Management

Fourteenth Edition, Global Edition

Chapter 18
Controlling Activities and
Operations

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Learning Objectives
18.1 Explain the nature and importance of control.
18.2 Describe the three steps in the control process.
18.3 Explain how organizational and employee performance
are measured.
Know how to be effective at giving feedback.
18.4 Describe tools used to measure organizational
performance.
18.5 Discuss contemporary issues in control.
Develop your skill at dealing with difficult people.

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What Is Controlling and Why Is It
Important?
• Controlling: management function that involves
monitoring, comparing, and correcting work
performance

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Why Is Control So Important?
• Planning
• Empowering employees
• Protecting the workplace

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Exhibit 18-1
Planning-Controlling Link

Exhibit 18-1 shows shows how controlling provides a critical link back to planning.
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The Control Process
• Control process: a three-step process of
measuring actual performance, comparing actual
performance against a standard, and taking
managerial action to correct deviations or
inadequate standards

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Exhibit 18-2
The Control Process

Exhibit 18-2 illustrates the three-step control process.

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Step 1: Measuring Actual Performance
• How we measure
• What we measure

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Exhibit 18-3: Sources of Information for
Measuring Performance
Method Benefits Drawbacks
Personal -Get firsthand knowledge -Subject to personal biases
Observations -Information isn’t filtered -Time-consuming
-Intensive coverage of work -Obtrusive
activities
Statistical Reports -Easy to visualize -Provide limited information
-Effective for showing -Ignore subjective factors
relationships
Oral Reports -Fast way to get information -Information is filtered
-Allow for verbal and -Information can’t be
nonverbal feedback documented
Written Reports -Comprehensive -Take more time to prepare
-Formal
-Easy to file and retrieve

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Step 2: Comparing Actual Performance
Against the Standard
• Range of variation: the acceptable parameters of
variance between actual performance and the
standard

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Exhibit 18-4
Acceptable Range of Variation

Exhibit 18-4 illustrates the acceptable range of variation.

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Exhibit 18-5
Green Earth Gardening Supply—July Sales
Product Standard Actual Over (Under)
Vegetable plants 1,075 913 (162)
Perennial flowers 630 634 4
Annual flowers 800 912 112
Herbs 160 140 (20)
Flowering bulbs 170 286 116
Flowering bushes 225 220 (5)
Heirloom seeds 540 672 132
Total 3,600 3,777 177

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Step 3: Taking Managerial Action
• Correct actual performance
– Immediate corrective action: corrective
action that corrects problems at once to get
performance back on track
– Basic corrective action: corrective action that
looks at how and why performance deviated
before correcting the source of deviation

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Revise the Standard
• If performance consistently exceeds the goal, then
a manager should look at whether the goal is too
easy and needs to be raised.
• Managers must be cautious about revising a
standard downward.

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Managerial Decisions in Controlling
• Depending on the results, a manager’s decision is
to do nothing, correct the performance, or revise
the standard.

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Exhibit 18-6
Managerial Decisions in the Control Process

Exhibit 18-6 summarizes the decisions a manager makes in controlling

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What is Organizational Performance?
• Performance: the end result of an activity
• Organizational performance: the accumulated
results of all the organization’s work activities

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Measures of Organizational Performance
• Productivity: the amount of goods or services
produced divided by the inputs needed to
generate that output
• Organizational effectiveness: a measure of how
appropriate organizational goals are and how well
those goals are being met

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 Exhibit 18-7: Popular Industry and Company Rankings

Fortune IndustryWeek Forbes Customer Satisfaction

(www.fortune.com) (www.industryweek.co (www.forbes.com) Indexes
m)

Fortune 500 IndustryWeek 1,000 World’s Biggest Public American Customer

Companies Satisfaction Index—
University of Michigan
Business School

Global 500 IndustryWeek U.S. 500 blank Customer Satisfaction

Measurement Association
World’s Most Admired 50 Best Manufacturers blank blank
Companies
100 Best Companies to IndustryWeek Best blank blank
Work For Plants
100 Fastest-Growing blank blank blank
Companies

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Controlling for Employee Performance
• Disciplinary action: actions taken by a manager
to enforce the organization’s work standards and
regulations
• Progressive disciplinary action: an approach to
ensure that the minimum penalty appropriate to
the offense is imposed

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Exhibit 18-8: Types of Discipline Problems
and Examples of Each
Problem Type Examples of Each
Attendance Absenteeism, tardiness, abuse of sick leave

On-the-Job Behaviors Insubordination, failure to use safety devices, alcohol or

drug abuse

Dishonesty Theft, lying to supervisors, falsifying information on

employment application or on other organizational forms

Outside Activities Criminal activities, unauthorized strike activities, working

for a competing organization (if no-compete clause is
part of employment)

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Feedforward/Concurrent/Feedback
Controls
• Feedforward control: control that takes place
before a work activity is done
• Concurrent control: control that takes place
while a work activity is in progress
• Management by walking around: a term used to
describe when a manager is out in the work area
interacting directly with employees
• Feedback control: control that takes place after a
work activity is done
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Exhibit 18-9
Types of Control

Exhibit 18-9 shows the three kinds of control

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Financial Controls
• Traditional controls
– Ratio analysis:
 Liquidity
 Leverage
 Activity
 Profitability
– Budget analysis:
 Quantitative standards
 Deviations
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 Exhibit 18-10: Popular Financial Ratios
Objective Ratio Calculation Meaning

Liquidity Current ratio Current assets Tests the organization’s ability to meet
Current liabilities short-term obligations
Liquidity Acid test Current assets less Tests liquidity more accurately when
inventories inventories turn over slowly or are difficult
Current liabilities to sell
Leverage Debt to assets Total debt The higher the ratio, the more leveraged
Total assets the organization
Leverage Times interest Profits before interest/taxes Measures how many times the
earned Total interest charges organization is able to meet its interest
expenses
Activity Inventory Sales The higher the ratio, the more efficiently
turnover Inventory inventory assets are used
Activity Total asset Sales The fewer assets used to achieve a given
turnover Total Assets level of sales, the more efficiently
management uses the organization’s total
assets
Profitability Profit margin Net profit after taxes Identifies the profits that are generated
on sales Total sales
Profitability Return on Net profit after taxes Measures the efficiency of assets to
investment Total assets generate profits

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Information Controls
• Management information system (MIS): a
system used to provide management with needed
information on a regular basis
• Data versus information

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Balanced Scorecard
• Balanced scorecard: a performance
measurement tool that looks at more than just the
financial perspective

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Benchmarking of Best Practices
• Benchmarking: a performance measurement tool
that looks at more than just the nancial
perspective
• Benchmark: the standard of excellence against
which to measure and compare

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 Exhibit 18-11: Suggestions for Internal
Bookmarking
Suggestions
1. Connect best practices to strategies and goals. The organization’s strategies and goals
should dictate what types of best practices might be most valuable to others in the
organization.
2. Identify best practices throughout the organization. Organizations must have a way to find
out what practices have been successful in different work areas and units.
3. Develop best practices reward and recognition systems. Individuals must be given an
incentive to share their knowledge. The reward system should be built into the organization’s
culture.
4. Communicate best practices throughout the organization. Once best practices have been
identified, that information needs to be shared with others in the organization.
5. Create a best practices knowledge-sharing system. There needs to be a formal mechanism
for organizational members to continue sharing their ideas and best practices.
6. Nurture best practices on an ongoing basis. Create an organizational culture that reinforces
a “we can learn from everyone” attitude and emphasizes sharing information.

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Adjusting Controls for Cross-Cultural
Differences and Global Turmoil
• Distance creates formalized controls, e.g. formal
reports
• Impact of technology
• Constraints due to local laws
• Comparability issues in data collection
• Be prepared for global turmoil and disasters

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Workplace Privacy
• Employers can read your e-mail, tap your
telephone, monitor your work by computer, store
and review computer files.
• Reasons companies monitor:
– Productivity/Internet traffic
– Concerns about offensive/inappropriate
material
– Protecting company secrets

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Employee Theft
• Employee theft: any unauthorized taking of
company property by employees for their personal
use

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Exhibit 18-12
Controlling Employee Theft

Exhibit 18-12 summarizes several possible managerial actions to control employee theft.
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Workplace Violence
• The U.S. National Institute of Occupational Safety
and Health still says that each year, some 2
million American workers are victims of some form
of workplace violence.

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 Exhibit 18-13: Controlling Workplace Violence
Feedforward Concurrent Feedback
Use MBWA (managing by walking Communicate openly
around) to identify potential about incidences and
problems; observe how what’s being done.
employees treat and interact with
each other.
Provide employee assistance Allow employees or work groups to “grieve” Investigate incidents and
programs (EAPs) to help during periods of major organizational take appropriate action.
employees with behavioral change.
problems.
Enforce organizational policy that Be a good role model in how you treat Review company policies
any workplace rage, aggression, others. and change, if necessary.
or violence will not be tolerated.
Use careful prehiring screening. Use corporate hotlines or some other
mechanism for reporting and investigating
incidents.
Never ignore threats. Use quick and decisive intervention.
Train employees about how to Get expert professional assistance if
avoid danger if situation arises. violence erupts.
Clearly communicate policies to Provide necessary equipment or
employees. procedures for dealing with violent
situations (cell phones, alarm system, code
names or phrases, and so forth).

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Controlling Customer Interactions
• Service profit chain: the service sequence from
employees to customers to profit

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Corporate Governance
• Corporate governance: the system used to
govern a corporation so that the interests of
corporate owners are protected

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Review Learning Objective 18.1
• Explain the nature and importance of control.
– Controlling = monitoring, comparing, correcting
– Important:
 Are goals being met?
 Provides information/feedback
 Protects organization and assets

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Review Learning Objective 18.2
• Describe the three steps in the control
process.
– Measuring
– Comparing
– Taking action

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Review Learning Objective 18.3
• Explain how organizational and employee
performance are measured.
– Productivity
– Effectiveness
– Industry and company rankings

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Review Learning Objective 18.4
• Describe tools used to measure organizational
performance.
– Feedforward controls
– Concurrent controls
– Feedback controls
– Financial controls
– Information controls
– Balanced scorecards
– Benchmarking

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Review Learning Objective 18.5
• Discuss contemporary issues in control.
– Cross-cultural differences
– Workplace privacy
– Employee theft
– Workplace violence
– Customer interactions
– Corporate governance

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