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McKee Chapter 12:
ORGANIZATIONAL CONTROLS: PEOPLE,
PROCESSES, QUALITY, AND RESULTS
CHAPTER OBJECTIVES
12.1 Define organizational control.
12.2 Understand which historical perspectives help us understand control in
organizations.
12.3 Describe common control systems.
CHAPTER SUMMARY
Chapter 12 begins by examining the organizational control process. Then
highlights the historical perspectives that influenced the control processes used in
organizations today. Such influences include Taylor and his scientific management, as
well as Mayo and his Hawthorne studies, and Follett’s work which led the way to the
modern human relations approach to control.
The chapter then goes on to explain what sorts of things organizations typically
need to control, such as finance, customer service, and quality. In this section, we will
This chapter also explores several common types of control systems, including the
familiar bureaucratic system, as well as the objective controls and levers of control. From
there, we’ll investigate the steps in the control process: standards and metrics, how
performance is measured, comparing performance to standards, taking corrective action,
feedback process.
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At the end of the chapter, there is a discussion of how HR can support control
processes in organizations, exploring performance concepts such as performance
CHAPTER OUTLINE
Teaching Objective: To increase awareness of the importance of control processes in
both management and leadership functions
I. What Is the Organizational Control Process?
A. Control process – an organization’s systems for establishing standards to achieve
II. Which Historical Perspectives Help Us Understand Control in Organizations?
A. Frederick Taylor – defines his scientific management theory
1. The basis for many control processes in modern organizations
2. Taylor proposed four principles of scientific management:
a. Develop a science for each element of work.
B. Elton Mayo – one of the founders of the human relations movement – started
around the beginning of the twentieth century and emphasized placing people,
interpersonal relationships, and group behavior at the center of workplace studies.
1. Conducted the Hawthorne Studies at Western Electric: 1924 to 1932
2. Hawthorne Studies — a series of research projects demonstrating that when
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behavior.
III. What Do Companies Try To Control Today?
A. Finances, Customer Service, and Quality
1. Controlling Financial Performance
a. Financial controls – help plan how money is earned and spent, track
financial activities, and provide spending guidelines.
b. Budget – outlines when and how money is spent within a company and
who is spending it
insight into what can be done to improve a company’s results.
g. Beyond Budgeting – a control model that is intended to support more
adaptive, decentralized, responsive, and ethical organizations. Beyond
Budgeting is based on 12 major principles. Six are classified as
adaptability principles:
(1) Outperform the competition.
(2) Reward teams for their successes.
organizational system.
• The remaining six principles are classified as decentralization or
devolution principles:
(1) Develop a climate of performance that is based on sustained
competitive success.
(2) Build committed teams that are united under a shared purpose, values,
2. Controlling Service: Customer Relationship Management
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a. Customer-centric approach to business aiming to implement a customer
intimacy strategy and/or establish a customer-friendly brand image.
3. Quality Control
a. Operations Management – The transformation of inputs—materials,
labor, and ideas—into outputs such as products or services
b. Business process reengineering (BPR) – uses available technology and
f. ISO 9000 – address quality management – the standards are rooted in
eight quality management principles
(1) Focusing on the customer,
(2) Providing leadership,
g. ISO 1400 – addresses environmental management
(1) The key points of ISO 14000 are identifying the ways in which
companies impact the environment, improving environmental product
labeling, promoting company life cycle analyses, and evaluating
IV. What Are Common Control Systems
A. Bureaucratic control – uses specific rules, standards and authority to achieve
planned and desired organizational outcomes
1. The Informal Rules Of Bureaucracy
B. Objective Controls Go Beyond Rules – a control system that focuses on
measurable behavior and outputs through the use of regulations and hierarchy
1. Output control – outcomes are measured against financial performance and
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C. Levers of control- A control system that relies on various levers such as
organizational values, rules, feedback systems, and focused involvement in
decision making.
V. What Are The Typical Steps in the Control Process?
A. Creating Standards and metrics – measures established to define quality and
efficiency criteria.
1. Standards and metrics are measures established to define quality and
efficiency – can be either quantitative or qualitative
E. Feedback Processes
1. Feedback control – type of control in which information about performance
is gathered and shared after the fact
VI. How Do Corporate Governance, Audits, and Legislation Support Ethical Behavior?
A. Corporate governance – the way in which an organization is controlled,
administered or directed, as described by the processes, policies, laws, regulations
and customs of that organization
1. Corporate charter – an articulation of policies, rules and procedures
addressing a variety of governance issues
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4. Publicly traded company-A company that issues shares of ownership, or
stocks, that are traded on the open market.
5. Shareholders- The individuals or groups that own shares of a company.
B. Audit – a formal review ensure certain processes have been fully and accurately
managed and reported
C. Legislation and Sarbanes-Oxley
1. Legislation and Controls
a. Regulations can be local, state, or federal level
b. They dictate how and where a company can do business
VII. What Can HR Do To Help Control for Effectiveness and Efficiency at Work?
A. Performance Management Process: 5 steps
1. Planning work and setting expectations
2. Continually monitoring performance
B. Gathering Information about Employee Performance
1. 360-Degree Review- a review process in which a picture of an employee or
C. Performance Review
1. Performance appraisal is a process of sharing an evaluation of an
employee’s performance in a face–to-face meeting that usually takes place
between an employee and his or her manager, although in some organizations,
VIII. What Can We All Do To Enhance Effectiveness and Efficiency at Work
A. Bringing Financial, Customer, and Quality Controls To Your Attention
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1. The outcomes that your organization achieves are your responsibility
DISCUSSION QUESTIONS
Discussion Questions for Objective 12.1:
1. Think of an organization you know well, such as a club, a team, or your workplace.
How does this organization control behavior? Resources? Finances?
Suggested Answer:
Student responses will vary. Students may be familiar with the student clubs or a social
2. Have you ever been part of a workplace that lacked sufficient controls? How did this
impact the organization? How did you and other team members respond?
Suggested Answer:
Student responses will vary. Under the lacking sufficient control situation, the
Discussion Questions for Objective 12.2:
1. Have you ever experienced the Hawthorne effect at work or at school? If so, what
happened, and how did your manager’s or teacher’s attention affect your morale and
productivity?
Suggested Answer:
Student responses will vary. Typically, when a manager or teacher increases their
attention on someone, that person usually responds favorably by being more productive,
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2. According to Mary Parker Follett, what is the difference between using “power over”
people and “power with” people? Describe a situation in which the “power with” strategy
would be more effective.
Suggested Answer:
Student responses will vary. Any management situation where the manager empowers his
Discussion Questions for Objective 12.3:
1. Consider a group or organization you work with that has a budget. How could this
group or organization institute Beyond Budgeting principles into its organizational
control systems? What impact might this approach to budgeting have on the group or
organization’s management of its money?
Suggested Answer:
Student responses will vary. Beyond Budgeting is a control model that is intended to
2. Imagine that your school or workplace plans to implement TQM, Six Sigma, or Lean
Management. What changes might you see in how resources are used? In how people are
managed?
Suggested Answer:
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Student responses will vary. The goal of TQM, Six Sigma, or lean management is to
increase efficiency without sacrificing quality. Resources are used in the most effective
Discussion Questions for Objective 12.4:
1. Brainstorm a list of some of the bureaucratic controls that guide your behavior as a
student. Which of these do you believe are necessary or helpful and which do you believe
are unnecessary or harmful? Explain.
Suggested Answer:
Student responses will vary. Some helpful bureaucratic controls that may be mentioned
2. What control systems do you believe are linked to productivity and effectiveness of
workers in Japan, the United States, Russia and South Africa? Please support your
answer with Internet or other research and avoid assumptions and biases.
Suggested Answer:
Discussion Questions for Objective 12.5:
1. Think about the last time you wrote a paper or report for school. Consider how to
create standards, how to measure your performance, how to compare your performance to
standards, and how to take corrective action to create a control process that will enable
you to get an A on the next paper you write.
Suggested Answer:
2. We’ve all worked for organizations with bosses who we believed judged our
performance unfairly or gave us inaccurate feedback. Think back to one of those times,
and consider how it affected your behavior. If you had been your manager back then,
what would you have done to make sure this feedback was delivered more effectively?
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Suggested Answer:
Discussion Questions for Objective 12.6:
1. Do you believe that laws such as SOX were a reasonable or effective response to the
corporate accounting scandals of the time? Why or why not?
Suggested Answer:
Student responses will vary. SOX was enacted as a result of a number of major corporate
and accounting scandals in the early 2000s, including those at Enron, Arthur Andersen,
2. Have you ever worked for—or been served by—an organization in which the customer
really was the center of all decisions? How was this organization different from others
you have experienced?
Suggested Answer:
Student responses will vary.
Discussion Questions for Objective 12.7:
1. Form a group of three to four people from your class. Use your combined knowledge
of HR’s role in an organization to create a bulleted list of ways to fulfill each one of the
five steps in the performance management process given in Exhibit 12.17.
Suggested Answer:
Student responses will vary. The five steps in the performance management process are
1. Planning work and setting expectations
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2. Have you ever had a formal performance appraisal with a supervisor? Describe the
interaction, and consider how it made you feel before, during, and after. Have you ever
discussed your performance in an informal setting with a supervisor? How did this differ
from the appraisal?
Suggested Answer:
Discussion Questions for Objective 12.8:
1. Considering a group, team, or organization you belong to, reflect on the ways in which
you take personal responsibility for controlling your own—and others’—effectiveness
and efficiency. What do you do? What could you do more or less of to improve your
contribution to the control process?
Suggested Answer:
Student responses will vary. One important way to take control of one’s effectiveness and
2. Think about a group situation in which you are a leader (formal or informal). Now,
think about a challenge this group has faced and your emotional response to this
challenge. How do you think your emotions impacted other people, the situation, and the
outcomes?
Suggested Answer:
Student responses will vary.
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END OF CHAPTER ACTIVITIES: EXPERIENCING LEADERSHIP
Leading in a Global World: Poor Quality for Sale
One way many organizations have increased efficiency and productivity while lowering
costs is offshoring or outsourcing. With China being one of the primary providers of
1. Research companies that have had quality issues linked to their outsourcing or
offshoring practices and their suppliers, vendors, or joint venture partners. How has
substandard quality from outsourcing or offshoring partners affected those companies’
reputations? Their profitability? What steps did the companies take to remedy the
problem? How did they respond to government and public outcry?
2. In small groups, discuss how much influence the government—through agencies such
as the FDA in the United States, for example—should have over organizational control
processes. What do you think organizations can do to control the standards of the
products they buy to resell under their own name?
Suggested Answer:
Student responses will vary. Regulatory agencies such as the FDA- Food and Drug
Administration have a lot of control over the safety of food, labels, and what can and
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Leading with Emotional Intelligence: Try Being a Little More Human
The human relations movement was spearheaded by people like Elton Mayo and Mary
Parker Follett. Their focus on the interdependence of employees, management, and the
organization set the pace for people-oriented management control processes. Frederick
Taylor, on the other hand, is known as the father of scientific management. Taylor’s
focus was on efficiency.
1. Research some organizations within an industry (e.g. the garment industry), where
tasks and efficiency are still the focus and scientific management seems to be a viable
philosophy. What type of control processes do they employ to maintain high productivity
and efficiency? Where do people fit into the organizational equation? Do you think that
scientific management is a legitimate framework in these companies? Why or why not?
2. Research some organizations that make people the primary focus. Many of these
organizations refer to their employees as internal customers. How does treating
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employees like customers change the control process from task-focused to human
relations-focused? Discuss how treating employees with respect and empathy can
actually increase productivity and efficiency.
Suggested Answer:
Student responses will vary. Companies like Zappos and Tom’s Shoes are very people
Leading with Critical Thinking Skills: Making the Grade—or Not
Control processes take many different forms in organizations. Some organizations define
their vision and mission, set goals and objectives related to the vision/ mission, and then,
literally, “go about their business” in order to meet those stated goals and objectives. At
any point in the business process, control systems can be applied to measure quality,
efficiency, and profitability.
In addition to being an educational facility, your school is a business. Therefore, it
controls and measures, among other things, the quality of the faculty it hires and of the
students it admits by setting performance standards for both.
1. Identify the various control processes your school has implemented to ensure quality,
efficiency, and profitability. For instance, research the metrics and standards of your
school. What is the minimum GPA needed for graduation? The minimum GPA for your
3. Interview a faculty member about how he or she is measured on performance. Describe
the evaluation process for faculty. How often are they reviewed for their performance?
What different points are faculty evaluated on? Do faculty members think the
performance measurement process is fair and/or right for the students—one of their
primary “customers”? Why or why not?
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Suggested Answer:
Student responses will vary. In one school let’s say there may be a minimum GPA for
initial entrance, to join a club or Greek life, and of course to graduate. Most of the time
the GPA minimum requirement may be around a 2.5 but for some organizations and to
Ethical Leadership: Ranking and Yanking
Organizations are expected to encourage ethical behavior among their employees. Most
companies do; unfortunately, some do not. Imagine that you work as a salesperson for
one of these unethical companies. Your fictitious employer not only encourages unethical
behavior, but bases your review and compensation upon your compliance with these
practices through a system commonly referred to as “rank-and-yank.” Your manager has
made it clear that neither poor performance nor questions about the company’s business
practices will be tolerated. You know the manager isn’t bluffing; you’ve seen a friend
and coworker who openly disagreed with company policy be bullied and intimidated by
management before being fired. In other words, you know you have to play by the
company’s rules if you want to get ahead keep your job—even if that means going
against what you know is right.
1. If you are like most people, losing your job will cause extreme hardship. So, you might
be tempted to rationalize behavior you would not otherwise accept in yourself or others.
How might you rationalize your behavior if you worked for this company? Make a list of
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• Would it matter if these practices were being investigated for their legality?
• Who, ultimately, holds accountability for your actions as an employee?
If you need to, refer back to Chapter 2 for information about handling ethical dilemmas.
Suggested Answer:
Student responses will vary. In an unethical workplace, certain actions that take place
ADDITIONAL SUPPORTING MATERIALS
VIDEOS
• Jack Welch on Six Sigma
“Jack Welch talks about how six sigma makes the difference in quality.”
• Ten Commandments of Lean Manufacturing & Six Sigma
“Ron Pereira explains what kaizen is, what it takes to do kaizen, as well as ten guiding
principles all continuous improvement practitioners (lean manufacturing and six sigma)
• Lean Manufacturing Example Toyota Plant Kentucky
• Corporate Governance Failures
“A collage of video clips of corporate governance failures, such as Enron and the sub-
• Effects of Enron Fraud
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• WorldCom – What Went Wrong
• Lehman Hearings: Who’s auditing the auditors?
“Why isn’t Ernst & Young testifying at the Lehman hearings today too?,” asks Francine
McKenna, an accounting consultant who writes the blog re: The Auditors, in this video
interview with The Deal. A group of unsecured creditors of Lehman Brothers Holdings
Inc. has asked the bankruptcy court to order that Ernst & Young LLC produce certain
INDIVIDUAL EXERCISES
1. Have students break into teams. Have them brainstorm the many types (or systems) of
control that are in place on campus, e.g. class registration, library borrowing privileges,
2. BP has become a classic text book example of cutting corners to save a little money in
the short run. In the long run, they have been talking about the possibility of bankruptcy
3. Have your students read the four short paragraphs below. Divide the class into teams
of 3-4 students. Their task is to identify the most effective and efficient type of
communications to be used, from a manager’s perspective, in each situation (according to
what they have studied in this chapter).
a. After a lot of soul searching, I have decided to resign from my job. I have not
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d. I like you, too, Ms. Jameson. I don’t usually mix work and my private life but, in your
case, I am happy to make an exception as long as our supervisors don’t find out about
this. Let’s meet at Tony’s Pizzeria for an appetizer at 7:00 PM., O.K.?
Choices of communication students have available for this exercise:
TEAM EXERCISE
Weathering Heather
Break the class into triads. One student is the manager. One is “Heather”. The third
student is the observer. Tell students to read the scenario below. The role of manager is to
give Heather feedback on her performance. Have the teams discuss what kind of control
can the manager suggest or just implement? Should Heather be terminated or put on
another, more strict, performance plan? Where does emotional intelligence factor into
this scenario?
Heather has been on your team for 2 years. She has been counseled on her tardiness
ADDITIONAL RESEARCH
Internal Locus of Control – Interdisciplinary and Cross-Cultural Tie
Many factors may contribute to internal and external loci of control. Mary Douglas
(1988) points out that the boundaries of human perception of power may be shifted by
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