Management Chapter 15 Homework Managing Quality And Performance 399 The

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CHAPTER 15

MANAGING QUALITY AND PERFORMANCE

CHAPTER OUTLINE

Are You Ready to Be a Manager?

I. The Meaning of Control

A. Choosing Standards and Measures

B. The Balanced Scorecard

II. Feedback Control Model

A. Steps of Feedback Control

B. Application to Budgeting

III. Financial Control

A. Financial Statements

V. Total Quality Management

A. TQM Techniques

B. TQM Success Factors

VI. Trends in Quality Control

A. International Quality Standards

ANNOTATED LEARNING OBJECTIVES

After studying this chapter, students should be able to:

1. Define organizational control and explain why it is a key management function.

Organizational control is defined as the systematic process through which managers regulate

organizational activities to make them consistent with the expectations established in plans,

2. Explain the benefits of using the balanced scorecard to track performance and control of the

organization.

3. Explain the four steps in the control process.

Based on our definition of organizational control, a well-designed control system consists of the

following four key steps:

• Establish standards of performance. Managers define goals for organizational departments in

4. Discuss the use of financial statements and budgeting as management controls.

Budget and financial controls tell whether the organization is on sound financial footing and they

5. Contrast the hierarchical and decentralized methods of control.

An organization’s approaches to quality are based on its basic philosophy of control. With many

organizations moving toward participation and employee empowerment, a choice must be made

between the traditional bureaucratic and contemporary decentralized approaches. Bureaucratic

6. Identify the benefits of open-book management.

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7. Describe the concept of total quality management and major TQM techniques, such as

quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous

improvement.

Total quality management (TQM) is a philosophy of organization-wide commitment to

continuous improvement, with the focus on teamwork, increasing customer satisfaction, and

Benchmarking is the continuous process of measuring products, services, and practices against

the toughest competitors or those companies recognized as industry leaders. The key to

successful benchmarking lies in analysis. A company must honestly analyze its current

procedures and determine areas for improvement. A company carefully selects competitors

worthy of copying and emulates their internal processes and procedures.

8. Identify current trends in quality control, including ISO 9000 and corporate governance, and

discuss their effects on organizations.

International Quality Standards – Many countries have endorsed a universal framework for

quality assurance called ISO 9000, a set of international standards for quality management

LECTURE OUTLINE

INTRODUCTION

Control is an important issue facing every manager in every organization. At Rochester

Independent Practice Association, administrators have implemented new systems for cutting

costs and increasing efficiency, but they also need to find new ways to maintain the quality of

care, including the quality of the doctor-patient relationship. Other organizations face similar

Are You Ready to Be a Manager?

This questionnaire gives students an idea of the extent to which they use controls in their

activities.

I. THE MEANING OF CONTROL

INSTRUCTOR’S NOTES___________________________________________________________

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New Manager Self-Test: What Is Your Attitude Toward Organizational

Regulation and Control?

Managers have to control people for organizations to survive, yet control should be the right

amount and type. Companies are often less democratic than the society of which they are a part.

Enthusiastic new managers may exercise too much of their new control and get a negative

backlash. However, too little control may mean less accountability and productivity. The

challenge for new managers is to strike the right balance for the job and people involved. This

exercise helps students understand their beliefs toward the regulation of other people.

Organizational control is the systematic process through which managers regulate

organizational activities to make them consistent with the expectations established in plans,

targets, and standards of performance.

To effectively control an organization, managers require information about performance

Discussion Question #1: You’re a manager who employs a participative control approach.

You’ve concluded that corrective action is necessary to improve customer satisfaction, but first

you need to convince your employees that the problem exists. What kind of evidence do you

think employees will find more compelling: quantitative measurements or anecdotes from your

interactions with customers? Explain your answer.

Spotlight on Skills: Cyberslackers Beware: Big Brother is Watching

When employees have access to the Internet’s vast resources, and the ability to communicate

quickly via e-mail and instant messaging with anyone in the world, that’s got to be good for

productivity, right? Not necessarily, as many organizations are discovering. Many companies

are experiencing a growing problem with “cyberslackers,” people who spend part of their

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A. Choosing Standards and Measures

1. Managers increasingly recognize the need to measure intangible aspects of

performance to manage the value-creating activities of the contemporary

organization.

Exhibit 15.1: The Balanced Scorecard

B. The Balanced Scorecard

1. The balanced scorecard is a comprehensive management control system that

2. A balanced scorecard contains four major perspectives.

a. The financial performance perspective reflects a concern that the organization’s

activities contribute to improving short- and long-term financial performance.

3. Managers focus on various elements of the scorecard to set targets, evaluate

performance, and guide discussion about what further actions to take.

a. The balanced scorecard is not right for every organization.

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b. The simplicity of the system causes managers to underestimate the time and

commitment needed.

II. FEEDBACK CONTROL MODEL

INSTRUCTOR’S NOTES___________________________________________________________

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Exhibit 15.2: Feedback Control Model

A. Steps of Feedback Control

1. Establish Standards of Performance

a. Within the organization’s overall strategic plan, managers define goals for

organizational departments in specific, operational terms.

2. Measure Actual Performance

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a. Most organizations prepare formal reports of quantitative performance

measurements that managers review daily, weekly, or monthly.

3. Compare Performance to Standards

a. The third step in the control process compares actual activities to performance

standards.

Business Blooper: Metropark USA Clothing

Development of a new clothing company with high-end, expensive duds for ages 20-35

unraveled when Metropark USA went bankrupt in early 2011 and was forced to close all of its

69 stores in 21 states. Resources were put in to make the stores have the “high energy of a

nightclub,” but why wouldn’t shoppers just go straight to a club, if that’s what they really

4. Take Corrective Action

a. Managers also determine what changes are necessary; managers may encourage

employees to work harder, redesign the production process, or fire employees.

b. Managers in a participative control approach collaborate with employees to

determine the corrective action necessary.

c. Managers may take corrective action to change performance standards.

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Spotlight on Skills: Nick’s Pizza & Pub

Nick Sarillo started Nick’s Pizza & Pub because he couldn’t find a decent place in Chicago

suburb to take his three kids to eat. He also wanted to prove people wrong who told him

employees wouldn’t work hard, or they would steal. He knew they were wrong and he finally

Discussion Question #5: Think of a class you’ve taken in the past. What standards of

performance did your professor establish? How was your actual performance measured? How

was your performance compared to the standards? Do you think the standards and methods of

measurement were fair? Were they appropriate to your assigned work? Why or why not?

B. Application to Budgeting

1. Budgetary control sets targets for an organization’s expenditures, monitors results,

compare them to the budget, and makes changes as needed. A budget is created for

every division or department within an organization, no matter how small, as long as

it performs a distinct project, program, or function.

a. Expense budget. An expense budget includes anticipated and actual expenses for

each responsibility center and for the total organization. It may show all expenses

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d. Capital budget. A capital budget lists planned investments in major assets such

as buildings, trucks, and heavy machinery, often involving expenditures over

more than a year. A capital budget is necessary to plan the impact of these

expenditures on cash flow and profitability.

• Budgeting is an important part of organizational planning and control. Many

traditional companies use top-down budgeting, meaning that the budgeted

III. FINANCIAL CONTROL

INSTRUCTOR’S NOTES___________________________________________________________

______________________________________________________________________________

___________________________________________________________________________

A. Financial Statements

2. Two major financial statements—the balance sheet and the income statement—are

the starting points for financial control.

Exhibit 15.3: Balance Sheet

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a. The balance sheet shows the firm’s financial position with respect to assets and

liabilities at a specific point in time. It provides three types of information:

(1) assets—what the company owns—includes current assets and fixed assets.

Exhibit 15.4: Income Statement

b. The income statement, also called a profit-and-loss statement or P&L,

summarizes the firm’s financial performance for a given time interval, usually one

year.

IV. THE CHANGING PHILOSOPHY OF CONTROL

INSTRUCTOR’S NOTES___________________________________________________________

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___________________________________________________________________________

A. Hierarchical versus Decentralized Approaches

1. Hierarchical control involves monitoring and influencing employee behavior

through rules, policies, hierarchy of authority, written documentation, and reward

systems.

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a. Bureaucratic methods define explicit rules, policies, and procedures for employee

Exhibit 15.5: Hierarchical and Decentralized Methods of Control

Business Blooper: Air India

Former United Airlines pilot Bob Haygooni lasted at Air India only 16 months. Maybe it was

when he visited the cockpit and found the other pilots had used old newspaper to completely

2. Decentralized control relies on shared values and goals to control employee

behavior.

a. Managers operate on the assumption that employees are trustworthy and willing

to perform effectively without extensive rules and close supervision.

b. The organization places great emphasis on the selection and socialization of

Spotlight on Skills: United States Army

The United States Army recently decided to invite more than 140,000 members of the Army’s

online forums to begin a massive collaborative project. Their task was to rewrite seven of the

field manuals that give instructions and guidelines on all aspects of Army life. This initiative,

using the same software behind the online encyclopedia Wikipedia, was a significant cultural

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B. Open-Book Management

1. Open-book management allows employees to see the financial condition of the

company through charts, computer printouts, and meetings.

2. Open-book management shows the individual employee how his or her job fits into

the big picture and affects the financial future of the organization. It ties employee

rewards to the company’s overall success.

3. In some countries, managers have trouble running an open-book company because

the prevailing attitudes and standards foster confidentiality and secrecy.

a. Business people in China, Russia, and South Korea are not accustomed to

Exhibit 15.6: International Opacity Index:

Which Countries Have the Most Secretive Economies?

New Manager Self-Test: What Is Your Control Approach?

Control systems are designed and managed via a manager’s “systems” thinking. Systems

thinking considers how component parts of a system interact to achieve desired goals. Systems

4. The Opacity Index indicates the degree to which various countries are open regarding

economic matters.