MF3122 Principles of Management

LECTURE 9

CONTROLLING
By
Dr. Nisha Palagolla
22nd March 2024

[email protected]
 MF3122 Principles of Management

LEARNING OUTCOMES
On successful completion of this lesson, the learner will be able to:

LO1: Define and identify the concept of Organizational Control.

LO2: Describe the nature and the need of controlling.
LO3: Examine various controlling models and approaches.
LO4: Explain the concept of TQM and analyze different TQM
techniques.
LO5: Summarize and assess different aspects of controlling

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THE MEANING OF CONTROL
Ø Organizational control refers to the systematic process of
regulating organizational activities to make them consistent with
the expectations established in plans, targets, and standards of
performance.

Ø organizations often have trouble ensuring that managers,

employees, and partners stay aligned with the behaviors needed
to support goals and meet expectations.

Ø The essence of control is action which adjusts operations to

predetermined standards, and its basis is information in the hands
of managers.
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CONTROLING & CONTROL PROCESS

The process of monitoring and evaluating the behavior of

organizational members and the effectiveness of organization
itself and taking corrective actions if needed to maintain or improve
organizational effectiveness.

ØA managerial activity.
ØControlling activity involves watch, evaluate, and when needed,
suggest corrective action.
ØControlling is a complex activity that is performed at many
organizational levels.
ü Upper-level managers: overall strategic plans.
ü Middle-level managers: divisional and departmental plans
ü Lower-level managers: groups and individual employees
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THE NEED FOR CONTROL

Although there is a continual and universal need for control in

organizations, the importance, amount, and type of control vary
across organizational situations

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THE NEED OF INFORMATION
Ø An organization requires information for controlling effectively,

ü Performance standards
ü Actual performance
ü Actions taken to correct any deviations from the standards.

Ø Managers decide which standards, measurements, and metrics

are needed to monitor and control the organization effectively,
and they set up systems for obtaining that information.

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FEEDBACK CONTROL MODEL
Ø The feedback control model involves using feedback to
determine whether performance meets established standards.

Ø Well-designed control systems include four key steps:

ü Establish standards
ü Measure performance
ü Compare performance to standards
ü Make corrections as necessary.

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FEEDBACK CONTROL MODEL

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THE BALANCED SCORECARD
Ø A balanced scorecard is a comprehensive management control
system that balances traditional financial measures with
measures of customer service, internal business processes, and
the organization’s capacity for learning and growth.

Ø A balanced scorecard contains four major perspectives:

ü Financial performance
ü Customer service
ü Internal business processes
ü Organization’s capacity for learning and growth

Ø Within these four areas, managers identify key performance

metrics that the organization will track. 9
THE BALANCED SCORECARD

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KEY PERFORMANCE METRICS
Ø Financial performance
ü Net income
ü Return on investment.

Ø Customer service
ü How customers view the organization? Customers’ testimonials
ü Customer retention? Customer surveys.
ü Customer satisfaction rates?

Ø Internal business processes

ü Production and operating statistics

Ø Organization’s capacity for learning and growth

ü How well resources and human capital are being managed for the
company’s future? Employee retention rate
Introduction of new products. 11
THE CHANGING PHILOSOPHY OF CONTROL

Ø Managers’ approach to control is changing in many of

today’s organizations.

Ø With the shift to employee participation and

empowerment, many companies are adopting:

ü A decentralized control process rather than a

hierarchical control process.

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HIERARCHICAL Vs DECENTRALIZED APPROACHES

Ø Hierarchical Control involves monitoring and influencing

employee behavior through extensive use of rules,
policies, hierarchy of authority, written documentation,
reward systems, and other formal mechanisms.

Ø Decentralized Control relies on cultural values, traditions,

shared beliefs, and trust to foster compliance with
organizational goals. Managers operate on the
assumption that employees are trustworthy and willing
to perform effectively without extensive rules and
close supervision. 13
HIERARCHICAL Vs DECENTRALIZED APPROACHES

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THE DILEMMA OF ALGORITHMIC CONTROL

Ø Algorithmic control is the use of software algorithms to

set targets, measure performance, provide feedback,
and decide rewards for employees.

Ø These systems meet a need in organizations where

employees work remotely or out of the view of
management, including “gig worker” platforms such as
Uber, UPS.

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TOTAL QUALITY MANAGEMENT

Ø TQM is a popular approach based on a decentralized

control philosophy.

Ø TQM is an organization-wide effort to infuse quality into

every activity in a company through continuous
improvement.

Ø Managing quality is a concern for every organization,

and failure to ensure quality can have devastating
effects.

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TQM TECHNIQUES

Ø The implementation of TQM involves the use of many

techniques:

ü Quality circles
ü Benchmarking
ü Six Sigma principles
ü Quality partnering
ü Continuous improvement

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QUALITY CIRCLES
Ø A quality circle is a group of 6 to 12 volunteer employees who
meet regularly to discuss and solve problems affecting the
quality of their work.

Ø The members of the quality circle meet, identify problems, and

try to find solutions.

Ø Circle members are free to collect data and perform surveys.

Ø Many companies train people in team building, problem

solving, and statistical quality control.

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BENCHMARKING
Ø Benchmarking is “the continuous process of measuring products,
services, and practices against the toughest competitors or those
companies recognized as industry leaders to identify areas for
improvement”.

Ø A five-step benchmarking process:

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THE FIVE STEPS OF BENCHMARKING
Ø STEP 1: identifying the objectives of the study and the
characteristics of a product or service that significantly influence
customer satisfaction.
Ø STEP 2: identifying the source of the information to be collected.
Ø STEP 3: collect data.
Ø STEP 4: analyzing the benchmarking data that have been
collected and recommending areas of improvement.
Ø STEP 5: implementing recommendations and then monitoring
them through continuous benchmarking.

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SIX SIGMA

Ø Six Sigma is a quality control approach that

emphasizes a relentless pursuit of higher quality and
lower costs.

Ø Six Sigma is based on a five-step methodology

referred to as DMAIC:
ü Define
ü Measure
ü Analyze
ü Improve
ü Control 21
SIX SIGMA - DMAIC
Ø Define: a process to focus on and define the problem it
wishes to solve.
Ø Measure: the initial performance of the process, creating a
benchmark, and pinpoints a list of inputs that may be
hindering performance.
Ø Analyze: the process by isolating each input, or potential
reason for any failures, and testing it as the possible root of
the problem.
Ø Improve: implement changes that will improve system
performance.
Ø Control: add controls to the process to ensure it does not
regress and become ineffective once again.
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LEAN SIX SIGMA
Ø A team-focused managerial approach that seeks to
improve performance by eliminating waste and
defects while boosting the standardization of work.

Ø It combines Six Sigma methods and tools and the lean

manufacturing philosophy, striving to reduce the waste
of physical resources, time, effort, and talent while
assuring quality in production and organizational
processes.

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QUALITY PARTNERING
Ø A new approach called quality partnering involves assigning
dedicated personnel within a particular functional area of the
business.

Ø In this approach, the quality control personnel work alongside

others within a functional area to identify opportunities for
quality improvements throughout the work process.

Ø This integrated, partnering approach to quality makes it

possible to detect and address defects early in the product life
cycle, when they can be corrected most easily, and at the lowest
cost.
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CONTINUOUS IMPROVEMENT

Ø Kaizen, a Japanese concept, is the implementation of

a large number of small, incremental improvements in
all areas of the organization on an ongoing basis.

Ø The concept of kaizen proposes that there is no perfect

end and that employees should strive to evolve,
innovate, and improve constantly.

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THE KAIZEN CONCEPT

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TQM SUCCESS FACTORS

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BUDGETARY CONTROL

Ø One of the most commonly used methods of

managerial control.

Ø It is the process of setting targets for an organization’s

expenditures, monitoring results and comparing them to
the budget, and making changes as needed.

Ø As a control device, budgets are reports that list

planned and actual expenditures for cash, assets, raw
materials, salaries, and other resources.
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TYPES OF BUDGETS

Ø Expense budget
Ø Revenue budget
Ø Cash budget
Ø Capital budget
Ø Zero-based budgeting (ZBB)
Ø Top-down budgeting
Ø Bottom-up budgeting
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FINANCIAL CONTROL

Ø In every organization, managers need to watch how

well the organization is performing financially by
watching the numbers.

Ø Not only do the numbers tell whether the

organization is on sound financial footing,

Ø But they also can be useful indicators of other kinds

of performance problems.

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FINANCIAL STATEMENTS

Ø Income statements
The income statement summarizes the firm’s financial
performance for a given time interval.

Ø Balance sheet
The balance sheet shows the firm’s financial position with
respect to assets and liabilities at a specific point in
time.

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COMMON FINANCIAL RATIOS

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SUMMARY

Ø What is organizational control?

Ø The need for control across organizational situations.
Ø Information requirement for controlling
Ø Feedback control model
Ø Balance scorecard system
Ø Hierarchical Vs Decentralized control approaches
Ø Algorithmic control
Ø TQM & TQM techniques
Ø Budgetary control & types of budgets
Ø Financial control
Ø Financial statements & financial ratios

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REFERENCES

Ø Richard L. Daft, Management (USA: Cengage, Boston, 2021), pp.3-29.

Ø Openstax. Principles of Management (Texas: Rice University, Houston), pp. 16-28.

http://cnx.org/content/col28330/1.8

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Q&A
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