Management Review – Controls and Control Systems

What is controlling?
The process of measuring performance and taking action to ensure desired results.
What is Mintzberg’s theory of “monitoring?”
to observe, detect, or record operations

“Let’s see what’s happening”

What are the External Controls?
-Market Control
-Bureaucratic Control
-Clan (Social) Control
What is Market Control? Mechanism?
-Influence that market competition has on organizational decisions.

-Conduct business w/ someone not very often, not long-term relationships

-Mechanism: price

What is Bureaucratic Control? Mechanism?
-Involves policies, procedures, supervision (i.e. embedded in structure) to influence behavior.

-Mechanism: authority

What is Clan (Social) Control? Mechanism?
-Uses the organization’s culture to influence behavior.

-No monitoring.
-In situations when people tend to know each other, they help each other out (sense of trust within each other).

-Mechanism: social approval/disapproval

Market Failure Framework (Transaction Cost Economics)

Each Control System appropriateness depends upon 2 factors. What are these 2 factors?

-Complexity/Uncertainty of Transaction
-Length of Transaction(s)
What is the Complexity/Uncertainty of Transaction?
-As complexity/uncertainty increases, markets fail, then move to bureaucratic control

-At even higher levels of complexity/uncertainty, bureaucratic control fails, then move to social control

What is the Length of Transaction(s)?
-As length/number of transactions increase, move from market to bureaucratic to social control.
What do External Controls involve?
-Market and Bureacracy
What do Internal Controls involve?
-Motivated employees exercise self-control in their work

-Participation in planning work and having a sense of purpose facilitate motivation

What happens in Step 1 of the Control Process?
Control starts with objectives and standards

-Output standards measure results in terms of quantity, quality, cost or time
-Input standards measure the work efforts that go into the performance task

Ex: “What do you want to do? I want to do well on the exam.”

What happens in Step 2 of the Control Process?
Control measures (monitors) actual performance

-Agreed-upon standards
-Accurate and timely measurement

Ex: “How did I do on the exam?”

What happens in Step 3 of the Control Process?
Control compares results with objectives

Desired Performance
– Actual Performance
=Need for Action

Ex: “How did I do/what did I do compared to what I wanted to do.”

What happens in Step 4 of the Control Process?
Control takes necessary action

-Management by exception is the practice of giving attention to situations that show the greatest need.

Ex: How can I improve/what can I do to improve?

What are the types of controls?
-Feedforward Controls
-Concurrent Controls
-Feedback Controls
What do Feedforward Controls do?
Work Inputs

-Ensure the right directions are set and the right resource inputs are available

-Solve problems before they occur

What do Concurrent Controls do?
Work Throughputs

-Ensure the right things are being done as part of work-flow operations

-Solve problems while they are occurring

What do Feedback Controls do?
Work Outputs

-Ensure that final results are up to desired standards

-Solve problems after they occur