’s Force -Field Theory of Change Two forces are always in opposition. When they are even, inertia. For change, managers must increase the forces for change or reduce resistance to change. Lewin’s 3 stages of change: Unfreezing. Changing. Refreezing. ORGANIZATIONAL CHANGE Four Steps in the Organizational Change Process Access the text alternative for slide images. ORGANIZATIONAL CHANGE Managing Change ASSESSINGTHE NEED FOR CHANGE Organizational Learning: Process through which managers try to increase organizational members’ abilities to understand and appropriately respond to changing conditions. Impetus for change. Can help members make decisions about changes. ORGANIZATIONAL CHANGE Managing Change DECIDING ON THE CHANGE TO MAKE Managers must decide where they would like their organization to be in the future Identifying obstacles or sources of resistance to change ORGANIZATIONAL CHANGE Managing Change IMPLEMENTING CHANGE Top -Down Change: A fast, revolutionary approach to change in which top managers identify what needs to be changed, decide what to do, and then move quickly to implement changes throughout the organization. Bottom -Up Change: A gradual or evolutionary approach to change in which managers at all levels work together to develop a detailed plan for change. ORGANIZATIONAL CHANGE Managing Change EVALUATING CHANGE Benchmarking: Process of comparing one company’s performance on specific dimensions with the performance of other high performing organizations. Accessibility Content: Text Alternatives for Images Three Types of Control - Text Alternative The flow chart shows three types of control in sequential order: input stage to conversion stage to output stage. The input stage has feedforward control (anticipate problems before they occur), the conversion stage has concurrent control (manage problems as they occur), and the output stage has feedback control (manage problems after they have arisen). Return to parent-slide containing images. Four Steps in Organizational Control - Text Alternative A chart shows four steps in organizational control: 1. establish the standards of performance, goals, or targets against which performance is to be evaluated, 2. measure actual performance, 3. compare actual performance against chosen standards of performance, and 4. evaluate the result and initiate corrective action if the standard is not being achieved. Return to parent-slide containing images. Organization Wide Goal Setting - Text Alternative A chart shows three levels of managers, each of which sets different levels of goals. 1. Corporate-level managers set goals for divisions to meet corporate goals, 2. divisional managers set goals for functions needed to meet a division's goals, and 3. functional managers set goals for each worker in order to achieve the goals for a function. Return to parent-slide containing images. Organizational Control and Change - Text Alternative Managers must balance the need for an organization to improve the way it currently operates and the need for it to change in response to new, unanticipated events. Return to parent-slide containing images. Four Steps in the Organizational Change Process - Text Alternative A flow chart graphic shows the four steps in the organizational change process. 1.Assess the need for change. Recognize that there is a problem. Identify the source of the problem. 1. Decide on the change to make. Decide on what the organization’s ideal future state would be. Identify obstacles to change. 1.Implement the change. Decide whether change will occur from the top down or from the bottom up. Introduce and manage change. 1.Evaluate the change. Compare pre-change performance with post-change performance. Use benchmarking. Return to parent-slide containing images.