Management

Fourteenth Edition

Chapter 18
Monitoring and Controlling

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

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What Is Controlling and Why Is It
Important?
• Controlling: management function that involves
monitoring, comparing, and correcting work
performance
The process of measuring performance and
taking action to ensure desired results
Has a positive and necessary role in the
management process
Ensures that the right things happen, in the right
way, at the right time
Benefit: Organizational learning (Example: After-
action review
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Figure 9.1 The role of controlling in the
management process

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Copyright ©2015 John Wiley & Sons, Inc.
Why Is Control So Important?
• Planning
– Planning can be done, an organizational structure created to
facilitate efficient achievement of goals, and employees motivated
through effective leadership. But there’s no assurance that
activities are going as planned and
– Control is important, therefore, because it’s the only way that
managers know whether organizational goals are being met and,
if not, the reasons why
• Empowering employees
– an effective control system can provide information and feedback
on employee performance and minimize the chance of potential
problems.
• Protecting the workplace
– Managers must protect organizational assets in the event that any
of these things should happen.
– Comprehensive controls and back-up plans will help assure
minimal work disruptions.

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Exhibit 18-1
Planning-Controlling Link

Exhibit 18-1 shows shows how controlling provides a critical link back to planning.
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The Control Process
• Control process: a three-step process of
measuring actual performance, comparing actual
performance against a standard, and taking
managerial action to correct deviations or
inadequate standards
– The control process assumes that performance
standards already exist, and they do.
– They’re the specific goals created during the planning
process.

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The Control Process

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

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Step 1: Measuring Actual Performance
• How we measure: personal observation, statistical
reports, oral reports, written reports (following slide)
• What we measure
– What is measured is probably more critical to the control process
than how it’s measured.
– Because selecting the wrong criteria can create serious problems.
– Besides, what is measured often determines what employees will
do.
– Exp: employee satisfaction or turnover and absenteeism rates can
be measured, Keeping costs within budget is also a fairly common
control measure, other control criteria should recognize the different
activities that managers supervise.
– Most work activities can be expressed in quantifiable terms.
However, managers should use subjective measures when
necessary. Although such measures may have limitations, they’re
better than having no standards
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2014 and doing noInc.
Education, controlling.
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Exhibit 18-3: Sources of Information for
Measuring Performance
Method Benefits Drawbacks
Personal -Get firsthand knowledge -Subject to personal biases
Observations -Information isn’t filtered -Time-consuming
-Intensive coverage of work -Obtrusive
activities
Statistical Reports -Easy to visualize -Provide limited information
-Effective for showing -Ignore subjective factors
relationships
Oral Reports -Fast way to get information -Information is filtered
-Allow for verbal and -Information can’t be
nonverbal feedback documented
Written Reports -Comprehensive -Take more time to prepare
-Formal
-Easy to file and retrieve

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Step 2: Comparing Actual Performance
Against the Standard
• Range of variation: the acceptable parameters of
variance between actual performance and the
standard
• Need for action = Desired Performance –
Actual Performance
• Comparison methods:
 Historical comparison
 Relative comparison
 Engineering comparison

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Acceptable Range of Variation

Exhibit 18-4 illustrates the acceptable range of variation.

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

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

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

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

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Exhibit 18-6
Managerial Decisions in the Control Process

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

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What is Organizational Performance?
• Performance: the end result of an activity
• Organizational performance: the accumulated
results of all the organization’s work activities
– It’s a multifaceted concept, but managers need to
understand the factors that contribute to organizational
performance.
– Managers want their organizations, work units, or work
groups to achieve high levels of performance.

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Measures of Organizational Performance
• Productivity: the amount of goods or services produced
divided by the inputs needed to generate that output
– Output is measured by the sales revenue an organization receives
when goods are sold (selling price × number sold).
– Input is measured by the costs of acquiring and transforming
resources into outputs.

• Organizational effectiveness: a measure of how

appropriate organizational goals are and how well those
goals are being met
– That’s the bottom line for managers, and it’s what guides
managerial decisions in designing strategies and work activities
and in coordinating the work of employees.

• Industry and company rankings

– A popular way for managers to measure their organization’s
performance. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
 Exhibit 18-7: Popular Industry and Company Rankings

Fortune IndustryWeek Forbes Customer Satisfaction

(www.fortune.com) (www.industryweek. (www.forbes.com) Indexes
com)
Fortune 500 IndustryWeek 1,000 World’s Biggest American Customer
Public Companies Satisfaction Index—
University of Michigan
Business School

Global 500 IndustryWeek U.S. blank Customer Satisfaction

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

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Controlling for Employee Performance
• Delivering Effective Performance Feedback
– Managers need to provide their employees with feedback so that
the employees know where they stand in terms of their work.
– When giving performance feedback, both parties need to feel
heard, understood, and respected. And if done that way, positive
outcomes can result.
– “In a productive performance discussion, organizations have the
opportunity to reinforce company values, strengthen workplace
culture, and achieve strategic goals.”

• Disciplinary action: actions taken by a manager to

enforce the organization’s work standards and regulations
• Progressive disciplinary action: an approach to
ensure that the minimum penalty appropriate to the
offense is imposed
• Oral warning, written warning, suspension and dismissal

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

On-the-Job Insubordination, failure to use safety devices,

Behaviors alcohol or drug abuse
Dishonesty Theft, lying to supervisors, falsifying information on
employment application or on other organizational
forms
Outside Activities Criminal activities, unauthorized strike activities,
working for a competing organization (if no-
compete clause is part of employment)

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TOOLS for measuring organizational
performance

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Feedforward Controls
• Feedforward control: control that takes place before a
work activity is done
– Employed before a work activity begins
– Ensures that:
 Objectives are clear
 Proper directions are established
 Right resources are available
– Goal is to solve problems before they occur
– Requires timely and accurate information that isn’t
always easy to get

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Concurrent Controls
• Concurrent control: control that takes place while a work
activity is in progress
– Focus on what happens during work process
– Monitor ongoing operations to make sure they are
being done according to plan
– Goal is to solve problems as they occur
• Management by walking around (direct supervision): a
term used to describe when a manager is out in the work
area interacting directly with employees

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Feedback Controls
• Feedback control: control that takes place after a work
activity is done
– Take place after work is completed
– Focus on quality of end results
– Goal is to solve problems after they occur and prevent future ones

• Advantages:
– Gives managers meaningful information on how effective their
planning efforts were. Feedback that shows little variance
between standard and actual performance indicates that the
planning was generally on target.
– Second, feedback can enhance motivation. People want to know
how well they’re doing and feedback provides that information.

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Exhibit 18-9
Types of Control

Exhibit 18-9 shows the three kinds of control

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Feedforward, concurrent, and feedback
controls (Schermerhorn)

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Financial Controls
• Traditional controls
– Ratio analysis:
 Liquidity
 Leverage
 Activity
 Profitability
– Budget analysis:
 Quantitative standards
 Deviations
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Basic foundations of a balance sheet and
income statement

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 Exhibit 18-10: Popular Financial Ratios
Objective Ratio Calculation Meaning

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

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Information Controls
• Managers deal with information controls in two ways:
– 1) as a tool to help them control other organizational activities and
– 2) as an organizational area they need to control.
• Management information system (MIS): a system used
to provide management with needed information on a
regular basis
– The term system in MIS implies order, arrangement, and purpose.
– MIS focuses specifically on providing managers with information
(processed and analyzed data), not merely data (raw, unanalyzed
facts).
• Data versus information
• Information controls should be monitored regularly to
ensure that all possible precautions are in place to protect
important information.
– Issue of security breach and ethics
– Data encryption, system firewalls to data backup
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Balanced Scorecard
• Balanced scorecard: a performance
measurement tool that looks at more than just the
financial perspective
• Factors used to develop scorecard goals and
measures:
– Financial performance
– Customer Satisfaction
– Internal process improvement
– Innovation and learning

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Balanced Scorecard

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Benchmarking of Best Practices
• Benchmarking: a performance measurement tool
that looks at more than just the financial
perspective by searching for best practices among
competitors or non-competitors that lead to
superior performance
• Benchmark: the standard of excellence against
which to measure and compare
• Learning from others
• Can be used to identify specific performance gaps
and potential area of improvement.
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 Exhibit 18-11: Suggestions for Internal
Bookmarking
Suggestions
1. Connect best practices to strategies and goals. The organization’s strategies and goals
should dictate what types of best practices might be most valuable to others in the
organization.
2. Identify best practices throughout the organization. Organizations must have a way to find
out what practices have been successful in different work areas and units.
3. Develop best practices reward and recognition systems. Individuals must be given an
incentive to share their knowledge. The reward system should be built into the organization’s
culture.
4. Communicate best practices throughout the organization. Once best practices have been
identified, that information needs to be shared with others in the organization.
5. Create a best practices knowledge-sharing system. There needs to be a formal mechanism
for organizational members to continue sharing their ideas and best practices.
6. Nurture best practices on an ongoing basis. Create an organizational culture that reinforces
a “we can learn from everyone” attitude and emphasizes sharing information.

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Contemporary Issues

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Adjusting Controls for Cross-Cultural
Differences and Global Turmoil
• Distance creates formalized controls, e.g. formal reports
• Impact of technology
– High tech: computer generated + standardized rules + direct
superv.
– Low tech: direct supervision + highly centralized decision making

• Constraints for corrective actions due to local laws:

– Some countries’ laws prohibit closing facilities, laying o employees,
taking money out of the country, or bringing in a new management
team from outside the country.

• Comparability issues in data collection:

– Labor intensive vs capital intensive countries

• Be prepared for Copyright

global©turmoil
2018, 2016,and disasters
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Workplace Privacy
• Employers can read your e-mail, tap your
telephone, monitor your work by computer, store
and review computer files.
– One survey indicates that 66 percent of U.S. companies monitor Internet
use, 45 percent log keystrokes, and 43 percent track e-mails
– Some 26 percent of companies have red an employee for e-mail misuse;
26 percent have red workers for misusing the Internet; 6 percent have red
employees for inappropriate cell phone use; 4 percent have red someone
for instant messaging misuse; and 3 percent have red someone for
inappropriate text messaging
• Reasons companies monitor:
– Productivity/Internet traffic
– Concerns about offensive/inappropriate material
– Protecting company secrets
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 Employee Theft
• Employee theft: any unauthorized taking of company property
by employees for their personal use
– Up to 85 percent of all organizational theft and fraud is committed by
employee, not outsiders? And it’s a costly problem—estimated to be
around $4,500 per worker per year. In retail settings alone, employee
theft accounts for a staggering 43 percent of lost revenue.
• Why:
– The industrial security people propose that people steal because the
opportunity presents itself through lax controls and favorable
circumstances.
– Criminologists say it’s because people have financial-based pressures
(such as personal financial problems) or vice-based pressures (such
as gambling debts).
– And the clinical psychologists suggest that people steal because they
can rationalize whatever they’re doing as being correct and appropriate
behavior (“everyone does it,” “they had it coming,” “this company
makes enough money and they’ll never miss anything this small,” “I
deserve this for all that I put up with,” and so forth)
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Exhibit 18-12
Controlling Employee Theft

Exhibit 18-12 summarizes several possible managerial actions to control employee theft.
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Workplace Violence
• The U.S. National Institute of Occupational Safety and
Health still says that each year, some 2 million American
workers are victims of some form of workplace violence.
• In an average week, one employee is killed and at least 25
are seriously injured in violent assaults by current or former
coworkers.
• Department of Labor survey: 58 percent of firms reported
that managers received verbal threats from workers. Anger,
rage, and violence in the workplace are intimidating to
coworkers and adversely affect their productivity.
• The annual cost to U.S. businesses is estimated to be $121
billion.75
• A survey of aggressive behavior in Britain’s workplaces
found that 18 percent of managers say they have personally
experienced harassment or verbal bullying, and 9 percent
claim to have experienced physical attacks
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 Exhibit 18-13: Controlling Workplace Violence
Feedforward Concurrent Feedback
Use MBWA (managing by walking Communicate openly
around) to identify potential about incidences and
problems; observe how what’s being done.
employees treat and interact with
each other.
Provide employee assistance Allow employees or work groups to “grieve” Investigate incidents and
programs (EAPs) to help during periods of major organizational take appropriate action.
employees with behavioral change.
problems.
Enforce organizational policy that Be a good role model in how you treat Review company policies
any workplace rage, aggression, others. and change, if necessary.
or violence will not be tolerated.
Use careful prehiring screening. Use corporate hotlines or some other
mechanism for reporting and investigating
incidents.
Never ignore threats. Use quick and decisive intervention.
Train employees about how to Get expert professional assistance if
avoid danger if situation arises. violence erupts.
Clearly communicate policies to Provide necessary equipment or
employees. procedures for dealing with violent
situations (cell phones, alarm system, code
names or phrases, and so forth).

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 Controlling Customer Interactions
• Service profit chain: the service sequence from employees
to customers to profit
– The company’s strategy and service delivery system influence how
employees deal with customers; that is, how productive they are in
providing service and the quality of that service.
– The level of employee service productivity and service quality
influences customer perceptions of service value.
– When service value is high, it has a positive impact on customer
satisfaction, which leads to customer loyalty, customer loyalty
improves organizational revenue growth and profitability.
• Managers should work to create long-term and mutually
beneficial relationships among the company, employees, and
customers.
– Creating a work environment that enables employees to deliver high
levels of quality service and which makes them feel they’re capable of
delivering top-quality service.
– In such a service climate, employees are motivated to deliver
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Corporate Governance
• Corporate governance: the system used to govern a
corporation so that the interests of corporate owners are
protected
– THE ROLE OF BOARDS OF DIRECTORS: The Sarbanes-Oxley
Act puts greater demands on board members of publicly traded
companies to do what they were empowered and expected to. To
help boards do this better, the Business Roundtable developed a
document outlining principles of corporate governance.
FINANCIAL REPORTING AND THE AUDIT COMMITTEE: The
Sarbanes-Oxley Act of 2002 also called for more disclosure and
transparency of corporate financial information. In fact, senior
managers in the United States are now required to certify their
companies’ financial results. Such changes have led to better
information—that is, information that is more accurate and
reflective of a company’s financial condition.

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

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

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

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

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

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Copyright

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