Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Controlling can raise the level of innovation in a company.
⊚ true
⊚ false

2) Managers use feedforward control to anticipate problems.

⊚ true
⊚ false

3) The first step in the control process is to measure actual performance.

⊚ true
⊚ false

4) Standard operating procedures are mechanisms for clan control.

⊚ true
⊚ false

5) The inventory turnover ratio is an example of the activity ratio of an organization.

⊚ true
⊚ false

6) Output control procedures are used at every management level of an organization.

⊚ true
⊚ false

7) Control by means of a comprehensive system of rules and standard operating procedures that
shape and regulate the behavior of divisions, functions, and individuals is known as
bureaucratic control.
⊚ true
⊚ false

8) Organizational culture is primarily a system of constraints, such as direct supervision or rules

and procedures.
⊚ true
⊚ false
9) An adaptive culture develops an emphasis on entrepreneurship and employee empowerment.
⊚ true
⊚ false

10) Managers use benchmarking to compare one employee’s productivity to that of another
employee.
⊚ true
⊚ false

11) Kurt Lewin’s Force-Field Theory of Change has three stages: assess the need for change,
decide on the change to make, and implement the change.
⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
12) Bennett is CEO of a company. He was concerned that the job market was tightening, so he
convened the middle managers in the company to discuss how to find and hire the best
people so the company could achieve its organizational goals. Which management function
was Bennett mostly demonstrating?
A) organizing
B) leading
C) controlling
D) coordinating

13) The formal target-setting, monitoring, evaluation, and feedback systems that provide
managers with information about whether the organization's strategy and structure are
working efficiently and effectively are known as ________ systems.
A) operating
B) organizational
C) control
D) recurrent

14) The type of control that managers typically use in the input stage of the process of
transforming raw materials into finished goods is ________ control.
A) feedforward
B) concurrent
C) feedback
D) bureaucratic
15) Fountain Fabricators gives specifications to its suppliers of raw materials in an attempt to
improve the quality of those raw materials and to minimize and anticipate the problems they
are likely to face in the conversion process. This is an example of ________ control.
A) concurrent
B) feedforward
C) feedback
D) bureaucratic

16) Managers at a construction company set up a stringent job interview process by which
management applicants are carefully screened at different levels of the organization before
they are hired, attempting to increase the chance that newly hired managers will have the
knowledge and skills they need to be successful within the organization. By using this
process, the company is using ________ control.
A) concurrent
B) feedforward
C) feedback
D) MBO

17) B&P Bank set up a management information system that gives its regional managers
information about changes in the task environment that may affect the organization at some
future time. By using this system, B&P is utilizing ________ control.
A) feedforward
B) feedback
C) bureaucratic
D) MBO

18) A factory line regularly checks how efficiently the workers are converting raw materials into
finished goods so that she can make adjustments to the line as needed. This is ________
control.
A) feedforward
B) bureaucratic
C) concurrent
D) feedback
19) The control system that is typically used in a garment plant to solve problems like
substandard inputs, broken machine parts, or a worker's skill deficiency to produce a
particular type of garment is ________ control.
A) feedforward
B) MBO
C) feedback
D) concurrent

20) At the output stage, managers usually utilize ________ control.

A) MBO
B) bureaucratic
C) feedforward
D) feedback

21) Convenient Computers monitors the number of customer returns for each product model to
track when the organization is producing a large number of defective products. In this case,
Convenient is using ________ control.
A) feedforward
B) concurrent
C) MBO
D) feedback

22) What happens in the conversion stage of a control system?

A) anticipating possible problems
B) managing problems as they occur
C) dealing with problems that have arisen
D) managing without correction of problems

23) A manufacturer of home decor products sets up a system to monitor unit sales of its products
to measure changes taking place in customer tastes and the possible resulting impact on
future sales. With this system, the company is using ________ control.
A) feedforward
B) feedback
C) MBO
D) bureaucratic
24) Maisie, the production manager of Sonoma Shoes, sets a production target of 300 pairs of
shoes to be distributed among 20 employees in a week. In the context of the control process,
Maisie is
A) establishing the standards of performance.
B) measuring the actual level of performance of employees.
C) comparing the actual performance against chosen standards of performance.
D) evaluating the result of the set standards.

25) The managers of Dermott’s Diner, a fast-food restaurant, record outputs on a daily basis by
counting how many customers their employees serve, the time each transaction takes, and
how much money each customer spends every day. With reference to the control process, the
managers of Dermott’s are
A) establishing the standards of performance.
B) measuring the actual level of performance of employees.
C) comparing the actual performance against chosen standards.
D) evaluating the result of the set standards.

26) The standard of performance that measures efficiency at the corporate level of the
organization is
A) cost of goods sold.
B) capital costs.
C) net sales.
D) operating costs.

27) The step of the control process utilized by managers to evaluate whether the actual
performance of the organization differs significantly from the chosen standards of
performance is
A) measuring actual performance.
B) comparing actual performance to the standards.
C) initiating corrective action.
D) measuring standards of performance.

28) Char, the manager of National Leather Goods, checked the weekly records and discovered
that the number of handbags produced in one week by 45 employees was 375 against the set
target of 450 handbags. With reference to the control process, Char is
A) establishing the standards of performance.
B) measuring the actual level of performance of employees.
C) comparing the actual performance against chosen standards of performance.
D) evaluating the result of the set standards.
29) The final step in the control process is
A) evaluating results and initiating corrective action.
B) measuring actual performance.
C) comparing actual performance to the set standards.
D) measuring the standards of performance.

30) Ali, the manager of Small Frys Toys, installed new machinery to speed up the production
process after the assigned targets were not achieved for the third week in a row. With regard
to the control process, Ali is
A) establishing the standards of performance.
B) measuring the actual level of performance of employees.
C) evaluating the result of the set standards.
D) initiating corrective actions.

31) Which situation would be the most challenging for a manager to measure employee outputs
or behavior?
A) Workers in a clothing factory are cutting patterns for dresses.
B) Graphic designers at a media company are designing logo prototypes.
C) A clerk at a convenience store is recording inventory for the past month.
D) The sales team at a real estate company is cold-calling prospective clients.

32) Which manager is performing an activity at the final stage of the control process?
A) Brooke decided to hire more workers for the assembly line after target goals were not
met.
B) Talbert restructured the work process to increase efficiency.
C) Ishana developed a performance standard to measure employee behavior.
D) Jarod determined the factors that were affecting employee output.
33) The sales of a manufacturer of home audio systems have been declining noticeably over the
last several quarters. Javed, the CEO, meets with several managers, including Dinesh, the
head of the customer service department, and Leela, a customer response team leader. It is
determined that while the company's quality and innovation standards are being met and even
exceeded, its customer service is not performing as well as it should be. Javed decides to
implement a goal of raising the quality of the company’s interactions with customers by their
next quarterly meeting. Given what you know about the control process, what should the
team do next?
A) Javed should meet with Dinesh and Leela to decide if a five-star rating scale is
sufficient for measuring their progress and whether they need to reach a 4- or 4.5-star
average.
B) Dinesh should evaluate the behaviors of customer service teams by having Leela
collect and report data measuring the specifics of customer interactions.
C) After three months, Dinesh should look at the results of the new actions undertaken
by Leela’s team and decide whether they need further improvement.
D) Over the next month, Leela should track the number of customer interactions and
record how quickly team members responded.

34) The manager of Coldrock Ice Cream Shop keeps track of the number of customers served at
different periods of the day in an attempt to plan a schedule for workers that matches the
demand for the restaurant's products. By using this tracking system, the manager of Coldrock
is utilizing ________ control.
A) output
B) bureaucratic
C) input
D) product

35) The manager of a convenience store keeps track of the average sale amount for each
customer as a way of deciding on the product quantity to be carried in the store. This is an
example of ________ control.
A) feedforward
B) output
C) input
D) MBO
36) The performance ratio that measures the efficiency of the organization in terms of how well
the resources of the organization have been used to generate profit is a(n) ________ ratio.
A) activity
B) leverage
C) profit
D) liquidity

37) The most commonly used financial performance measure that allows managers of one
organization to compare performance with that of other organizations is
A) gross profit margin.
B) the debt-to-assets ratio.
C) the inventory turnover ratio.
D) return on investment.

38) An organization's net income before taxes divided by the total assets of the organization is
A) gross profit margin.
B) return on investment.
C) the debt-to-assets ratio.
D) days sales outstanding.

39) The financial ratio that measures the ability of the organization to pay its short-term debts is
the _________ ratio.
A) leverage
B) liquidity
C) activity
D) profit

40) The ratio that is computed by dividing the difference between current assets and inventory by
current liabilities is the _________ ratio.
A) inventory turnover
B) quick
C) current
D) debt-to-assets
41) The current assets of Swanson Investments are valued at $25 million and its current liabilities
are at $6 million. If its inventory is worth $1 million, what is its quick ratio?
A) 4
B) 0.25
C) 0.14
D) 3.6

42) The CEO of Aaron’s Auto Parts Supply would like to know whether his financial managers
can pay off claims of short-term creditors without selling inventory. What ratio will help him
understand the company's liquidity?
A) inventory turnover ratio
B) quick ratio
C) current ratio
D) debt-to-assets ratio

43) The financial ratio that indicates whether or not the organization is capable of paying off its
short-term debts without having to sell its inventory is the _________ ratio.
A) quick
B) current
C) days sales outstanding
D) profit

44) From the information given below, calculate the organization's return on investment.
Total Liabilities = $300,000; Total Assets = $600,000; Gross Margin = $200,000; Net
Income before Taxes = $30,000; Total Expenses = $240,000
A) 50 percent
B) 5 percent
C) 10 percent
D) 12.5 percent

45) Calculate the return on investment from the information given below.
Net Income = $18,000; Advertising Expenses = $220,000; Total Liabilities = $120,000; Total
Assets = $160,000; Gross Margin = $80,000; Taxes Paid = $2,000
A) 16.67 percent
B) 15 percent
C) 11.25 percent
D) 12.5 percent
46) Calculate the current ratio of the organization from the information given below.
Sales = $200,000; Gross Profit = $40,000; Total Assets = $450,000; Current Assets =
$250,000; Current Liabilities = $300,000
A) 0.44
B) 0.56
C) 0.67
D) 0.83

47) From the information given below, calculate the organization's current ratio.
Total Liabilities = $800,000; Current Liabilities = $240,000; Total Assets = $700,000;
Current Assets = $180,000
A) 25
B) 0.25
C) 75
D) 0.75

48) The financial ratio that indicates the degree to which the organization uses debt or equity to
finance its ongoing operations is the _________ ratio.
A) leverage
B) liquidity
C) activity
D) profit

49) A manager is being evaluated based on how well she is creating value from the organization's
assets. This is the _________ ratio.
A) leverage
B) liquidity
C) current
D) activity

50) The financial ratio that indicates how efficiently the managers of the organization are
collecting the revenue due to the organization from the sale of its products or services is the
_________ ratio.
A) debt-to-assets
B) quick
C) current
D) days sales outstanding
51) The managers of a division are given a fixed budget and are then evaluated on the basis of
their ability to produce goods or services with those resources. This is an example of a(n)
_________ budget approach.
A) expense
B) profit
C) cash flow
D) revenue

52) The manager of a profit center is evaluated on the basis of the amount of sales that have been
generated from the goods or services produced in his/her division. The divisional manager is
being evaluated using the ________ budget approach.
A) expense
B) cash flow
C) revenue
D) profit

53) When a manager is told to maximize the revenues from the sales of goods and services
produced, this is an example of a(n) _________ budget approach.
A) quality
B) revenue
C) operational
D) fixed

54) When a manager is evaluated on the difference between sales revenue and the budgeted cost
of making those goods and services, this is an example of a(n) _________ budget approach.
A) revenue
B) cash flow
C) expense
D) profit

55) A divisional manager's performance is evaluated on the basis of the difference between the
sales revenues generated by that division and the cost of making those goods and services.
The divisional manager is being evaluated using the ________ budget approach.
A) profit
B) revenue
C) cost
D) expense
56) One of the three mechanisms of control utilized in organizational culture is
A) direct supervision.
B) management by objectives.
C) socialization.
D) organizational goals.

57) Management by objectives is a mechanism of control with _________ organizational control

systems.
A) input
B) clan
C) output
D) behavior

58) Marcy doesn’t fully trust her employees, so she teaches them which behaviors are
appropriate, observes them, and takes corrective action when needed. This form of behavior
control is
A) direct supervision.
B) clan control.
C) bureaucratic control.
D) socialization.

59) With management by objectives, the first things established are

A) evaluations.
B) organizational objectives.
C) management goals.
D) subordinate goals.

60) Rules and SOPs are used to regulate the behavior of workers within the organization with a
_________ control system.
A) bureaucratic
B) feedback
C) feedforward
D) concurrent
61) Rules and SOPs are of little use in telling a scientist how to discover something new. Thus,
which form of control should not be applied to scientists?
A) feedforward
B) feedback
C) bureaucratic
D) concurrent

62) Nadine works on an assembly line. In her work, actions are performed the same way time
and time again and the outcomes of the work are predictable. Employee behavior is
A) generalized.
B) standardized.
C) maximized.
D) minimized.

63) Qing Yuan, a worker at City Motor Scooters, comes up with a new way to attach the fuel
injection system to the motor, increasing the efficiency of the assembly process. The
managers instruct all employees to attach fuel injection systems the same way so that every
car comes off the assembly line with its fuel injection system attached in the new way. The
managers are using _________ control.
A) bureaucratic
B) clan
C) output
D) input

64) ________ tends to be the first type of control that all managers use to evaluate performance.
A) Direct supervision
B) Management by objectives
C) Output control
D) Bureaucratic control

65) Which problem is most likely to occur when a company becomes overly bureaucratic?
A) Employees eventually rebel against the rules.
B) The company becomes less efficient over time.
C) It leads to a toxic work culture and more turnover.
D) Employees stop thinking for themselves.
66) Sarge has taken a new job as the general manager at Davidson Industries, which designs and
manufactures custom cabinets. He is replacing Elliot, who recently retired. Sarge has already
set a company-wide goal of increasing efficiency and reducing waste. Unfortunately, Sarge
has inherited a heavily bureaucratic work culture governed by byzantine rules. Elliot mainly
managed by actively overseeing his employees, but from the employee’s lack of motivation,
Sarge can tell that this approach is no longer working. Based on what you know about
management by objectives, what solution should Sarge implement to increase employee
engagement and productivity?
A) He should have floor managers and employees jointly set goals that describe what
employees can personally do to reduce waste and then periodically check in with
them to monitor their progress.
B) He should require employees to turn in a report at the end of every week that details
the number of cabinets they completed, the amount of materials they used, and how
many pounds were thrown away.
C) He should sit in on team meetings and encourage employees to vent their frustrations
with Elliot’s way of doing things so that whatever Sarge implements looks good in
contrast.
D) Since team leaders and lower-level managers have so much responsibility, Sarge
should resist asserting his authority and instead focus on keeping clients happy.

67) The set of values, norms, and expectations of behavior that control the ways in which
workers interact with one another within the organization is known as
A) managerial objectives.
B) organizational culture.
C) clan control.
D) adaptive culture.

68) Zach expects all his employees to demonstrate shared values, norms, standards of behavior,
and expectations. This is _________ control.
A) bureaucratic
B) operating
C) clan
D) leverage
69) When an organization has a strong and cohesive organizational culture that controls
employee attitudes and behaviors, that company has a(n) _________ culture.
A) dynamic
B) bureaucratic
C) adaptive
D) normative

70) Rodger Dodger Sports was losing employees to competitors, so top managers decided
between themselves to implement an employee stock ownership plan for all their employees.
This is an example of a company taking a
A) top-down approach to promote adaptive culture.
B) bottom-up approach to promote adaptive culture.
C) top-down approach to promote inert culture.
D) bottom-up approach to promote inert culture.

71) When an organization has a culture that leads to values and norms that fail to motivate or
inspire employees, eventually leading to stagnation and often failure over time, that company
has a(n) ________ culture.
A) adaptive
B) inert
C) disruptive
D) bureaucratic

72) A one-hundred-year-old linen laundering company has an inert culture, which means it
A) closely supervises its employees within a hierarchical system.
B) develops long-term career paths for its employees.
C) invests heavily in training and development of employees.
D) encourages the development of supportive work attitudes and behaviors.

73) In companies that have an adaptive culture, employees are

A) content to be told what to do during work hours.
B) not motivated to perform beyond minimum requirements.
C) closely supervised within a hierarchical authority.
D) likely to have long-term career paths to follow.
74) Which statement about an adaptive work culture is true?
A) There is a strong emphasis on close supervision of workers.
B) Employees are not rewarded on their performance.
C) Cross-functional team structures are often used.
D) The company sticks to tried and true methods of doing things.

75) Roberto works in a company that has an adaptive culture. Roberto most likely receives
rewards based on his
A) performance.
B) commitment.
C) seniority.
D) popularity.

76) Jill has just been hired in the advertising department at NewYou, a cosmetics and skincare
company. The environment at her new job could not be more different from her old one. At
her old company, workers sat in closed-off cubicles or glassed-in offices, whereas NewYou
has fun decor and an open office plan. Managers have regular one-on-one meetings with
employees to discuss career development and offer mentoring, and the company offers
regular classes and workshops. The emphasis is on creativity and collaboration, and teams
celebrate each other’s accomplishments with spontaneous parties and excursions. What else
is most likely true about Jill’s new job?
A) Jill does not know much about company values because it is taken for granted that
everyone knows what they are.
B) The managers in the advertising department allow Jill and her coworkers to make
certain decisions, such as angles for ad campaigns.
C) The managers constantly talk about excellence, and Jill’s team is expected to submit
ad proposals that are more like finished products than rough drafts.
D) It is expected that Jill’s team will stay late and even come in on the weekends
whenever the company releases a new lotion or other product.

77) The aspects of organizational functioning that are affected by organizational change
A) include organizational culture and strategies.
B) include response to opportunities but not threats.
C) exclude the human resource management system.
D) exclude communication, motivation, and leadership.
78) Which stage in making organizational change includes benchmarking?
A) assess the need for change
B) decide on the change to make
C) implement the change
D) evaluate the change

79) Which stage in making organizational change includes deciding whether change will occur
from the top down or from the bottom up?
A) assess the need for change
B) decide on the change to make
C) implement the change
D) evaluate the change

80) The process through which managers try to increase members' abilities to understand and
appropriately respond to changing conditions is known as
A) norm enforcement.
B) adaptive learning.
C) organizational learning.
D) clan control.

81) In assessing the need for organizational change, managers must

A) identify the obstacles to change at the corporate and individual levels.
B) plan how they are going to attain the organization's ideal future state.
C) recognize that there is a problem and identify its source.
D) implement change from the top down or from the bottom up.

82) The process of comparing one company's performance on specific dimensions with the
performance of high-performing organizations to decide how successful a change effort has
been is known as
A) socialization.
B) diversification.
C) social facilitation.
D) benchmarking.
83) People’s Health Systems has opted for a top-down approach to changing how the company
functions so that efficiency is increased. What is the change likely to entail?
A) a fast or revolutionary approach involving managers at all levels
B) a gradual or evolutionary approach involving only the top managers
C) a fast or revolutionary approach involving only the top managers
D) a gradual or evolutionary approach involving managers at all levels

84) Digital Cameras opts to take a bottom-up approach in order to draft a new attendance policy.
What will the approach entail?
A) a fast or revolutionary approach involving managers at all levels
B) a gradual or evolutionary approach involving only the top managers
C) a fast or revolutionary approach involving only the top managers
D) a gradual or evolutionary approach involving managers at all levels

85) Top managers at Chocoholics, a candy manufacturer, consult with middle- and first-line
managers to revise their marketing strategy. This approach will lead to
A) top-down changes that can be implemented quickly throughout the organization.
B) bottom-up changes to minimize resistance from employees and uncertainty.
C) bottom-up changes that can be implemented quickly throughout the organization.
D) top-down changes to minimize resistance from employees and uncertainty.

86) The startup where Delacruz works, Affirm, was recently acquired by Global Partners, a huge
multinational conglomerate. Everyone at Affirm was severely stressed by the many changes
that accompanied the transition. Many of Affirm’s managers were let go and replaced by
people from Global Partners. For almost a week, Delacruz was not even sure who his direct
supervisor was. On top of everything else, Affirm people were given a huge manual of
Global Partners’ company policies that they had to memorize in less than a week. It was
chaos, and several of Delacruz’s colleagues ending up handing in their notices. How could
Global Partners’ management have handled the transition more effectively?
A) by introducing new policies gradually and encouraging Delacruz and his coworkers to
help take charge of implementing them
B) by posting a chart in the conference room clearly comparing Global Partners’
performance with that of other high-performing organizations
C) by moving quickly to implement all of the new policies as one and dealing with
employee problems as they arise
D) by making sure that all policy changes are treated like company secrets and discussed
only by top Global Partners’ managers
87) Under the leadership of Elizabeth Spaulding, what approach did Stitch Fix implement to
allow customers to purchase items from the website rather than sign up for curated boxes
sent on a regular basis?
A) ready to wear
B) homestyle
C) social media
D) freestyle

88) Kurt Lewin’s ________ theory focused on the forces that make organizations resistant to
change.
A) force-field
B) bureaucratic control
C) culture
D) organizational resistance

89) Lewin’s three stages of change are freezing, ________, and unfreezing.
A) thawing
B) changing
C) waiting
D) storing
E) manipulating

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
90) Define control systems and list the three characteristics of an effective control system.

Control systems are formal target-setting, monitoring, evaluation, and feedback systems that
provide managers with information about whether the organization's strategy and structure are
working efficiently and effectively. Effective control systems alert managers when something is
going wrong and give them time to respond to opportunities and threats. An effective control
system has the following characteristics:
 It is flexible enough to allow managers to respond as necessary to unexpected events.
 It provides accurate information about organizational performance.
 It gives managers information in a timely manner because making decisions on the basis
of outdated information is a recipe for failure.
91) Describe how managers use feedforward control.

At the input stage, managers use feedforward control to anticipate problems before they arise.
For example, by giving product specifications to suppliers in advance, an organization can
control the quality of the inputs it receives from its suppliers and thus avoid potential problems
during the conversion process. Also, technology can be used to keep in contact with suppliers
and to monitor their progress. Similarly, by screening job applicants, often by viewing their
résumés electronically and using several interviews to select the most highly skilled people,
managers can lessen the chance that they will hire people who lack the necessary skills or
experience to perform effectively. In general, the development of management information
systems promotes feedforward control that gives managers timely information about changes in
the task and general environments that may impact their organization later on.

92) Discuss how managers evaluate the results of the control process and the corrective measures
they can take if the standard is not being achieved.

Whether or not performance standards have been met, managers can learn a great deal during
this step. If managers decide the level of performance is unacceptable, they must try to change
how work activities are performed to solve the problem. Sometimes performance problems occur
because the work standard was too high—for example, a sales target was too optimistic and
impossible to achieve. In this case, adopting more realistic standards can reduce the gap between
actual performance and desired performance. However, if managers determine that something in
the situation is causing the problem, then to raise performance they will need to change how
resources are utilized or shared. Perhaps the latest technology is not being used; perhaps workers
lack the advanced training needed to perform at a higher level; perhaps the organization needs to
buy its inputs or assemble its products abroad to compete against low-cost rivals; perhaps it
needs to restructure itself or reengineer its work processes to increase efficiency.
93) Managers typically use three primary measures to assess the output performance of their
organizations. Write a brief note on these three types of measures.

The three main mechanisms that managers use to assess output or performance are financial
measures, organizational goals, and operating budgets.
 Financial measures of performance: Top managers are most concerned with overall
organizational performance and use various financial measures to evaluate it. The most
common are profit ratios, liquidity ratios, leverage ratios, and activity ratios.
 Organizational goals: Once top managers consult with lower-level managers and set the
organization's overall goals, they establish performance standards for the divisions and
functions. 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.
 Operating budgets: Once managers at each level have been given a target to achieve, the
next step in developing an output control system is to establish operating budgets that
regulate how managers and workers attain their goals. An operating budget is a blueprint
that states how managers intend to use organizational resources to achieve organizational
goals efficiently. Typically managers at one level allocate to subordinate managers a
specific amount of resources to produce goods and services. Once they have been given a
budget, these lower-level managers must decide how to allocate money for different
organizational activities. They are then evaluated for their ability to stay within the
budget and to make the best use of available resources.
94) The top managers of an organization typically use a variety of financial indicators to assess
the performance of their organizations. Discuss the four major types of financial measures.

Top managers are most concerned with overall organizational performance and use various
financial measures to evaluate it. The most common are profit ratios, liquidity ratios, leverage
ratios, and activity ratios.
 Profit ratios measure how efficiently managers are using the organization's resources to
generate profits. Return on investment (ROI), an organization's net income before taxes
divided by its total assets, is the most commonly used financial performance measure
because it allows managers of one organization to compare performance with that of
other organizations. ROI lets managers assess an organization's competitive advantage.
Operating margin is calculated by dividing a company's operating profit (the amount it
has left after all the costs of making the product and running the business have been
deducted) by sales revenues. This measure tells managers how efficiently an organization
is using its resources.
 Liquidity ratios measure how well managers have protected organizational resources to
be able to meet short-term obligations. The current ratio (current assets divided by current
liabilities) tells managers whether they have the resources available to meet the claims of
short-term creditors. The quick ratio shows whether they can pay these claims without
selling inventory.
 Leverage ratios, such as the debt-to-assets ratio and the times-covered ratio, measure the
degree to which managers use debt (borrow money) or equity (issue new shares) to
finance ongoing operations. An organization is highly leveraged if it uses more debt than
equity. Debt can be risky when net income or profit fails to cover the interest on the debt.
 Activity ratios show how well managers are creating value from organizational assets.
Inventory turnover measures how efficiently managers are turning inventory over so
excess inventory is not carried. Days sales outstanding reveals how efficiently managers
are collecting revenue from customers to pay expenses.
95) Behavior control is one way managers attempt to motivate workers. Discuss three ways
managers could use behavior control with subordinates.

Managers can attempt to control the behavior of subordinates by direct supervision, by using
management by objectives (MBO), and by the use of rules and standard operating procedures.
 Direct supervision: The most immediate and potent form of behavior control is direct
supervision by managers who actively monitor and observe the behavior of their
subordinates, teach subordinates the behaviors that are appropriate and inappropriate, and
intervene to take corrective action as needed.
 Management by objectives: To provide a framework within which to evaluate
subordinates' behavior and, in particular, to allow managers to monitor progress toward
achieving goals, many organizations implement some version of management by
objectives. Management by objectives (MBO) is a formal system of evaluating
subordinates on their ability to achieve specific organizational goals or performance
standards and to meet operating budgets.
 Specific goals and objectives are established at each level of the organization. Top
managers set overall organizational objectives, which then cascade down from divisional
and functional managers to first-level managers.
 Managers and their employees together determine the employees' goals. Not only is it
important for employees to be involved in goal-setting to strengthen their commitment,
but also is a chance for them to share with managers realistic goals they can achieve.
 Managers and their employees periodically review the employees' progress toward
meeting goals. In order to meet their goals, managers should sit down with their
employees periodically to evaluate their progress.
96) Direct supervision is one of the best ways for managers to monitor the behavior of
subordinates, but this method of behavior control can create problems with subordinates.
Discuss the problems that can occur for managers when working with subordinates.

Some of the problems associated with direct supervision are the following:
 Expenses increase because a manager can personally manage only a relatively small
number of subordinates effectively, so more managers need to be employed.
 Direct supervision can demotivate subordinates. This occurs if employees feel they are
under such close scrutiny that they are not free to make their own decisions or if they feel
they are not being evaluated in an accurate and impartial way.
 For many jobs, personal control through direct supervision is simply not feasible. The
more complex a job is, the more difficult it is for a manager to evaluate how well a
subordinate is performing.

97) Management by objectives (MBO) is one way that managers can evaluate the performance of
subordinates. Discuss the steps involved in using this technique.

Management by objectives (MBO) involves three specific steps:

Specific goals and objectives are established at each level of the organization: MBO starts when
top managers establish overall organizational objectives. Then objective setting cascades down
throughout the organization as managers at the divisional and functional levels set their goals to
achieve corporate objectives. Finally, first-level managers and employees jointly set goals that
will contribute to achieving functional objectives. Managers and their subordinates together
determine the subordinates' goals: An important characteristic of MBO is its participatory nature.
Managers at every level sit down with each of the subordinate managers who report directly to
them, and together they determine appropriate and feasible goals for the subordinate and bargain
over the budget that the subordinate will need to achieve his or her goals. The participation of
subordinates in the objective-setting process is a way of strengthening their commitment to
achieving their goals and meeting their budgets. Participating in goal setting enables
subordinates to tell managers what they think they can realistically achieve.
98) Discuss the reasons why it is important for managers to be sensitive about the way they use
bureaucratic control.

First, establishing rules is always easier than discarding them. Organizations tend to become
overly bureaucratic over time as managers do everything according to the rule book. If the
amount of red tape becomes too great, decision making slows and managers react slowly to
changing conditions. Second, because rules constrain and standardize behavior and lead people
to behave in predictable ways, there is a danger that people become so used to automatically
following rules that they stop thinking for themselves. Thus, too much standardization can
actually reduce the level of learning taking place in an organization and get the organization off
track if managers and workers focus on the wrong issues. An organization thrives when its
members are constantly thinking of new ways to increase efficiency, quality, and customer
responsiveness.

99) How does organizational culture help managers exert control over subordinates?

Organizational culture can help managers exert control in situations where output or behavior
control is not feasible, and a strong, positive set of organizational values and norms can cause
employees to focus on what is best for the company. Organizational culture is not an externally
imposed system of constraints, such as direct supervision or rules and procedures. Rather,
employees internalize organizational values and norms and then let these values and norms guide
their decisions and actions.
100) Compare and contrast adaptive culture and inert culture. Which is better for an
organization and why? Give at least two examples of what organizations with each of these
do to develop their cultures.

Student answers and examples will vary but should demonstrate understanding of adaptive and
inert cultures.
An adaptive culture is one that controls employee attitudes and behavior. By contrast, an inert
culture is one that leads to values and norms that fail to inspire employees, and lead to stagnation
and often failure over time.
Adaptive cultures are better because they are not only able to motivate and control employees,
but they have values and norms that help an organization to build momentum and to grow and
change as needed to achieve their goals and be effective. Organizations with strong adaptive
cultures invest in their employees. They demonstrate their commitment to their members by
emphasizing the long-term nature of the employment relationship and trying to avoid layoffs.
These companies develop long-term career paths for their employees and invest heavily in
training and development to increase employees' value to the organization. In these ways,
terminal and instrumental values pertaining to the worth of human resources encourage the
development of supportive work attitudes and behaviors. In adaptive cultures, employees often
receive rewards linked directly to their performance and to the performance of the company as a
whole. Moreover, an adaptive culture develops an emphasis on entrepreneurship and respect for
the employee and allows the use of organizational structures that empower employees to make
decisions and motivate them to succeed. Many creative organizations, such as software
companies, are adaptive.
Some organizations, however, develop cultures with values that do not include protecting and
increasing the worth of their human resources as a major goal. Their employment practices are
based on short-term employment according to the needs of the organization and on minimal
investment in employees who perform simple, routine tasks. Moreover, employees are not often
rewarded based on their performance and thus have little incentive to improve their skills or
otherwise invest in the organization to help it to achieve goals. If a company has an inert culture,
poor working relationships frequently develop between the organization and its employees, and
instrumental values of noncooperation, laziness, and loafing and work norms of output restriction
are common. In an inert culture, employees are content to be told what to do and have little
incentive or motivation to perform beyond minimum work requirements. In these cultures, the
emphasis is on close supervision and hierarchical authority, which result in a culture that makes
it difficult to adapt to a changing environment. Fast food restaurants often have inert cultures.
101) Discuss the need to balance two opposing forces in the control process that influences the
way organizations change.

There is a fundamental tension or need to balance two opposing forces in the control process that
influences the way organizations change. Organizations and their managers need to be able to
control their activities and make their operations routine and predictable. At the same time,
however, organizations have to be responsive to the need to change, and managers and
employees have to “think on their feet” and realize when they need to depart from routines to be
responsive to unpredictable events. In other words, even though adopting the right set of output
and behavior controls is essential for improving 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.

1) Essay
Assessing the need for change calls for two important activities: recognizing that there is a
problem and identifying its source. Sometimes the need for change is obvious, such as when an
organization’s performance is suffering. Often, however, managers have trouble determining that
something is going wrong because problems develop gradually; organizational performance may
slip for a number of years before a problem becomes obvious. Thus, during the first step in the
change process, managers need to recognize that there is a problem that requires change. To
discover the source of the problem, managers need to look both inside and outside the
organization. Outside the organization, they must examine how changes in environmental forces
may be creating opportunities and threats that are affecting internal work relationships. Managers
also need to look within the organization to see whether its structure is causing problems
between departments.

102) Identify and discuss the two activities that are important for assessing the need for change
in an organization.
Answer Key
Test name: chapter 8

2) TRUE
Controlling can raise the level of innovation in an organization. Successful innovation takes
place when managers create an organizational setting in which employees feel empowered to be
creative and in which authority is decentralized to employees so they feel free to experiment and
take control of their work activities.

3) TRUE
Managers use feed forward control to anticipate problems before they arise so problems do not
occur later during the conversion process.

4) FALSE
The first step in the control process is to establish the standards of performance, goals, or targets
against which performance is to be evaluated.

5) FALSE
Standard operating procedures are mechanisms for bureaucratic and behavior control.

6) TRUE
Activity ratios show how well managers are creating value from organizational assets. Inventory
turnover ratio is an example of the activity ratio that measures how efficiently managers are
turning inventory over so excess inventory is not carried.

7) TRUE
Output control is used at every level of the organization, and it is vital that the goals set at each
level harmonize with the goals set at other levels so managers and other employees throughout
the organization work together to attain the corporate goals that top managers have set.

8) TRUE
Bureaucratic control is control by means of a comprehensive system of rules and standard
operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and
individuals.

9) FALSE
Organizational culture is not an externally imposed system of constraints, such as direct
supervision or rules and procedures. Rather, employees internalize organizational values and
norms and then let these values and norms guide their decisions and actions.
10) TRUE
An adaptive culture develops an emphasis on entrepreneurship and respect for the employee and
allows the use of organizational structures, such as the cross-functional team structure, that
empower employees to make decisions and motivate them to succeed.

11) FALSE
Benchmarking involves comparing an organization's productivity on specific dimensions to the
performance of a high-performing organization.

12) FALSE
Kurt Lewin’s Force-Field Theory of Change has three stages: unfreezing, changing, and
refreezing.

13) C
Controlling is the process whereby managers monitor and regulate how efficiently and
effectively an organization and its members are performing the activities necessary to achieve
organizational goals. Control does not mean just reacting to events after they have occurred. It
also means keeping an organization on track, anticipating events that might occur, and then
changing the organization to respond to whatever opportunities or threats have been identified.

14) C
Control systems are formal target-setting, monitoring, evaluation, and feedback systems that
provide managers with information about whether the organization's strategy and structure are
working efficiently and effectively. Effective control systems alert managers when something is
going wrong and give them time to respond to opportunities and threats.

15) A
At the input stage, managers use feedforward control to anticipate problems before they arise so
that problems do not occur later, during the conversion process.

16) B
Feedforward control is used to anticipate problems before they arise so problems do not occur
later during the conversion process.

17) B
Managers can use feedforward control while screening job applicants, often by viewing their
résumés electronically, and using several interviews to select the most highly skilled people,
which can lessen the chance that they will hire people who lack the necessary skills or
experience to perform effectively.

18) A
Managers use feedforward control to anticipate problems before they arise so that problems do
not occur later. The development of management information systems promotes feedforward
control that gives managers timely information about changes in the task and general
environments that may impact their organization later on.

19) C
At the conversion stage, concurrent control gives managers immediate feedback on how
efficiently inputs are being transformed into outputs so that managers can correct problems as
they arise.

20) D
At the conversion stage, concurrent control gives managers immediate feedback on how
efficiently inputs are being transformed into outputs so that managers can correct problems as
they arise, be it a defective batch of inputs, a machine that is out of alignment, or a worker who
lacks the skills necessary to perform a task efficiently.

21) D
At the output stage, managers use feedback control to provide information about customers'
reactions to goods and services so that corrective action can be taken if necessary.

22) D
At the output stage, managers use feedback control to provide information about customers'
reactions to goods and services so that corrective action can be taken if necessary. A feedback
control system that monitors the number of customer returns alerts managers when defective
products are being produced.

23) B
At the conversion stage, concurrent control gives managers immediate feedback on how
efficiently inputs are being transformed into outputs so managers can correct problems as they
arise.

24) B
Constantinople is attempting to learn about changes in customers' tastes so that it can increase or
decrease production of products as necessary. Thus, this is feedback control. Feedback control is
used to provide information about customers' reactions to goods and services so corrective action
can be taken if necessary.

25) A
At step 1 in the control process, managers decide on the standards of performance, goals, or
targets that they will use in the future to evaluate the performance of the entire organization or
part of it.

26) B
Once managers have decided which standards or targets they will use to evaluate performance,
the next step in the control process is to measure actual performance. In practice, managers can
measure or evaluate two things: (1) the actual outputs that result from the behavior of their
members and (2) the behaviors themselves.

27) D
At the corporate level, a standard of performance that measures efficiency is operating costs, the
actual costs associated with producing goods and services, including all employee-related costs.

28) B
Step 3 of the control process compares actual performance against chosen standards of
performance. Managers evaluate whether, and to what extent, the performance of the
organization deviates from the set standards of performance.

29) C
After measuring the actual level of performance of employees, the next step of the control
process is to compare the actual performance against chosen standards of performance.

30) A
The final step in the control process is to evaluate the results and bring about change as
appropriate.

31) D
If managers find out that the level of performance is unacceptable, they must try to change how
work activities are performed to solve the problem.

32) B
When an organization and its members perform complex, nonroutine activities that are
intrinsically hard to measure, it is more challenging for managers to measure outputs or behavior.
It is impossible for a manager to measure how creative a graphic designer is by watching their
actions.

33) A
The final step in the control process is to evaluate the results and bring about change as
appropriate. If managers decide the level of performance is unacceptable, they must try to change
how work activities are performed to solve the problem.

34) A
At step 1 in the control process, managers decide on the standards of performance, goals, or
targets that they will use in the future to evaluate the performance of the entire organization or
part of it (such as a division, a function, or an individual). The standards of performance that
managers select measure efficiency, quality, responsiveness to customers, and innovation.

35) A
Coldrock Ice Cream is tracking an output (number of customers served) and will adjust its
production process to try to match demand. This is a form of output control.

36) B
The convenience store is tracking an output (sales per customer) and will alter its product mix
accordingly. This is a form of output control.

37) C
Profit ratios measure how efficiently managers are using the organization's resources to generate
profits.

38) D
Return on investment (ROI) is the most commonly used financial performance measure because
it allows managers of one organization to compare performance with that of other organizations.
ROI lets managers assess an organization's competitive advantage.

39) B
Return on investment = net income before taxes/total assets.

40) B
Liquidity ratios measure how well managers have protected organizational resources to be able
to meet short-term obligations. The current ratio (current assets divided by current liabilities)
tells managers whether they have the resources available to meet the claims of short-term
creditors.

41) C
The quick ratio = (current assets - inventory)/current liabilities.

42) A
The quick ratio = (current assets - inventory)/current liabilities. Therefore, the quick ratio = (25 -
1)/6 = 24/6 = 4.

43) B
The quick ratio shows whether managers can pay these claims without selling inventory.

44) A
The quick ratio tells whether managers have the resources available to meet the claims of short-
term creditors without selling inventory.

45) B
ROI = net profit before taxes/total assets = $30,000/$600,000 = .05 = 5 percent.

46) D
ROI = net profit before taxes + taxes paid/total assets = ($18,000 + $2,000)/$160,000 = .125 =
12.5 percent.

47) D
Current ratio = current assets/current liabilities = $250,000/$300,000 = .83.

48) D
Current ratio = current assets/current liabilities = $180,000/$240,000 = .75.

49) A
Leverage ratios, such as the debt-to-assets ratio and the times-covered ratio, measure the degree
to which managers use debt (borrow money) or equity (issue new shares) to finance ongoing
operations.

50) D
Activity ratios provide measures of how well managers are creating value from organizational
assets.

51) D
Days sales outstanding provides information on how efficiently managers are collecting revenue
from customers to pay expenses.

52) A
Managers of a division may be given a fixed budget for resources and be evaluated on the
amount of goods or services they can produce using those resources. This is a cost or expense
budget approach.
53) C
In a revenue budget approach, managers are asked to maximize the revenues from the sales of
goods and services produced. Managers are then remunerated on the basis of the net sales
generated by the division.

54) B
With a revenue budget, managers are asked to maximize the revenues from the sales of goods
and services produced.

55) D
Managers may be evaluated on the difference between the revenues generated by the sales of
goods and services and the budgeted cost of making those goods and services. This is called a
profit budget approach.

56) A
In a profit budget approach, managers are evaluated on the difference between the revenues
generated by the sales of goods and services and the budgeted cost of making those goods and
services.

57) C
Mechanisms of control for organizational culture include values, norms, and socialization.

58) D
Management by objectives is a mechanism of control for behavior control.

59) A
The most immediate and potent form of behavior control is direct supervision by managers who
actively monitor and observe the behavior of their subordinates, teach subordinates the behaviors
that are appropriate and inappropriate, and intervene to take corrective action as needed.

60) B
Management by objective starts when top managers establish overall organizational objectives
such as specific financial performance targets.

61) A
Bureaucratic control is control by means of a comprehensive system of rules and standard
operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and
individuals.

62) C
An organization thrives when its members are constantly thinking of new ways to increase
efficiency, quality, and customer responsiveness. By definition, new ideas do not come from
blindly following standardized procedures. Similarly, the pursuit of innovation implies a
commitment by managers to discover new ways of doing things; innovation, however, is
incompatible with the use of extensive bureaucratic control.

63) B
When employees follow the rules that managers have developed, their behavior is standardized
—actions are performed the same way time and time again—and the outcomes of their work are
predictable.

64) A
Bureaucratic control is control by means of a comprehensive system of rules and standard
operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and
individuals. It is the responsibility of a manager to develop rules that allow employees to perform
their activities efficiently and effectively. When employees follow the rules that managers have
developed, their behavior is standardized—actions are performed the same way time and time
again—and the outcomes of their work are predictable.

65) C
Certain problems are associated with direct supervision. First, it is expensive because a manager
can personally manage only a relatively small number of subordinates effectively. Therefore, if
direct supervision is the main kind of control being used in an organization, a lot of managers
will be needed and costs will increase. For this reason, output control is usually preferred to
behavior control; indeed, output control tends to be the first type of control that managers at all
levels use to evaluate performance.

66) D
Managers need to be aware of a number of problems associated with bureaucratic control,
because such problems can reduce organizational effectiveness. Rules that constrain and
standardize behavior lead people to behave in predictable ways, but there is a danger that people
become so used to automatically following rules that they stop thinking for themselves. Too
much standardization can actually reduce the level of learning taking place in an organization.

67) A
To provide a framework within which to evaluate subordinates’ behavior and, in particular, to
allow managers to monitor progress toward achieving goals, many organizations implement
some version of management by objectives. Management by objectives (MBO) is a formal
system of evaluating subordinates on their ability to achieve specific organizational goals or
performance standards and to meet operating budgets. Most organizations use some form of
MBO system because it is pointless to establish goals and then fail to evaluate whether they are
being achieved. Management by objectives involves three specific steps. In the first step, specific
goals and objectives are established at each level of the organization. In the second step,
managers and their subordinates together determine the subordinates’ goals. In the third step,
managers and their subordinates periodically review the subordinates’ progress toward meeting
goals.

68) B
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.

69) C
Clan control is the control exerted on individuals and groups in an organization by shared values,
norms, standards of behavior, and expectations.

70) C
An adaptive culture is a strong and cohesive organizational culture that controls employee
attitudes and behaviors.

71) A
In adaptive cultures employees often receive rewards linked directly to their performance and to
the performance of the company as a whole. Sometimes, employee stock ownership plans
(ESOPs) are developed in which workers as a group are allowed to buy a significant percentage
of their company's stock.

72) B
Inert cultures are those that lead to values and norms that fail to motivate or inspire employees;
they lead to stagnation and often failure over time.

73) A
In an inert culture, employees are content to be told what to do and have little incentive or
motivation to perform beyond minimum work requirements. As you might expect, the emphasis
is on close supervision and hierarchical authority, which results in a culture that makes it difficult
to adapt to a changing environment.
74) D
Companies with adaptive culture develop long-term career paths for their employees and invest
heavily in training and development to increase employees' value to the organization. In these
ways, terminal and instrumental values pertaining to the worth of human resources encourage the
development of supportive work attitudes and behaviors.

75) C
An adaptive culture develops an emphasis on entrepreneurship and respect for the employee and
allows the use of organizational structures, such as the cross-functional team structure, that
empower employees to make decisions and motivate them to succeed. By contrast, in an inert
culture, employees are content to be told what to do and have little incentive or motivation to
perform beyond minimum work requirements.

76) A
In adaptive cultures, employees often receive rewards linked directly to their performance and to
the performance of the company as a whole.

77) B
Strong adaptive cultures invest in their employees. These companies develop long-term career
paths for their employees and invest heavily in training and development to increase employees’
value to the organization. In these ways, terminal and instrumental values pertaining to the worth
of human resources encourage the development of supportive work attitudes and behaviors. They
empower employees to make decisions and motivate them to succeed. Hence, managers giving
their employees autonomy in decision making is the best answer.

78) A
Organizational change can affect practically all aspects of organizational functioning, including
organizational structure, culture, strategies, control systems, and groups and teams, as well as the
human resource management system and critical organizational processes such as
communication, motivation, and leadership.

79) D
During evaluation of change, managers also can use benchmarking, comparing their performance
on specific dimensions with the performance of high-performing organizations, to decide how
successful a change effort has been.

80) C
In the stage involving implementation of change, managers decide whether change will occur
from the top down or from the bottom up. Thereafter, they introduce and manage change
accordingly.
81) C
Organizational learning is the process through which managers try to increase organizational
members' abilities to understand and appropriately respond to changing conditions.

82) C
Assessing the need for change calls for managers to perform two important activities: (1)
recognizing that there is a problem and (2) identifying its source.

83) D
Benchmarking is comparing one company's performance on specific dimensions with the
performance of high-performing organizations to decide how successful a change effort has
been.

84) C
Top-down change is 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.

85) D
Bottom-up change is a gradual or evolutionary approach to change in which managers at all
levels work together to develop a detailed plan for change.

86) B
Bottom-up change is a gradual or evolutionary approach to change in which managers at all
levels work together to develop a detailed plan for change.

87) A
Bottom-up change is typically more gradual or evolutionary. Top managers consult with middle
and first-line managers about the need for change. Then, over time, managers at all levels work
to develop a detailed plan for change. A major advantage of bottom-up change is that it can co-
opt resistance to change from employees. Because the emphasis in bottom-up change is on
participation and on keeping people informed about what is going on, uncertainty and resistance
are minimized.

88) D
The freestyle approach continues to use customers’ style profile information but allows shoppers
to curate their own personal online shopping experience.

89) A
According to Lewin’s force-field theory, a wide variety of forces arise from the way an
organization operates—from its structure, culture, and control systems—that make organizations
resistant to change.

90) B
Lewin’s three stages of change are commonly known today as unfreezing, changing, and
refreezing to achieve organizational change.

91) Essay
Control systems are formal target-setting, monitoring, evaluation, and feedback systems that
provide managers with information about whether the organization's strategy and structure are
working efficiently and effectively. Effective control systems alert managers when something is
going wrong and give them time to respond to opportunities and threats. An effective control
system has the following characteristics:
 It is flexible enough to allow managers to respond as necessary to unexpected events.
 It provides accurate information about organizational performance.
 It gives managers information in a timely manner because making decisions on the basis
of outdated information is a recipe for failure.

92) Essay
At the input stage, managers use feedforward control to anticipate problems before they arise.
For example, by giving product specifications to suppliers in advance, an organization can
control the quality of the inputs it receives from its suppliers and thus avoid potential problems
during the conversion process. Also, technology can be used to keep in contact with suppliers
and to monitor their progress. Similarly, by screening job applicants, often by viewing their
résumés electronically and using several interviews to select the most highly skilled people,
managers can lessen the chance that they will hire people who lack the necessary skills or
experience to perform effectively. In general, the development of management information
systems promotes feedforward control that gives managers timely information about changes in
the task and general environments that may impact their organization later on.

93) Essay
Whether or not performance standards have been met, managers can learn a great deal during
this step. If managers decide the level of performance is unacceptable, they must try to change
how work activities are performed to solve the problem. Sometimes performance problems occur
because the work standard was too high—for example, a sales target was too optimistic and
impossible to achieve. In this case, adopting more realistic standards can reduce the gap between
actual performance and desired performance. However, if managers determine that something in
the situation is causing the problem, then to raise performance they will need to change how
resources are utilized or shared. Perhaps the latest technology is not being used; perhaps workers
lack the advanced training needed to perform at a higher level; perhaps the organization needs to
buy its inputs or assemble its products abroad to compete against low-cost rivals; perhaps it
needs to restructure itself or reengineer its work processes to increase efficiency.

94) Essay
The three main mechanisms that managers use to assess output or performance are financial
measures, organizational goals, and operating budgets.
 Financial measures of performance: Top managers are most concerned with overall
organizational performance and use various financial measures to evaluate it. The most
common are profit ratios, liquidity ratios, leverage ratios, and activity ratios.
 Organizational goals: Once top managers consult with lower-level managers and set the
organization's overall goals, they establish performance standards for the divisions and
functions. 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.
 Operating budgets: Once managers at each level have been given a target to achieve, the
next step in developing an output control system is to establish operating budgets that
regulate how managers and workers attain their goals. An operating budget is a blueprint
that states how managers intend to use organizational resources to achieve organizational
goals efficiently. Typically managers at one level allocate to subordinate managers a
specific amount of resources to produce goods and services. Once they have been given a
budget, these lower-level managers must decide how to allocate money for different
organizational activities. They are then evaluated for their ability to stay within the
budget and to make the best use of available resources.

95) Essay
Top managers are most concerned with overall organizational performance and use various
financial measures to evaluate it. The most common are profit ratios, liquidity ratios, leverage
ratios, and activity ratios.
 Profit ratios measure how efficiently managers are using the organization's resources to
generate profits. Return on investment (ROI), an organization's net income before taxes
divided by its total assets, is the most commonly used financial performance measure
because it allows managers of one organization to compare performance with that of
other organizations. ROI lets managers assess an organization's competitive advantage.
Operating margin is calculated by dividing a company's operating profit (the amount it
has left after all the costs of making the product and running the business have been
deducted) by sales revenues. This measure tells managers how efficiently an organization
is using its resources.
 Liquidity ratios measure how well managers have protected organizational resources to
be able to meet short-term obligations. The current ratio (current assets divided by current
liabilities) tells managers whether they have the resources available to meet the claims of
short-term creditors. The quick ratio shows whether they can pay these claims without
selling inventory.
 Leverage ratios, such as the debt-to-assets ratio and the times-covered ratio, measure the
degree to which managers use debt (borrow money) or equity (issue new shares) to
finance ongoing operations. An organization is highly leveraged if it uses more debt than
equity. Debt can be risky when net income or profit fails to cover the interest on the debt.
 Activity ratios show how well managers are creating value from organizational assets.
Inventory turnover measures how efficiently managers are turning inventory over so
excess inventory is not carried. Days sales outstanding reveals how efficiently managers
are collecting revenue from customers to pay expenses.

96) Essay
Managers can attempt to control the behavior of subordinates by direct supervision, by using
management by objectives (MBO), and by the use of rules and standard operating procedures.
 Direct supervision: The most immediate and potent form of behavior control is direct
supervision by managers who actively monitor and observe the behavior of their
subordinates, teach subordinates the behaviors that are appropriate and inappropriate, and
intervene to take corrective action as needed.
 Management by objectives: To provide a framework within which to evaluate
subordinates' behavior and, in particular, to allow managers to monitor progress toward
achieving goals, many organizations implement some version of management by
objectives. Management by objectives (MBO) is a formal system of evaluating
subordinates on their ability to achieve specific organizational goals or performance
standards and to meet operating budgets.
 Specific goals and objectives are established at each level of the organization. Top
managers set overall organizational objectives, which then cascade down from divisional
and functional managers to first-level managers.
 Managers and their employees together determine the employees' goals. Not only is it
important for employees to be involved in goal-setting to strengthen their commitment,
but also is a chance for them to share with managers realistic goals they can achieve.
 Managers and their employees periodically review the employees' progress toward
meeting goals. In order to meet their goals, managers should sit down with their
employees periodically to evaluate their progress.

97) Essay
Some of the problems associated with direct supervision are the following:
 Expenses increase because a manager can personally manage only a relatively small
number of subordinates effectively, so more managers need to be employed.
 Direct supervision can demotivate subordinates. This occurs if employees feel they are
under such close scrutiny that they are not free to make their own decisions or if they feel
they are not being evaluated in an accurate and impartial way.
 For many jobs, personal control through direct supervision is simply not feasible. The
more complex a job is, the more difficult it is for a manager to evaluate how well a
subordinate is performing.

98) Essay
Management by objectives (MBO) involves three specific steps:
Specific goals and objectives are established at each level of the organization: MBO starts when
top managers establish overall organizational objectives. Then objective setting cascades down
throughout the organization as managers at the divisional and functional levels set their goals to
achieve corporate objectives. Finally, first-level managers and employees jointly set goals that
will contribute to achieving functional objectives. Managers and their subordinates together
determine the subordinates' goals: An important characteristic of MBO is its participatory nature.
Managers at every level sit down with each of the subordinate managers who report directly to
them, and together they determine appropriate and feasible goals for the subordinate and bargain
over the budget that the subordinate will need to achieve his or her goals. The participation of
subordinates in the objective-setting process is a way of strengthening their commitment to
achieving their goals and meeting their budgets. Participating in goal setting enables
subordinates to tell managers what they think they can realistically achieve.

99) Essay
First, establishing rules is always easier than discarding them. Organizations tend to become
overly bureaucratic over time as managers do everything according to the rule book. If the
amount of red tape becomes too great, decision making slows and managers react slowly to
changing conditions. Second, because rules constrain and standardize behavior and lead people
to behave in predictable ways, there is a danger that people become so used to automatically
following rules that they stop thinking for themselves. Thus, too much standardization can
actually reduce the level of learning taking place in an organization and get the organization off
track if managers and workers focus on the wrong issues. An organization thrives when its
members are constantly thinking of new ways to increase efficiency, quality, and customer
responsiveness.

100) Essay
Organizational culture can help managers exert control in situations where output or behavior
control is not feasible, and a strong, positive set of organizational values and norms can cause
employees to focus on what is best for the company. Organizational culture is not an externally
imposed system of constraints, such as direct supervision or rules and procedures. Rather,
employees internalize organizational values and norms and then let these values and norms guide
their decisions and actions.

101) Essay
Student answers and examples will vary but should demonstrate understanding of adaptive and
inert cultures.
An adaptive culture is one that controls employee attitudes and behavior. By contrast, an inert
culture is one that leads to values and norms that fail to inspire employees, and lead to stagnation
and often failure over time.
Adaptive cultures are better because they are not only able to motivate and control employees,
but they have values and norms that help an organization to build momentum and to grow and
change as needed to achieve their goals and be effective. Organizations with strong adaptive
cultures invest in their employees. They demonstrate their commitment to their members by
emphasizing the long-term nature of the employment relationship and trying to avoid layoffs.
These companies develop long-term career paths for their employees and invest heavily in
training and development to increase employees' value to the organization. In these ways,
terminal and instrumental values pertaining to the worth of human resources encourage the
development of supportive work attitudes and behaviors. In adaptive cultures, employees often
receive rewards linked directly to their performance and to the performance of the company as a
whole. Moreover, an adaptive culture develops an emphasis on entrepreneurship and respect for
the employee and allows the use of organizational structures that empower employees to make
decisions and motivate them to succeed. Many creative organizations, such as software
companies, are adaptive.
Some organizations, however, develop cultures with values that do not include protecting and
increasing the worth of their human resources as a major goal. Their employment practices are
based on short-term employment according to the needs of the organization and on minimal
investment in employees who perform simple, routine tasks. Moreover, employees are not often
rewarded based on their performance and thus have little incentive to improve their skills or
otherwise invest in the organization to help it to achieve goals. If a company has an inert culture,
poor working relationships frequently develop between the organization and its employees, and
instrumental values of noncooperation, laziness, and loafing and work norms of output restriction
are common. In an inert culture, employees are content to be told what to do and have little
incentive or motivation to perform beyond minimum work requirements. In these cultures, the
emphasis is on close supervision and hierarchical authority, which result in a culture that makes
it difficult to adapt to a changing environment. Fast food restaurants often have inert cultures.

102) Essay
There is a fundamental tension or need to balance two opposing forces in the control process that
influences the way organizations change. Organizations and their managers need to be able to
control their activities and make their operations routine and predictable. At the same time,
however, organizations have to be responsive to the need to change, and managers and
employees have to “think on their feet” and realize when they need to depart from routines to be
responsive to unpredictable events. In other words, even though adopting the right set of output
and behavior controls is essential for improving 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.

103) Essay
Assessing the need for change calls for two important activities: recognizing that there is a
problem and identifying its source. Sometimes the need for change is obvious, such as when an
organization’s performance is suffering. Often, however, managers have trouble determining that
something is going wrong because problems develop gradually; organizational performance may
slip for a number of years before a problem becomes obvious. Thus, during the first step in the
change process, managers need to recognize that there is a problem that requires change. To
discover the source of the problem, managers need to look both inside and outside the
organization. Outside the organization, they must examine how changes in environmental forces
may be creating opportunities and threats that are affecting internal work relationships. Managers
also need to look within the organization to see whether its structure is causing problems
between departments.