CHAPTER 8

Control, Change, and

Entrepreneurship
• Learning Objectives (1 of 2)
8-1. Define organizational control, and explain how
it increases organizational effectiveness.
8-2. Describe the four steps in the control process
and the way it operates over time.
8-3. Identify the main output controls, and discuss
their advantages and disadvantages as means
of coordinating and motivating employees.
8-4. Identify the main behavior controls, and discuss
their advantages and disadvantages as a means
of managing and motivating employees.

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• Learning Objectives (2 of 2)
8-4. Explain how organizational culture or clan
control creates an effective organizational
architecture.
8-5. Discuss the relationship between
organizational control and change, and
explain why managing change is a vital
management task.
8-6. Understand the role of entrepreneurship
in the control and change process.

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• What Is Organizational Control?
Controlling
Process where managers monitor and regulate how
efficiently and effectively an organization and its
members are performing the activities necessary to
achieve organizational goals

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• Control Systems and IT
Control Systems
Formal, target-setting, monitoring, evaluation and
feedback systems that provide managers with
information about how well the organization’s
strategy and structure are working

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• Topics for Discussion (1 of 5)
What is the relationship between organizing and
controlling? [LO 8-1]

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• Control Systems
A good control system should:
• Be flexible so managers can respond as needed
• Provide accurate information about the
organization
• Provide information in a timely manner

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• Three Types of Control
Figure 8.1

Jump to Appendix 1 long image description.

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• Types of Control (1 of 2)
Feedforward Control
Control that allows managers to anticipate problems
before they arise
Concurrent Control
Give managers immediate feedback on how
efficiently inputs are being transformed into outputs
so that managers can correct problems as they arise

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• Types of Control (2 of 2)
Feedback Control
Control that gives managers information
about customers’ reactions to goods and
services so that corrective action can be taken
if necessary

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• Four Steps in Organizational Control
Figure 8.2

Jump to Appendix 2 for long image description.

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• Topics for Discussion (2 of 5)
What kind of controls would you expect to find
most used in (a) a hospital, (b) the navy, (c) a city
police force? Why? [LO 8-1, 8-2, 8-3]

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• Three Organizational Control Systems
Figure 8.3
Type of control Mechanisms of control
Output control Financial measures of performance
Organizational goals
Operating budgets
Behavior control Direct supervision
Management by objectives
Rules and standard operating procedures
Organizational Values
culture/clan control Norms
Socialization

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• Financial Measures of Performance (1 of
2)
Profit Ratios
• Measures of how efficiently managers convert resources
into profits
• Return on investment (ROI)

Liquidity Ratios
Measures of how well managers protect resources to meet
short term debt—current and quick ratios

Jump to Appendix 3 for long image description.

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• Financial Measures of Performance (2 of
2)
Leverage Ratios
Measures of how much debt or equity is used to finance
operations—debt-to-asset and times-covered ratios

Activity Ratios
Measures of how efficiently managers are creating value
from assets—inventory turnover, days sales outstanding
ratios.

Jump to Appendix 4 long image descriptions.

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• Organizational Goals
Goals should be specific and difficult but
attainable.
Stretch Goals
Goals that challenge and stretch managers’ ability
but are not out of reach and do not require an
impossibly high expenditure of managerial time and
energy

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• Organization-Wide Goal Setting
Figure 8.4

Jump to Appendix 5 for long image description.

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• Operating Budgets (1 of 2)
Operating Budget
A blueprint that states how managers
intend to allocate and use the resources they control
to attain organizational goals effectively and
efficiently

Lower-level managers are evaluated for their ability to

stay within the budget and to make the best use of
available resources

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• Operating Budgets (2 of 2)
Three components are the essence of
effective output control.
• Objective financial measures
• Challenging goals and performance standards
• Appropriate operating budgets

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• Problems with Output Control
Managers must create output standards that
motivate at all levels.
Standards should not cause managers to behave
in inappropriate ways to achieve organizational
goals.

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• Behavior Control (1 of 3)
Direct Supervision involves managers who:
• Actively monitor and observe the behavior of
their subordinates
• Teach subordinates the behaviors that are
appropriate and inappropriate
• Intervene to take corrective action as
needed

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• Behavior Control (2 of 3)
Management by Objectives (MBO)
A goal-setting process in which managers and each
of his or her subordinates negotiate specific goals
and objectives for the subordinate to achieve and
then periodically evaluate the extent to which the
subordinate is achieving those goals

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• Management by Objectives
1. Specific goals and objectives are established
at each level of the organization.
2. Managers and their subordinates together
determine the subordinates’ goals.
3. Managers and their subordinates periodically
review the subordinates’ progress toward
meeting goals.

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• Topics for Discussion (3 of 5)
How do output control and behavior control
differ? [LO 8-1 8-2, 8-3]

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• Behavior Control (3 of 3)
Bureaucratic Control
Control of behavior by means of a
comprehensive system of rules and standard
operating procedures

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• Bureaucratic Control
Problems with Bureaucratic Control
• Rules easier to make than to discard, leading
to bureaucratic “red tape” and slowing
organizational reaction times to problems
• Loss of flexibility, new ideas, and creative
problem solving

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• Organizational Culture and Clan
Control (1 ofCulture
Organizational 2)
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

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• Topics for Discussion (4 of 5)
What is organizational culture, and how does it
affect the way employees behave? [LO 8-4]

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• Organizational Culture and Clan
Control (2 of 2)
Clan Control
Control exerted on individuals and groups in
an organization by shared values, norms,
standards of behavior, and expectations

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• Adaptive vs. Inert Culture
Adaptive Culture
Culture whose values and norms help an
organization to build momentum and to grow and
change as needed to achieve its goals and be
effective
Inert Culture
• Culture that leads to values and norms that fail to motivate
or inspire employees
• Leads to stagnation and often failure over time

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• Organizational Control and Change
Figure 8.5

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• Organizational Change (1 of 5)
Organization Change
Movement of an organization away from its
present state and toward some desired future
state to increase its efficiency and
effectiveness

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• Four Steps in the Organizational Change Process
Figure 8.6

Jump to Appendix 6 for long image description.

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• Organizational Change (2 of 5)
Organizational Learning
• Process through which managers try to increase
organizational members’ abilities to understand
and appropriately respond to changing conditions
• Impetus for change
• Can help members make decisions about changes

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• Organizational Change (3 of 5)
Top-Down Change
A fast, revolutionary approach to change in which
top managers identify what needs to be changed,
decide what to do, and then move quickly to
implement changes throughout the organization

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• Organizational Change (4 of 5)
Bottom-Up Change
A gradual or evolutionary approach to change
in which managers at all levels work together
to develop a detailed plan for change

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• Topics for Discussion (5 of 5)
Why is it important for managers to involve
subordinates in the control process? [LO 8-3,
8-4]

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• Organizational Change (5 of 5)
Benchmarking
Process of comparing one company’s
performance on specific dimensions with the
performance of other high performing
organizations

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• Entrepreneurship, Control, and Change
(1 of 3)
Entrepreneurs
People who notice opportunities and take
responsibility for mobilizing the resources necessary
to produce new and improved goods and services

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• Entrepreneurship, Control, and Change
(2 of 3)
Intrapreneurs
Employees of existing organizations who
notice opportunities for product or service
improvements and are responsible for
managing the development process

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• Entrepreneurship, Control, and Change
(3 of 3)
Entrepreneurship
Mobilization of resources to take advantage
of an opportunity to provide customers with
new or improved goods and services

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• BE A MANAGER
What kind of output controls will best facilitate
positive interactions both within the teams and
among the teams?

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