Chapter 08 – Control, Change, and Entrepreneurship
8-1
Chapter 08
Control, Change, and Entrepreneurship
Learning Objectives 8-2
Key Definitions/Terms 8-2
Chapter Overview 8-3
Lecture Outline 8-3
Lecture Enhancers 8-19
Management in Action 8-21
Building Management Skills 8-24
Managing Ethically 8-26
Small Group Breakout Exercise 8-27
Be the Manager 8-27
Case in the News 8-28
Supplemental Features 8-30
Manager’s Hot Seat 8-30
Instructor’s PowerPoint Slides 8-31
CHAPTER CONTENTS
Chapter 08 – Control, Change, and Entrepreneurship
8-2
LO 8-1. Define organizational control, and explain how it increases
organizational effectiveness.
LO 8-2. Describe the four steps in the control process and the way it
operates over time.
LO 8-4. Explain how clan control or organizational culture creates an
effective organizational architecture.
LO 8-5. Discuss the relationship between organizational control and
LO 8-6. Understand the role of entrepreneurship in the control and change
process.
benchmarking: The process of comparing one
company’s performance on specific dimensions
with the performance of other, high-performing
organizations.
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.
bureaucratic control: Control of behavior by
concurrent control: Control that gives managers
immediate feedback on how efficiently inputs are
being transformed into outputs so managers can
correct problems as they arise.
control systems: Formal target-setting, monitoring,
evaluation, and feedback systems that provide
managers with information about how well the
organization’s strategy and structure are working.
entrepreneurs: People who notice opportunities
LEARNING OBJECTIVES
KEY DEFINITIONS/TERMS
Chapter 08 – Control, Change, and Entrepreneurship
feedforward control: Control that allows
managers to anticipate problems before they arise.
management by objectives (MBO): A goal-setting
process in which a manager 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.
operating budget: A budget that states how
managers intend to use organizational resources to
achieve organizational goals.
organizational goals.
top-down change: A fast, revolutionary approach
to change in which top managers identify what
needs to be changed and then move quickly to
implement the changes throughout the organization.
This chapter examines the nature of organizational control and describes the four steps of the control
process. It also discusses three types of systems available to managers to control and influence
organizational members: output control, behavior control, and clan control. Then, the important issue
NOTE ABOUT INSTRUCTOR’S POWERPOINT
SLIDES
The Instructor PowerPoint Slides include most
Student PowerPoint slides, along with additional
material that can be used to expand the lecture.
Images of the Instructor PowerPoint slides can be
found at the end of this chapter on page 8-31.
(INSTRUCTOR’S POWERPOINT SLIDE 1)
Chapter Title
CHAPTER OVERVIEW
Chapter 08 – Control, Change, and Entrepreneurship
Management Snapshot (pp. 259-260)
Zmail Policy Helps Employee Productivity
How Can Managers Create a New Culture?
Overuse of email and the problems surrounding it often hinder employee effectiveness
and efficiency. Recent research suggests that the average worker spends more than 13
hours per week on email. Vynamic has developed a policy that can help managers and
workers handle email so that the quality of their work doesn’t suffer. It’s called the
Zmail policy.
Several years ago, Vynamic employees started to complain about the stress of constant
email contact at all hours. For example, an employee checks email before going to
sleep. Next thing the person knows, he or she is now thinking about the email instead of
getting a restful stretch of “ZZZs.” Thus, the Zmail policy was born—Vynamic
employees (including managers) are requested not to send emails between 10 p.m. and 6
a.m. during the week and all day Saturday and Sunday. The company claims that
unplugging from email and mentally disconnecting from work is not only liberating, it
might also help employees become more productive after a good night’s sleep.
The following list can help managers and employees manage the email challenge:
• turn off notifications
• do not check email more than three times a day
• use alternative modes of communication than email
• flag emails that require more thought
• use group lists
• create folders to store emails
• empty the trash at the end of the day
I. What Is Organizational Control?
A. Controlling is the process whereby managers
LO 8-1: Define organizational
control, and identify the
main output and behavior
controls managers use to
Chapter 08 – Control, Change, and Entrepreneurship
8-5
2. Control involves keeping an organization on
track and anticipating events that might occur.
3. It is also concerned with keeping employees
motivated, focused on the important problems
facing the organization, and working together to
make changes that improve organizational
performance.
B. The Importance of Organizational Control: A
control system contains the measures or yardsticks that
allow managers to assess how efficiently the
organization is producing goods and services.
1. Without a control system in place, managers
have no idea how their organization is performing
and how its performance can be improved.
2. Organizational control is important in
determining the quality of goods and services
because it gives managers feedback on product
quality.
improvements to quality.
4. Managers can make their organizations more
system to evaluate how well customer-contact
employees are performing their jobs,
performance levels.
6. Controlling can raise the level of innovation in
C. Control Systems and IT: Control systems are
formal target-setting, monitoring, evaluation, and
and structure are working efficiently and effectively.
1. An effective control system has three
POWERPOINT SLIDES 8-4 TO 8-11
Chapter 08 – Control, Change, and Entrepreneurship
characteristics:
a. It is flexible enough to allow managers to
respond as necessary to unexpected events
b. It provides accurate information
c. It provides managers with the information in
a timely manner.
2. New forms of IT have revolutionized control
systems because they facilitate the flow of accurate
the quality of the inputs received from them.
the source of the problem.
D. The Control Process: The control process, whether
TEXT REFERENCE
MANAGEMENT INSIGHT:
The Control Process in Action in
Afghanistan
Two electrical engineers were deployed
to Afghanistan to assess and improve the
energy stability of forward-deployed
troops. Their work followed the four
steps of the control process.
energy-using devices.
corrective action if the standard is not
being achieved. The engineers initiated
set up to do their own quality control.
(pp. 270-272)
8-7
1. Step 1: Establish the standard of performance,
goals, or targets against which performance is to
be evaluated.
a. The standards of performance that managers
select measure efficiency, quality,
responsiveness to customers, and innovation.
b. Performance standards selected at one level
affect those at the other levels, and ultimately
i. the actual outputs that result from the
behavior of their members
ii. the behaviors themselves (hence the
terms output control and behavior control).
b. In general, the more non-routine or complex
managers might decide they set performance
standards too low and may raise them for the
next period to challenge their subordinates.
b. If performance is too low and standards
were not reached, or if standards were set so
Chapter 08 – Control, Change, and Entrepreneurship
II. Output Control
All managers develop a system of output control for
their organizations. The three main mechanisms that
managers use to assess output or performance are
financial measures, organizational goals, and operating
budgets.
A. Financial Measures of Performance: Top
by its total assets, is the most commonly used
financial performance measure.
b. Operating margin is calculated by dividing
have the resources to meet claims for short-
term creditors.
managers are creating value from assets.
so excess inventory is not carried.
LO 8-3: Identify the main output
controls and discuss their
advantages and
disadvantages as means
of coordinating and
motivating employees.
POWERPOINT SLIDES 8-12 TO 8-20
TEXT REFERENCE
create and communicate data. All this
information collectively has been dubbed
“big data.” It is creating datasets so large
that typical database software cannot
that the report points out it cannot be
filled through hiring. Organizations may
Chapter 08 – Control, Change, and Entrepreneurship
8-9
b. Days sales outstanding provide
information on how efficiently managers are
collecting revenue from customers.
5. Financial results inform managers about the
results of past decisions, but do not tell them how
to find new opportunities to build competitive
advantage in the future. To encourage a future
oriented approach, organizational goals are
needed.
B. Organizational Goals: After the top managers
have set the organization’s overall goals, they then
establish performance standards for the various
divisions and functions.
1. These standards specify for divisional and
functional managers the level at which their
units must perform if the organization is to
achieve its overall goals.
2. Divisional managers then develop a
business- level strategy that they hope will
allow them to achieve that goal.
they specify the functional goals that managers
of different functions need to achieve to allow
the division to achieve its goals.
4. In turn, functional managers establish goals
that first-line managers and non-managerial
employees need to achieve to allow the
5. It is vital that the goals set at each level
harmonize with the goals set at other levels.
them.
that will challenge and stretch managers’
Chapter 08 – Control, Change, and Entrepreneurship
8-10
C. Operating Budgets: The next step in developing an
output control system is to establish operating budgets.
1. An operating budget is a blueprint that states
how managers intend to use organizational
resources to achieve organizational goals
efficiently.
2. Managers at one level allocate to subordinate
managers a specific amount of resources to
produce goods and services.
their ability to stay within the budget and to make
the best use of resources.
a stand-alone responsibility center, and then
evaluate each division’s contribution to corporate
performance.
a. Managers of a division may be given a fixed
budget and evaluated on the amount of goods
or services they can produce from it (a cost or
expense budget approach).
b. Or, managers may be asked to maximize the
revenues from the sales of goods and services
produced (a revenue budget approach).
c. They may also be evaluated on the
difference between the revenues generated and
1. Managers must be sensitive to how they use
output control and constantly monitor its effects at
all levels in the organization. Output controls
should serve as a guide to appropriate action.
Chapter 08 – Control, Change, and Entrepreneurship
III. Behavior Control
Behavior control, along with output control, is a
method of motivating employees. There are three
mechanisms of behavior control that managers can use:
direct supervision, management by objectives, and
rules and standard operating procedures.
A. Direct Supervision: The most immediate and
potent form of behavior control is direct supervision by
managers.
1. Under direct supervision, managers actively
monitor and observe, teach, and correct
subordinates.
2. When managers personally supervise
subordinates, they lead by example and in this
way, help subordinates develop and increase their
own skills.
3. Problems associated with direct supervision
include the following:
a. It is very expensive because a manager can
personally manage only a small number of
subordinates effectively. For this reason,
output control is usually preferred over
behavior control.
subordinates if they feel that they are not free
to make their own decisions.
a job is, the more difficult it is for a manager
to determine how well an employee is
performing.
POWERPOINT SLIDES 8-21 TO 8-25
TEXT REFERENCE
Management Insight: Netflix Lacks
Bureaucratic Control—On Purpose
Netflix, a company that offers on-
demand Internet streaming of movies,
TV shows, and original content, as well
as DVDs by mail, uses little bureaucratic
control within its organizational
framework. There are no traditional
performance appraisals, no formal
tracking of vacation time for managers,
and no performance-based bonuses.
The following five ideas define Netflix’s
control philosophy: 1) hire, reward, and
tolerate only fully formed adults, 2) tell
the truth about performance, 3) managers
own the job of creating great teams, 4)
leaders own the job of creating the
company culture, and 5) good talent
managers think like businesspeople and
innovators first and like HR people last.
Netflix went from 600,000 members in
2002 to more than 50 million global
members in 2014. The company has been
successful despite having little
bureaucratic control.(pp. 282–283)
Chapter 08 – Control, Change, and Entrepreneurship
involves three steps.
a. Step 1: Specific goals and objectives are
established at each level of the organization.
b. Step 2: Managers and their subordinates
together determine the subordinates’ goals.
c. Step 3: Managers and their subordinates
periodically review the subordinates’ progress
toward meeting goals.
2. Companies in which responsibilities have been
decentralized to empowered teams, MBO works
somewhat differently.
a. Managers ask each team to develop a set of
goals and performance targets that the team
hopes to achieve.
b. Managers then negotiate with each team to
establish its final goals and the budget the
team will need to achieve them.
c. Rewards are linked to team performance,
not to the performance of any one team
member.
C. Bureaucratic Control: When direct supervision is
too expensive and MBO is inappropriate, managers
a. Rules and SOPs guide behavior and specify
what employees are to do when they confront
a problem.
b. It is the responsibility of a manager to
develop rules that allow employees to perform
Chapter 08 – Control, Change, and Entrepreneurship
again. There is no need to monitor the outputs
of behavior because standardized behavior
leads to standardized outputs.
D. Problems with Bureaucratic Control: With a
bureaucratic control system in place, managers can
manage by exception and intervene and take corrective
action only when necessary.
1. However, managers need to be aware of the
number of problems associated with bureaucratic
control, which can reduce organizational
effectiveness.
a. Establishing rules is always easier than
discarding them. If the amount of red tape
becomes too great, decision making slows
down. This sluggishness can imperil an
organization’s survival.
b. Because rules constrain and standardize
behavior, there is a danger that people become
so used to automatically following rules that
they stop thinking for themselves. Innovation
is incompatible with the use of extensive
bureaucratic control.
c. Bureaucratic control is most useful when
organizational activities are routine and when
employees are making programmed decisions.
It is less useful where nonprogrammed
decisions have to be made and managers have
to react quickly to changes.
E. For many of the most significant organizational
activities, output control and behavior control are
inappropriate, for the following reasons:
1. A manager cannot evaluate the performance of
Chapter 08 – Control, Change, and Entrepreneurship
quality of performance.
IV. Organizational Culture and Clan Control
A. Organizational culture is 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 is the control
exerted on individuals and groups in an organization
by shared values, norms, standards of behavior, and
expectations.
B. Adaptive Cultures versus Inert Cultures
1. An adaptive culture controls employee
attitudes and behaviors.
c. It develops an emphasis on entrepreneurship
and respect for the employee and allows the
use of organizational structures.
2. Inert cultures lead to values and norms that fail
to motivate or inspire employees.
and have little incentive or motivation to
perform beyond minimum work requirements.
V. Organizational Change
Chapter 08 – Control, Change, and Entrepreneurship
organization away from its present state and toward
some desired future state to increase its efficiency and
effectiveness.
1. There is a fundamental tension or need to
balance two opposing forces in the control process
that influences the way organizations change.
2. Even though it is important to adopt the correct
set of output and behavior controls to improve
efficiency, because the environment is dynamic
and uncertain, employees also need to feel that
they have the autonomy to depart from routines as
necessary to increase effectiveness.
B. Assessing the Need for Change
1. Organizational change can affect practically all
aspects of organizational functioning, including
organization structure, culture, strategies, control
systems, and groups and teams, and human
resource management systems, as well as critical
organizational processes such as communication,
motivation, and leadership.
complex matter because change disrupts the status
4. Organizational learning, the process through
which managers try to increase the ability of
5. Assessing the need for change calls for two
important activities: recognizing that there is a
making it difficult to recognize that change is
LO 8-4: Explain how clan control
or organizational culture
creates an effective
organizational architecture.
POWERPOINT SLIDES 8-26 TO 8-28
TEXT REFERENCE
MANAGEMENT INSIGHT: How
Philanthrofits Help Users Help
Charities
The popularity of a new category of
fitness apps provides an example of how
a control system can use internalized
values and norms. “Philanthrofits” are
apps that donate money to charity based
on the behaviors of their users.
There are many Philanthrofit apps on the
market. Charity Miles and stickK
represent two ways of leveraging users’
internalized values and norms to
influence behavior. Charity Miles allows
the goal. Charity Miles donates money
when users perform their activities, and
user does not live up to the contract.
cause received the money, he or she
might feel OK about breaking the
contract. However, if the user chooses an
Chapter 08 – Control, Change, and Entrepreneurship
needed.
b. Thus, during the first step in the change
process, managers need to recognize that there
is a problem that requires change.
c. To discover the source of organizational
problems, managers need to look both inside
and outside the organization.
C. Deciding on the Change to Make: Once managers
have identified the source of the problem, they must
decide what they think the organization’s ideal future
state would be and begin planning how they are going
to attain the organization’s ideal future state.
1. This step also includes identifying obstacles or
sources of resistance to change. Obstacles to
change are found at the corporate, divisional,
departmental, and individual levels of the
organization.
2. Corporate-level changes, even seemingly trivial
ones, may significantly affect how divisional and
powerful obstacles to change.
3. Whether a company’s culture is adaptive or inert
facilitates or obstructs change. Organizations with
cultures.
4. The same obstacles to change exist at the
divisional and departmental levels as well.
attitudes toward the changes proposed by top
managers, and if their interests and power
seem threatened, will resist those changes.
b. Managers at all levels usually fight to
6. Managers must recognize and take into
LO 8-5: Discuss the relationship
between organizational
control and change, and
explain why managing
change is a vital
management task.
POWERPOINT SLIDES 8-29 TO 8-36
consideration potential obstacles that can make
change a slow process.
7. Improving communication and empowering
employees by inviting them to participate in the
planning for change can help overcome resistance
a. In addition, managers can sometimes
overcome resistance by emphasizing group or
shared goals such as increased organizational
efficiency and effectiveness.
b. The larger and more complex an
organization is, the more complex is the
change process.
D. Implementing the Change: Generally managers
introduce and manage change from the top down or
from the bottom up.
1. Top down-change is implemented quickly. Top
managers identify the need for change, decide
what to do, and then move quickly to implement
the changes throughout the organization.
2. Bottom-up change is typically more gradual.
a. Top managers consult with middle and first
change.
b. A major advantage of bottom-up change is
that it can co-opt resistance to change from
employees.
E. Evaluating the Change: The last step in the change
the ability of managers to meet their goals,
managers can compare how well an organization is
performing after the change with its performance
prior to the change.
Chapter 08 – Control, Change, and Entrepreneurship
the comparison of their performance on specific
dimensions with the performance of high
performing organizations, to decide how
successful a change effort has been. Benchmarking
is a key tool in total quality management.
VI. Entrepreneurship, Control, and Change
A. Entrepreneurs are the people who bring about
change to companies and industries because they see
new and improved ways to use resources to create
products customers will want to buy.
B. Entrepreneurs assume the risk associated with
starting a new business, which is substantial since
many new businesses fail. They receive all of the
returns or profits associated with the new business
venture.
C. Employees of existing organizations who notice
opportunities for product or service improvements and
are responsible for managing the development process
are known as intrapreneurs.
new ventures that may compete with their previous
company.
F. Frequently, founding entrepreneurs lack the skill,
patience, or experience to engage in the difficult work
of management. Therefore, they must hire managers
who can create an operating and control system that
will help the new venture to prosper.
LO 8-6: Understand the role of
entrepreneurship in the control and
change process.
POWERPOINT SLIDES 8-37 TO 8-39