Chapter 14: Control P a g e | 1
Effective Management 7th Edition
Chapter 14: Control
Pedagogy Map
This chapter begins with the learning outcome summaries and terms covered in the chapter,
followed by a set of lesson plans for you to use to deliver the content in Chapter 14.
Lesson Plan for Lecture (for large sections)
Lesson Plan for Group Work (for smaller classes)
Assignments with Teaching Tips and Solutions
Highlighted Assignments Key Points
What Would You Do? What steps can Caterpillar take to make sure that it does not
suffer during periods of declining sales?
Management Team Decision What steps can a company take to oversee and control the
performance of freelancers?
Additional Assignments Key Points
Management Team Decision Student groups are asked to formulate a new security policy
for the Department of Homeland Security.
Chapter 14: Control P a g e | 2
Learning Outcomes
14-1 Describe the basic control process.
The control process begins by setting standards, measuring performance, and then comparing
performance against the standards. The better a companys information and measurement systems, the
easier it is to make these comparisons. The control process continues by identifying and analyzing
14-2 Discuss the various methods that managers can use to maintain control.
The five methods of control are bureaucratic, objective, normative, concertive, and self-control (self-
management). Bureaucratic and objective controls are top-down, management-based, and measurement-
based control methods. Normative and concertive controls represent shared forms of control because they
evolve from company-wide or team-based beliefs and values. Self-control, or self-management, is a
14-3 Describe the behaviors, processes, and outcomes that today’s managers are choosing to
control in their organizations.
Deciding what to control is just as important as deciding whether or how to control. In most companies,
performance is gauged using financial measures alone. However, the balanced scorecard encourages
managers to measure and control company performance from four perspectives: financial, customers,
internal operations, and innovation and learning. Traditionally, financial control has been achieved
through cash flow analysis, balance sheets, income statements, financial ratios, and budgets. Another way
Chapter 14: Control P a g e | 3
Terms
balanced scorecard
behavior control
benchmarking
bureaucratic control
economic value added (EVA)
feedback control
feedforward control
normative control
Chapter 14: Control P a g e | 4
Lesson Plan for Lecture
Pre-Class Prep for You: Pre-Class Prep for Students:
Review the chapter and determine what points to
cover.
Bring PPT slides.
Read Chapter 14, bring book.
Warm Up Begin Chapter 14 by asking students the following questions:
What is control?
What does control mean for businesses?
What do companies have to do to be in control?
Content
Delivery
Lecture slides: Make note of where you stop so you can pick up at the next class
meeting. Slides have teaching notes on them to help you as you lecture.
Topics PowerPoint Slides Activities
14-1 The Control
Process
14-1b Comparison to
Standards
14-1d Dynamic,
Cybernetic Process
14-1e Feedback,
14-1f Control Isnt
1: Control
2: What Would You Do?
4: Comparison to
Standards
6: Cybernetic Control
Process
7: Control Methods
9: Control Isnt Always
14-2a Bureaucratic
14-2c Normative
14-2e Self-Control
11: Bureaucratic Control
13: Normative Control
15: Self-Control (Self-
Management)
Launch video from slide as
control
Chapter 14: Control P a g e | 5
14-3 What to Control?
14-3a The Balanced
Scorecard
14-3b The Financial
14-3c The Customer
14-3d The Internal
14-3e The Innovation and
Learning Perspective:
Controlling Waste and
Pollution
17: The Balanced
Scorecard
18: Southwest Airlines
Balanced Scorecard
Perspective
for Buying Fresh Fish
Different Measures of
Quality
23: Four Levels of Waste
Minimization
Special
Items
Spark a debate by asking students to respond to the following statement:
Self-control is the preferred control method.
Conclusion
and
Preview
Possible assignments:
1. Consider having students build a balanced scorecard for themselves. Although
this pushes the limits of the concept, identifying areas to measure and evaluating
their interdependence can provide a concrete and personalized example for those
2. Assign students to review Chapter 14 and read the next chapter on the syllabus.
Remind students about any upcoming events.
Lesson Plan for Group Work
Pre-Class Prep for You: Pre-Class Prep for Students:
Review the material to cover and modify your
lesson plan to meet your needs.
Provide enough annual reports so that each small
group in the class can consult one. Reports can be
from the same or different companies. If you have
an electronic classroom, have students consult an
online annual report.
Read Chapter 14, bring book.
Warm Up Begin Chapter 14 by asking students the following questions:
What is control?
What does control mean for businesses?
What do companies have to do to be in control?
Content
Delivery
Introduce the chapter and present The Control Process (Section 14-1).
After presenting the control process, break for the following activity:
“Set the Standard”
Divide the class into groups of 3 4 students each and give them 2 minutes to decide
on a company to use as the basis for the activity. Tell students to determine a set of
23 standards that the company could use as the foundation for its control process.
Then have students outline how they would implement the control process for each of
those standards. The text gives the example of pizza chains that set a standard of
Present Control Methods (Section 14-2).
Lecture on What to Control? (Section 14-3).
Chapter 14: Control P a g e | 7
Break for the following activity:
“Personal Scorecard”
Divide your class into groups of 3 4 students each and have each group act as a
discussion group in which students can build a personal balanced scorecard. Even
though students are producing an individual scorecard, they can consult group
members for feedback and advice.
Students should identify areas of their life that correspond to each of the quadrants
on the scorecard. Financial measures could include rate of savings or lower costs;
customers could include professors, parents, or employers; internal measures could
include simple things like frequency of exercise, time spent studying, or getting to bed
As an alternate to Personal Scorecard, do the following activity:
“Business Scorecard”
Divide your class into groups of 3 4 students each and give each group an annual report
of a well-known company. Have each group build a balanced scorecard for the company,
using the annual report as a reference when needed. Because Southwest Airlines was used
Special
Items
The Develop Your Career Potential exercise at the end of this chapter offers student the
opportunity to examine their failures in light of the concepts presented in the chapter.
Conclusion
Assignments:
2. If you have finished covering Chapter 14, assign students to review Chapter 14 and
read the next chapter on your syllabus.
Remind students about any upcoming events.
Chapter 14: Control P a g e | 8
Assignments with Teaching Tips and Solutions
What Would You Do Case Assignment
What Really Happened? – Solution
CATERPILLAR
In the case, you learned that while Caterpillar is the dominant manufacturer and servicer of construction
and earth-moving equipment worldwide, it has not yet mastered the cyclical nature of its industry, which
experiences sudden, extreme upswings and downswings in sales. While it offsets this unpredictability by
increasing the amount of refurbishing work it does on old and used equipment during downturns, it still
Youve just been named Caterpillars next chief executive officer (CEO), and youve got six months
before you take over from the current CEO. Caterpillar has entered a lot of businesses in the last two
decades and every part good, bad, and ugly is on the table for review. The critical issue is how to
better manage the cyclical nature of your industry, particularly downturns. What can the company do to
better prepare itself and its customers, suppliers, and dealers for the next severe downturn? Also, what
are your goals for company performance for the next downswing?
Control begins by setting standards, measuring performance, and then comparing performance to the
standards. If the performance deviates from the standards, then managers and employees analyze the
While almost all companies cut expenses, pay, and jobs during severe economic downturns, few
companies suffer the severe upturns and downturns that Caterpillar experiences in its business. In a very
broad sense, Caterpillars inability to manage these deep, quick upturns and downturns means that its
business is out of control. To be more precise, Caterpillar swings from dramatically outperforming its
goals (during good times) to being dramatically below goals (during bad times). The goal of the control
Chapter 14: Control P a g e | 9
product. But, by Thanksgiving week, two months later, he says, things really drove off a cliff. Sales in
2009, which had been estimated a year earlier at $55 billion to $57 billion, came in at $32 billion. But,
says Rapp, because Caterpillar had forced all of its managers to develop trough plans for their units, We
didn’t have to scurry around. We said, Pull the trough plans and do it now.
Guiding everyone in the company were three key goals. First, maintain cash flows and earn a profit, even
if Caterpillar was a smaller company than before. Second, maintain Caterpillars credit rating. This was
key to being able to handle the sudden recoveries or upturns that often followed Caterpillars downturns.
Third, keep paying the companys stock dividend, so that investors would not lose faith in Caterpillar, and
thus decrease its ability to raise capital, which would hurt its ability to expand. Caterpillar accomplished
all three. Says CEO Oberhelman, We weren’t in this position in the past, because we always came out [of
severe downturns] weak. We didn’t get through those cycles so well in the 80s and 90s.
How well did the trough teams execute the trough plans, and how well did those plans work? In
2010, Caterpillars stock outperformed the other 29 companies in the Dow Jones Industrial Average. End-
of-year earnings quadrupled from a year earlier, and Caterpillars stock performance for the year
exceeded Apples. CFO Rapp says, Im absolutely convinced that down the road, well look back on
2009 as the all-time great Caterpillar performance. Furthermore, Caterpillar was so profitable, as it
What can be done to make sudden increases in production more manageable for you and your suppliers?
Control is achieved when behavior and work procedures conform to standards and goals are
accomplished. By contrast, control loss occurs when behavior and work procedures do not conform to
standards. Maintaining control is important because control loss prevents organizations from achieving
their goals. When control loss occurs, managers need to find out what, if anything, they could have done
to prevent it. Usually, that means identifying deviations from standard performance, analyzing the causes
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Without cybernetic feasibility, what can Caterpillar do? When you have unpredictable events and
processes, rather than focusing on what you cant predict and control, focus on what you can. So
Caterpillar held discussions with its key suppliers to determine their readiness to expand and quickly
boost production. A number of core issues and problems were identified.
For example, every time that Caterpillars business surges, it knows that its suppliers are going to have
difficulty getting or generating the cash they need for sudden expansion. After all, these surges typically
follow severe downturns in business where cash flows are tight. Steve Wunning, Caterpillar group
president, says, Many of these smaller companies [i.e., suppliers] have breached their bank covenants.
When they come in and say they need to borrow more money because they’re hiring people and buying
more material, what are these banks going to say? They‘re probably going to say, Wait a minute. Since
Caterpillar and its suppliers also determined that Caterpillars tendency to change already made orders,
which can be handled during normal business periods, cant be handled by already stressed managers,
workers, and systems during periods of exponential growth. So Caterpillar agreed to implement freeze
periods, that is, three-month periods in which it promised not to change orders. So if Caterpillar tells a
supplier that it needs 10,000 widgets a month, the supplier knows for the next three months Caterpillar
will buy 30,000 widgets. This not only simplifies planning for Caterpillars suppliers, it helps the
suppliers convince their banks to lend them more money to expand. After the three-month freeze is over,
Caterpillar can vary its orders as it normally would, that is, based on immediate demand for its products.
A related approach is Caterpillars lane strategy in which Caterpillar tells customers that there are four
lanes of products they can order. First lane products contain the most common and popular options
Finally, Caterpillar required each of its suppliers to develop detailed, written plans for each part they
make that Caterpillar buys. Those plans explain what steps the supplier will take to meet a suddenly large
order for Caterpillar, and what problems the supplier needs to address to make that happen. Caterpillars
Finally, sudden upswings and downswings produce opportunities for your competitors to steal customers
by undercutting price, delivering products faster, or designing better products. What can Caterpillar and
its dealers do to decrease customer losses and defections? What can top management do to make sure it
keeps a stronger focus on customers?
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Most companies measure performance using standard financial and accounting measures such as return
on capital, return on assets, return on investments, cash flow, net income, and net margins. The balanced
scorecard encourages managers to look beyond such traditional financial measures to four different
perspectives on company performance. How do customers see us (the customer perspective)? At what
The second aspect of organizational performance that the balanced scorecard helps managers monitor is
customers. It does so by forcing managers to address the question, How do customers see us?
When it comes to top managements focus on customers, CEO Oberhelman spends one full day a week
visiting with clients. Steve McCandless, senior vice president of Garney Construction, Kansas City,
Missouri, which buys Caterpillar products, says, I’ve dealt with Cat for a lot of years. It’s a refreshing
The core of Oberhelmans strategy is for Caterpillars customers to make more money using our
equipment rather than anybody elses. While Caterpillars equipment is more expensive than the
competitions, after factoring in maintenance, down time, operating costs, how long the product will last,
and what you can sell it for when done, Caterpillars products are a value in the marketplace. For
example, Kenny Rush, vice president of Sellersburg Stone in Louisville, Kentucky, has owned a
Caterpillar 992 loader for over a decade. He says, We’ve run that machine since 1998, and it’s had 98
percent to 99 percent availability. It cost $1.5 million. But we ran it 22,000 hours, which is about 10
years, before replacing any major components.
And when Caterpillar machines break, or need parts or service, Caterpillars dealer network is there to
meet customers needs. CEO Greg Poole, of Gregory Poole Equipment, the Caterpillar dealer in Raleigh,
North Carolina, says, If you need a part, we probably have it here. If we don’t, you can order it as late as
Another significant way in which Caterpillar focused on customers and dealers was to significantly
redesign the controls for its heavy equipment, which traditionally had 15 levers, a steering wheel, and
several foot pedals with different functions. Controlling the machines was not only complex, requiring the
Chapter 14: Control P a g e | 12
Management Team Decision
MANAGING OR SPYING?
Purpose
The purpose of this exercise is to have students think about the costs and benefits of exercising control.
As more companies are allowing employees to telecommute, or choosing to work with outside
freelancers, they face the challenge of making sure that people are doing the work that they are supposed
to in the time that they are supposed to.
Setting It Up
Ask your students: If your boss at work kept track of everything you did on a computer, would you
consider it to be good management or spying?
Questions
1. Should this company use oDesks feature to monitor its contractors? Why or why not?
2. In your opinion, do the benefits of using oDesks surveillance feature outweigh the potential
costs?
Students responses will vary.
Practice Being a Manager
IN CONTROL OR CONTROL FREAK?
Exercise Overview and Objective
This exercise focuses on control issues in the context of a specialty sports equipment maker. Razors
Edge (RE) makes gear and provides services for a niche market of extreme sports enthusiasts,
professional guides, and explorers. Expert mountain climbers founded the company, and climbers and
adventurers staff it. As RE has grown from start-up to established company, it has begun to experience
problems with attendance and with service quality (response to customer needs and requests). This
exercise places students in the role of employees on control design teams. These teams are competing
to develop a control system that will address some of the problems at RE, while at the same time
preserving the adventurer personality that has contributed to the companys success.
Chapter 14: Control P a g e | 13
Preparation
It is a good idea to ask students to read the scenario in Step 1 before they arrive at the session in which
you will conduct the exercise. You may want to decide on team assignments in advance. Remember that
one team should be assigned the role of Company Leadership. These are the judges for the design
competition. Encourage students to read Step 2 before beginning the design competition. Teams should
carefully consider the elements listed in Step 2:
Paid vacation
In-Class Use
Each team should complete a one-page handwritten outline of their proposal. You may also use flip
charts. If flip charts are used, ensure that teams keep their chart hidden from the view of other teams until
time for presentation. These outlines may be bullet points, but should provide enough specific
information so that the judges (Company Leadership) understand their concept and main ideas. A
reasonable time limit for Steps 2 and 3 is probably 20 minutes.
Each team should be prepared to present their control system plan to Company Leadership (judging
group) at the conclusion of the design period. Each team should make a brief (1 2 minute) presentation.
At the end of the team presentations, allow the Company Leadership team a few minutes to confer,
and then ask them to announce their selection as winning proposal. You may also include second– and
third-place awards as time permits.
Following the announcement of winner(s), you should move directly to class debriefing/discussion.
The following questions in Step 6 should frame this discussion:
What tensions confronted you as you worked to design an approach to staffing control for
Razors Edge?
What trade-offs and challenges might you anticipate for the company when it implements the
winning proposal?