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Chapter 14 – Foundations of Control
CHAPTER
14
FOUNDATIONS
OF CONTROL
LEARNING OUTCOMES
After reading this chapter, students should be able to:
14-1. Explain the nature and importance of control.
14-2. Describe the three steps in the control process.
14-3. Discuss the types of controls organizations and managers use.
14-4. Discuss contemporary issues in control.
Management Myth
MYTH: A lack of employee turnover is a sign of a good manager.
TRUTH: Low turnover is not necessarily the goal. It can mean a complacent manager, one who
is willing to accept mediocre employee performance.
Teaching Tips:
Everyone has experienced situations in which someone on a team is not pulling their weight.
Ask students to think about a job they have had or athletic or academic teams where some
individuals were marginal contributors. How might things have been different if the weak
members had been replaced?
I. WHAT IS CONTROL AND WHY IS IT IMPORTANT?
A. What is Control?
1. Control is the management function involving the process of monitoring activities to
ensure that they are being accomplished as planned and correcting any significant
deviations.
a) An effective control system ensures that activities are completed in ways that
lead to the attainment of the organization’s goals.
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b) The effectiveness of a control system is determined by how well it facilitates
goal achievement.
A Question of Ethics
It’s called the “walk of shame.” Marching employees through stores in handcuffs to discourage
theft and other infractions. At a Target store in Pasadena, California, an employee who was
subjected to the walk of shame was released and never charged with a crime. However, the
emotional distress of the incident led to the individual later committing suicide. After the
incident went public, other Target employees in other stores told of their experiences either
witnessing or experiencing the walk of shame. Target Corporation denies that it has any such
policy. The company also did not elaborate on what guidance it gives managers on how to
handle suspected employee theft or other work violations that could potentially involve law
enforcement.
Discuss This:
What do you think of this “supposed” practice – positive and negative? Discuss.
How could an organization make sure it’s being ethical in controlling employees’
behaviors and still achieving organizational goals?
Teaching Tips:
Try to get students to consider both the positive and negatives of this issue. Companies are
trying to deter theft. However, if the practice violates our basic rights of being innocent until
proven guilty, should companies be permitted to use it? Suppose Target posts a sign indicating
that it will use the walk o shame against an employee thought to be stealing. If you, as an
employee accept the terms of employment including the walk of shame, is it ethical? Discuss.
B. Why is Control Important?
1. There is no assurance that activities are going as planned and that the goals
managers are seeking are, in fact, being attained.
2. Control is the final link in the functional chain of management. (See Exhibit 14-1.)
3. The value of control lies predominantly in planning, empowering employees, and
protecting the workplace.
II. WHAT TAKES PLACE AS MANAGERS CONTROL?
A. Introduction
1. The control process has three separate and distinct steps: (1) measuring actual
performance, (2) comparing actual performance against a standard, and (3) taking
managerial action to correct deviations or inadequate standards. (See Exhibit
14-2.)
B. What Is Measuring?
1. How do managers measure?
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a) Four common sources of information frequently used by managers to measure
actual performance are personal observation, statistical reports, oral reports,
and written reports.
b) Personal observation provides firsthand, intimate knowledge of the actual
activity.
(1) It is not filtered by others.
(2) It permits intensive coverage.
(3) It provides opportunities for the manager to “read between the lines.”
(4) Management by walking around (MBWA)—used to describe when a
manager is out in the work area, interacting directly with employees, and
exchanging information about what’s going on.
(5) Personal observation is often considered an inferior information source.
(a) It is subject to perceptual biases.
(b) Personal observation also consumes a good deal of time.
(c) It suffers from obtrusiveness.
c) Statistical reports (computer outputs, graphs, bar charts, etc.) provide managers
information about actual performance.
(1) It is easy to visualize and is effective for showing relationships.
(2) It provides limited information about an activity and generally only reports
on a few key areas.
d) Information can also be acquired through oral reports—that is, through
conferences, meetings, one-on-one conversations, or telephone calls.
(1) The advantages and disadvantages are similar to those of personal
observation.
(2) The information is filtered.
(3) It is fast and allows for feedback.
(4) It permits expression and tone of voice, as well as words themselves to
convey meaning.
(5) One of the major drawbacks of oral reports has been the problem of
documenting information for later references—technological capabilities
to efficiently tape and provide permanent record overcomes this drawback.
e) Actual performance may also be measured by written reports.
(1) They are slower yet more formal.
(2) Formality gives them greater comprehensiveness and conciseness.
(3) Written reports are usually easy to catalog and reference.
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f) Comprehensive control efforts by managers should use all four measurement
techniques.
2. What do Managers Measure?
a) What is measured is more critical to the control process than how it is
measured.
b) The selection of the wrong criteria can result in serious dysfunctional
consequences.
c) What is measured determines what people in the organization will attempt to
excel at.
d) Some control criteria are applicable to any management situation.
(1) Criteria such as employee satisfaction or turnover and absenteeism rates
can be measured.
(2) Most managers have budgets for their area of responsibility set in monetary
units and keeping costs within budget can be measured.
e) Any comprehensive control system needs to recognize the diversity of
activities among managers.
f) Some activities are more difficult to measure in quantifiable terms.
(1) But most activities can be broken down into objective segments that
allow for measurement.
(2) The manager needs to determine what value a person, department, or unit
contributes to the organization and then convert the contribution into
standards.
g) Most jobs and activities can be expressed in tangible and measurable terms.
h) When a performance indicator cannot be stated in quantifiable terms, managers
should look for and use subjective measures.
i) Certainly, subjective measures have significant limitations.
j) Any analysis or decisions made on the basis of subjective criteria should
recognize the limitations of the data.
C. How do Managers Compare Actual Performance to Planned Goals?
1. The comparing step determines the degree of discrepancy between actual
performance and the standard.
2. It is critical to determine the acceptable range of variation. (See Exhibit 14-3.)
a) In the comparison stage, managers are particularly concerned with the size and
direction of the variation.
3. For example, Chris Tanner is the sales manager for Green Earth Gardening.
4. Exhibit 14-4 presents the standard and actual sales figures for June.
5. Both over-variance and under-variance require managerial attention.
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From the Past to the Present
Benchmarking has been a highly utilized management tool to promote quality. Although Xerox
is often credited with the first widespread benchmarking effort in the United States, the practice
can actually be traced back much further than that. The benefits of benchmarking have long been
recognized. In the company plant where he was employed, Frederick W. Taylor (of scientific
management fame) used concepts of benchmarking to find the “one best way” to perform a job
and to find the best worker to perform the job.
Today, managers in diverse industries such as health care, education, and financial services are
discovering the benefits of benchmarking. At its most basic, benchmarking means learning from
others. However, as a tool for monitoring and measuring organizational and work performance,
benchmarking can be used to identify specific performance gaps and potential areas of
improvement.
Discuss This:
What are the benefits of benchmarking?
What are the challenges in doing it?
Teaching Tips:
It should be easy for students to find examples of companies engaging in benchmarking. Simply
type in benchmarking in Google! What might be useful is for students to think about how they
use benchmarking to improve their own performance. Have students identify their own personal
examples of benchmarking in the following areas:
1. Personal Fitness
2. Education
3. Building Relationships
D. What Managerial Action Can Be Taken?
1. The third and final step in the control process is taking managerial action.
2. Managers can choose among three courses of action: they can do nothing; they can
correct the actual performance; or they can revise the standard.
a) Doing nothing is fairly self-explanatory.
3. How Do You Correct Actual Performance?
a) If the source of the variation has been deficient performance, the manager will
want to take corrective action.
(1) Make another decision; take immediate or basic corrective action?
(2) Immediate corrective action corrects problems at once and gets
performance back on track.
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Chapter 14 – Foundations of Control
(3) Basic corrective action asks how and why performance has deviated and
then proceeds to correct the source of deviation.
(4) It is not unusual for managers to rationalize that they do not have the time
to take basic corrective action and therefore must be content to perpetually
put out fires with immediate corrective action.
(5) Effective managers analyze deviations, and when the benefits justify it,
take the time to permanently correct significant variances between
standard and actual performance.
4. How Do You Revise the Standard?
a) It is also possible that the variance was a result of an unrealistic standard—that
is, the goal may have been too high or too low.
(1) The standard needs corrective attention, not the performance.
(2) The more troublesome problem is the revising of a performance standard
downward.
(3) It may be true that standards are too high.
(4) But keep in mind that if employees or managers don’t meet the standard,
the first thing they are likely to do is to attack the standard itself.
b) If you believe that the standard is realistic, hold your ground.
(1) Explain your position, reaffirm to the employee or manager that you
expect future performance to improve, and then take the necessary
corrective action to turn that expectation into reality.
III.WHAT SHOULD MANAGERS CONTROL?
A. When Does Control Take Place?
1. Management can implement controls before an activity commences, during the
activity, or after the activity is completed. (See Exhibit 14-5.)
B. What Is Feedforward Control?
1. The most desirable type of control—feedforward control—prevents anticipated
problems.
a) It takes place in advance of the actual activity.
b) The key to feedforward control is taking managerial action before a problem
occurs.
2. Feedforward controls allow management to prevent problems rather than having to
cure them.
a) These controls require timely and accurate information that is often difficult to
develop.
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C. When Is Concurrent Control Used?
1. Concurrent control takes place while an activity is in progress.
2. Management can correct problems before they become too costly.
3. The best-known form of concurrent control is direct supervision.
a) Technical equipment can be designed to include concurrent controls.
D. Why Is Feedback Control So Popular?
1. The most popular type of control is feedback control.
a) The control takes place after the action.
2. The major drawback of this type of control is that by the time the manager has the
information, the damage has already been done.
a) It’s analogous to locking the barn door after the horse has been stolen.
IV. Keeping Track: What Gets Controlled?
A. Keeping Track of an Organization’s Finances
1. Every business wants to earn a profit and to achieve this goal, managers need
financial controls.
2. Traditional financial measures managers might use include ratio analysis and
budget analysis.
3. Exhibit 14-6 summarizes some of the most popular financial ratios that managers
will analyze.
4. Budgets are another type of financial control tool that are used for planning and
controlling.
B. Keeping Track of Organization’s Information.
1. Managers deal with information controls in two ways: (1) as a tool to help them
control other organizational activities and (2) as an organizational area they need to
control.
2. Managers need right information at the right time and in the right amount to help
them monitor and measure organizational activities:
a) About what is happening in their area of responsibility.
b) About the standards in order to be able to compare actual performance with the
standard.
c) To help them determine if deviations are acceptable.
d) To help them develop appropriate courses of action.
3. A management information system (MIS) is a system used to provide managers
with needed information on a regular basis. It can be manual or computer-based.
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4. Managers must have comprehensive and secure controls in place to protect that
information.
5. Equipment such as laptop computers and even RFID (radio-frequency
identification) tags are vulnerable to viruses and hacking, so information controls
should be monitored regularly to ensure that all possible precautions are in place to
protect important information.
C. Keeping Track of Employee Performance.
1. Are employees doing their jobs as planned and meeting goals that have been set?
a) If not, employee counseling or employee discipline may be needed.
2. Equipment such as laptop computers and even RFID (radio-frequency
identification) tags are vulnerable to viruses and hacking, so information controls
should be monitored regularly to ensure that all possible precautions are in place to
protect important information.
D. Keeping Track Using a Balanced Scorecard Approach.
1. A balanced scorecard typically looks at four areas that contribute to a company’s
performance: financial, customer, internal processes, and people/innovation/growth
assets. According to this approach, managers should develop goals in each of the
four areas and then measure whether the goals are being met.
V. WHAT CONTEMPORARY CONTROL ISSUES DO MANAGERS CONFRONT?
A. Do Controls Need to be Adjusted for Cultural Differences?
1. Methods of controlling employee behavior and operations can be quite different in
foreign countries.
2. The differences in organizational control systems of global organizations are
primarily in the measurement and corrective action steps of the control process.
3. Managers of foreign operations of global corporations tend not to be closely
controlled by the home office.
a) Distance keeps managers from being able to observe work directly.
b) The home office of a global company often relies on extensive formal reports
for control.
c) The global company may also use the power of information technology to
control work activities.
4. Technology’s impact on control is most evident in comparing technologically
advanced nations with more primitive countries.
a) Organizations in technologically advanced nations use indirect control devices
—particularly computer-related reports and analyses— in addition to
standardized rules and direct supervision to ensure that activities are going as
planned.
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b) In less technologically advanced countries, direct supervision and highly
centralized decision making are the basic means of control.
5. Constraints on what corrective action managers can take may affect managers in
foreign countries.
a) Laws in some countries do not allow managers the option of closing facilities,
laying off employees, or bringing in a new management team from outside the
country.
6. Another challenge for global companies in collecting data is comparability.
Technology and the Manager's Job-Monitoring Employees
Summary
Technological advances have made the process of controlling much easier. But these advances
have also brought with them difficult questions regarding what managers have the right to know
and how far they can go in controlling employee behavior. Although controlling employees’
behaviors on and off the job may appear unjust or unfair, nothing in our legal system prevents
employers from engaging in these practices. Managers typically defend their actions in terms of
ensuring quality, productivity, and proper employee behavior.
Discuss This:
When does management’s need for information about employee performance cross the
line and interfere with a worker’s right to privacy? Discuss.
Is any action by management acceptable as long as employees are notified ahead of time
that they will be monitored?
Teaching Tips:
It is almost impossible for organizations to watch everything employees do. As soon as
organizations find a way to monitor one behavior, employees find a way to circumvent the
monitoring device or engage in another unapproved behavior. This struggle has been going on
since organizations first started. It also starts at a very early age. Have students brainstorm ways
that they have tried to outsmart their parents’ or other authority figures’ monitoring attempts!
B. What Challenges do Managers Face in Controlling the Workplace?
1. Is my work computer really mine? Do you think you have a right to privacy at
your workplace?
2. Employers can, among other things: read your e-mail (even confidential
messages), tap your work telephone, and monitor your computer work.
3. Managers feel they must monitor what employees are doing because employees
are hired to work, not to surf the Web checking stock prices, placing bets at online
casinos, or shopping for presents for family or friends.
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a) Recreational on-the-job Web surfing has been said to cost a billion dollars in
wasted computer resources and billions of dollars in lost work productivity
annually.
b) A survey of U.S. employers said that 87 percent of employees look at non
work-related Web sites while at work and more than half engage in personal
Web site surfing every day.
4. Managers want to ensure that company secrets aren’t being leaked.
5. The consequences of inappropriate workplace computer usage can be serious for
employees and companies.
C. Is Employee Theft on the Rise?
1. Nearly 85 percent of all organizational theft and fraud is committed by employees
—not outsiders.
2. Employee theft is defined as any unauthorized taking of company property by
employees for their personal use.
a) It can range from embezzlement to fraudulent filing of expense reports to
removing equipment, parts, software, and office supplies from company
premises.
3. Why do employees steal?
a) The industrial security people propose that people steal because the
opportunity presents itself through lax controls and favorable circumstances.
b) Criminologists say it’s because people have financial-based pressures (such as
personal financial problems) or vice-based pressures (such as gambling debts).
c) Clinical psychologists suggest that people steal because they can rationalize
whatever they’re doing as being correct and appropriate behavior (“everyone
does it,” “they had it coming,” “this company makes enough money and they’ll
never miss anything this small,” “I deserve this for all that I put up with,” and
so forth).
4. What can managers do?
a) The concept of feedforward, concurrent, and feedback control is useful for
identifying measures to deter or reduce employee theft.
b) Look at some suggestions for managing employee theft. (See Exhibit 14-7.)
D. What Can Managers do About Workplace Violence?
1. The U.S. National Institute of Occupational Safety and Health says that each year,
some 2 million American workers are victims of some form of workplace violence.
2. Anger, rage, and violence in the workplace are intimidating to coworkers and
adversely affect their productivity.
3. The annual cost to U.S. businesses is estimated to be between $20 billion and $35
billion.
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Chapter 14 – Foundations of Control
4. Dysfunctional work environments are characterized by:
a) Employee work driven by TNC (time, numbers, and crises).
b) Rapid and unpredictable change where instability and uncertainty plague
employees.
c) Destructive communication style where managers communicate in excessively
aggressive, condescending, explosive, or passive-aggressive styles; excessive
workplace teasing or scapegoating.
d) Authoritarian leadership with a rigid, militaristic mind-set of managers versus
employees; employees aren’t allowed to challenge ideas, participate in decision
making, or engage in team-building efforts.
e) Defensive attitude where little or no performance feedback is given; only
numbers count; and yelling, intimidation, and avoidance are the preferred ways
of handling conflict.
f) Double standards in terms of policies, procedures, and training opportunities
for managers and employees.
g) Unresolved grievances because there are no mechanisms or only adversarial
ones in place 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.
h) Emotionally troubled employees and no attempt by managers to get help for
these people.
i) Repetitive, boring work where there’s no chance of doing something else or for
new people coming in.
j) Faulty or unsafe equipment or deficient training, which keeps employees from
being able to work efficiently or effectively.
k) Hazardous work environment in terms of temperature, air quality, repetitive
motions, overcrowded spaces, noise levels, excessive overtime, and so forth.
To minimize costs, no additional employees are hired when workload becomes
excessive leading to potentially dangerous work expectations and conditions.
l) Culture of violence where there’s a history of individual violence or abuse;
violent or explosive role models; or tolerance of on-the-job alcohol or drug
abuse.
5. Exhibit 14-8 summarizes suggestions for managers to control workplace violence.
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