The current president of Toyota +kio Toyoda vowed to revamp its organi,ational structure to improve its ability to control issues such as safety and quality. -e admitted that Toyota.s push to become the world.s largest carmaker had taken the focus away from customer satisfaction. 'Controllin' is the process whereby managers monitor and regulate how e / ciently and e1ectively an organi.ation and its members are performing.
The current president of Toyota +kio Toyoda vowed to revamp its organi,ational structure to improve its ability to control issues such as safety and quality. -e admitted that Toyota.s push to become the world.s largest carmaker had taken the focus away from customer satisfaction. 'Controllin' is the process whereby managers monitor and regulate how e / ciently and e1ectively an organi.ation and its members are performing.
The current president of Toyota +kio Toyoda vowed to revamp its organi,ational structure to improve its ability to control issues such as safety and quality. -e admitted that Toyota.s push to become the world.s largest carmaker had taken the focus away from customer satisfaction. 'Controllin' is the process whereby managers monitor and regulate how e / ciently and e1ectively an organi.ation and its members are performing.
Management Snapshot (pp. 249-250 of tet! Toyota Needs a Major Fix to
Its Quality Control System "o# Should Managers $se Control to %mpro&e 'erforman(e) Toyota pioneered the system of lean production that changed how cars are assembled and has been imitated by all global carmakers. It also pursues total quality management that makes production-line employees responsible for fnding improvements to work procedures. It has used various strategies such as pokayoke and !!!"# which has given it a ma$or competitive advantage. %ut Toyota is not perfect. &ver the years it has made several mistakes as it searched for new ways to increase innovation. Its engineers have designed faulty air- conditioning systems and airbags. The vehicles had become increasingly comple' to assemble and employees were not trained. &ne reason was its rapid e'pansion across the globe. It came as a tremendous shock in "(#( when there were reports of uncontrolled acceleration and braking in some of its vehicles. This resulted in a recall of more than si' million ).*. vehicles. The current president of Toyota +kio Toyoda vowed to revamp its organi,ational structure to improve its ability to control issues such as safety and quality. -e admitted that Toyota.s push to become the world.s largest carmaker had taken the focus away from customer satisfaction. -e announced that Toyota would increase the number of its technology centers hire hundreds of new engineers and appoint chief quality o/cers in each region. 0ow it is decentrali,ing control to engineers at the front line to speed decision making. *hat %s +rgani,ational Control) Three types of controls available to managers: Output control, Behaior control, and Clan control! Controllin" is the process whereby managers monitor and regulate how e/ciently and e1ectively an organi,ation and its members are performing the activities necessary to achieve organi,ational goals. In controlling managers monitor and evaluate whether their organi,ation.s strategy and structure are working as intended how they could be improved and how they might be changed if they are not working. !ontrol involves keeping an organi,ation on track and anticipating events that might occur. It is also concerned with keeping employees motivated focused on the important problems facing the organi,ation and working together to make changes that improve organi,ational performance. -.he %mportan(e of +rgani,ational Control/ + control system contains the measures or yardsticks that allow managers to assess how e/ciently the organi,ation is producing goods and services. 2ithout a control system in place managers have no idea how their organi,ation is performing and how its performance can be improved. &rgani,ational control is important in determining the quality of goods and services because it gives managers feedback on product quality. # 31ective managers create a control system that consistently monitors the quality of goods and services so that they can make continuous improvements to quality. 4anagers can make their organi,ations more responsive to customers by developing a control system to evaluate how well customer-contact employees are performing their $obs 4onitoring employee behavior can help managers fnd ways to increase employees. performance levels. !ontrolling can raise the level of innovation in an organi,ation by deciding on the appropriate control systems to encourage risk taking. -Control S0stems and %./ Control s0stems are formal target-setting monitoring evaluation and feedback systems that provide managers with information about whether the organi,ation.s strategy and structure are working e/ciently and e1ectively. +n e1ective control system has three characteristics5 #. It is 6e'ible enough to allow managers to respond as necessary to une'pected events ". It provides accurate information 7. It provides managers with the information in a timely manner. 0ew forms of IT have revolutioni,ed control systems because they facilitate the 6ow of accurate and timely information up and down the organi,ational hierarchy and between functions and divisions. !ontrol systems are developed to measure performance at each stage in the conversion of inputs into fnished goods and services. +t the input stage managers use feedfor#ard (ontrol to anticipate problems before they arise so that problems do not occur later during the conversion process. +t this stage IT can be used to keep in contact with suppliers monitor their progress and control the quality of the inputs received from them. +t the conversion stage (on(urrent (ontrol gives managers immediate feedback on how e/ciently inputs are being transformed into outputs. !oncurrent control through IT alerts managers to the need to react quickly to the source of the problem. !oncurrent control is at the heart of programs to increase quality. +t the output stage managers use feed1a(2 (ontrol to provide information about customers. reactions to goods and services so corrective action can be taken if necessary. -.he Control 'ro(ess/ The control process whether at the input conversion or output stage can be broken down into four steps. They are5 Step #: $sta%lish the standard o& per&ormance, "oals, or tar"ets a"ainst 'hich per&ormance is to %e ealuated. #. The standards of performance that managers select measure e/ciency quality responsiveness to customers and innovation. ". 8erformance standards selected at one level a1ect those at the other levels and ultimately the performance of individual managers is evaluated in terms of their ability to reduce costs. " Step (: Measure actual per&ormance. o 4anagers can measure or evaluate two things5 #. the actual outputs that result from the behavior of their members ". the behaviors themselves 9hence the terms output control and behavior control:. In general the more non-routine or comple' organi,ational activities are the harder it is for managers to measure outputs or behaviors. &utputs however are usually easier to measure than behaviors because they are more tangible and ob$ective. Step ): Compare actual per&ormance a"ainst chosen standards o& per&ormance! #. If per&ormance is hi"her than expected managers might decide they set performance standards too low and may raise them for the ne't period to challenge their subordinates. ". If per&ormance is too lo' and standards were not reached or if standards were set so high that employees could not achieve them managers must decide whether to take corrective action. Step *: $aluate the result and initiate correctie action i& the standard is not %ein" achieed! #. If managers decide that the level of performance is unacceptable they must try to change the way work activities are performed to solve the problem +e!"! 'or, standards are too hi"h, or latest technolo"y is not %ein" used - etc.. +utput Control +ll managers develop a system of output control for their organi,ations. The three main mechanisms that managers use to assess output or performance are fnancial measures organi,ational goals and operating budgets. -3inan(ial Measures of 'erforman(e/ Top managers use various fnancial measures to evaluate performance. The most common fnancial measures are5 /ro0t ratios measure how e/ciently managers are using the organi,ation.s resources to generate profts. o 1eturn on inestment +1OI./ This is an organi,ation.s net income before ta'es divided by its total assets is the most commonly used fnancial performance measure. o Operatin" mar"in is calculated by dividing a company.s operating proft by sales revenues. 2i3uidity ratios measure how well managers have protected organi,ational resources to be able to meet short-term obligations. o The current ratio 9current assets divided by current liabilities: tells managers whether they have the resources to meet claims for short-term creditors. o The quick ratio tells whether they can pay these claims without selling inventory. 7 2eera"e ratios such as the debt-to-assets ratio and the times-covered ratio measure the degrees to which managers use debt or equity to fnance ongoing operations. 4ctiity ratios provide measures of how well managers are creating value from assets. o Inentory turnoer measures how e/ciently managers are turning inventory over so e'cess inventory is not carried. o 5ays sales outstandin" provide information on how e/ciently managers are collecting revenue from customers. ;inancial results inform managers about the results of past decisions but do not tell them how to fnd new opportunities to build competitive advantage in the future. To encourage a future oriented approach organi,ational goals are needed. -+rgani,ational 4oals/ +fter the top managers have set the organi,ation.s overall goals they then establish performance standards for the various divisions and functions. These standards specify for divisional and functional managers the level at which their units must perform if the organi,ation is to achieve its overall goals. <ivisional managers then develop a business- level strategy that they hope will allow them to achieve that goal. In consultation with functional managers they specify the functional goals that managers of di1erent functions need to achieve to allow the division to achieve its goals. In turn functional managers establish goals that frst-line managers and non- managerial employees need to achieve to allow the function to achieve its goals. It is vital that the goals set at each level harmoni,e with the goals set at other levels. +lso goals should be set appropriately so that managers are motivated to accomplish them. The best goals are specifc di/cult goals that will challenge and stretch managers. ability but are not out of reach. -+perating 5udgets/ The ne't step in developing an output control system is to establish operating budgets. +n operating 1udget is a blueprint that states how managers intend to use organi,ational resources to achieve organi,ational goals e/ciently. 4anagers at one level allocate to subordinate managers a specifc amount of resources to produce goods and services. These lower-level managers are evaluated on their ability to stay within the budget and to make the best use of resources. =arge organi,ations often treat each division as a stand-alone responsibility center and then evaluate each division.s contribution to corporate performance. o 4anagers of a division may be given a f'ed budget and evaluated on the amount of goods or services they can produce from it 9a cost or e'pense budget approach:. > o &r managers may be asked to ma'imi,e the revenues from the sales of goods and services produced 9a revenue budget approach:. o They may also be evaluated on the di1erence between the revenues generated and the budgeted cost of making those goods and services 9a proft budget approach:. 6'ro1lems #ith +utput Control/ 2hen designing an output control system managers must be sure that the output standards they create motivate managers at all levels and do not encourage inappropriate behavior as a way to achieve organi,ational goals. o 4anagers must be sensitive to how they use output control and constantly monitor its e1ects at all levels in the organi,ation. &utput controls should serve as a guide to appropriate action. 5eha&ior Control %ehavior control along with output control is a method of motivating employees. There are three mechanisms of behavior control that managers can use5 direct supervision management by ob$ectives and rules and standard operating procedures. -6ire(t Super&ision/ The most immediate and potent form of behavior control is direct supervision by managers. )nder direct supervision managers actively monitor and observe teach and correct subordinates. 2hen managers personally supervise subordinates they lead by e'ample and in this way help subordinates develop and increase their own skills. 8roblems associated with direct supervision include the following5 o It is very e'pensive because a manager can personally manage only a small number of subordinates e1ectively. or this reason output control is usually preferred over behavior control. o <irect supervision can de-motivate subordinates if they feel that they are not free to make their own decisions. o ;or many $obs control through direct supervision is not feasible. The more comple' a $ob is the more di/cult it is for a manager to determine how well an employee is performing. -Management 10 +17e(ti&es/ To provide a framework within which to evaluate subordinates. behavior many organi,ations implement some version of management 10 o17e(ti&es (M5+!. Management 10 o17e(ti&es is a system of evaluating subordinates on their ability to achieve specifc organi,ational goals or performance standards and to meet operating budgets. It involves three steps5 Step 8/ *pecifc goals and ob$ectives are established at each level of the organi,ation. Step 2/ 4anagers and their subordinates together determine the subordinates. goals. Step 9/ 4anagers and their subordinates periodically review the subordinates. progress toward meeting goals. ? !ompanies in which responsibilities have been decentrali,ed to empowered teams 4%& works somewhat di1erently. 4anagers ask each team to develop a set of goals and performance targets that the team hopes to achieve. 4anagers then negotiate with each team to establish its fnal goals and the budget the team will need to achieve them. @ewards are linked to team performance not to the performance of any one team member. -5ureau(rati( Control/ 2hen direct supervision is too e'pensive and 4%& is inappropriate managers may use bureaucratic control. 5ureau(rati( (ontrol is control of behavior by means of a comprehensive system of rules and standard operating procedures 9*&8s: that shape and regulate the behavior of divisions functions and individuals. @ules and *&8s guide behavior and specify what employees are to do when they confront a problem. It is the responsibility of a manager to develop rules that allow employees to perform their activities e/ciently and e1ectively. 2hen employees follow the rules their behavior is standardi,edAactions are performed in the same way time and time again. There is no need to monitor the outputs of behavior because standardi,ed behavior leads to standardi,ed outputs. 6'ro1lems #ith 5ureau(rati( Control5 2ith a 1ureau(rati( (ontrol system in place managers can manage by e'ception and intervene and take corrective action only when necessary. -owever managers need to be aware of the number of problems associated with bureaucratic control which can reduce organi,ational e1ectiveness. 3stablishing rules is always easier than discarding them. If the amount of red tape becomes too great decision making slows down. This sluggishness can imperil an organi,ation.s survival. %ecause rules constrain and standardi,e behavior there is a danger that people become so used to automatically following rules that they stop thinking for themselves. Innovation is incompatible with the use of e'tensive bureaucratic control. %ureaucratic control is most useful when organi,ational activities are routine and when employees are making programmed decisions. It is less useful where nonprogrammed decisions have to be made and managers have to react quickly to changes. ;or many of the most signifcant organi,ational activities output control and behavior control are inappropriate for the following reasons5 + manager cannot evaluate the performance of workers such as doctors research scientists or engineers by observing their behavior on a day-to-day basis. @ules and *&8s are of little use in telling a doctor how to respond to an emergency situation or a scientist how to discover something new. B &utput controls such as the amount of time a surgeon takes for each operation or the costs of making a discovery are very crude measure of the quality of performance. +rgani,ational Culture and Clan Control +rgani,ational (ulture is the shared set of beliefs e'pectations values norms and work routines that in6uences how members of an organi,ation relate to one another and work together to achieve organi,ational goals. Clan (ontrol is the control e'erted on individuals and groups in an organi,ation by shared values norms standards of behavior and e'pectations. &rgani,ational culture is an important source of control for two reasons5 It makes control possible in situations where managers cannot use output or behavior control. 2hen a strong and cohesive set of organi,ational values and norms is in place the employees. decisions and actions become oriented toward helping the organi,ation perform well. 6:dapti&e Cultures &ersus %nert Cultures +n adapti&e (ulture controls employee attitudes and behaviors. Their values and norms help an organi,ation to grow and change as needed to achieve its goals. 3mployees often receive rewards linked directly to their performance. It develops an emphasis on entrepreneurship and respect for the employee and allows the use of organi,ational structures. %nert (ultures lead to values and norms that fail to motivate or inspire employees. They lead to stagnation and often failure. 8oor working relationships develop between the organi,ation and its employees and instrumental values of la,iness and noncooperation are common. 3mployees are content to be told what to do and have little incentive or motivation to perform beyond minimum work requirements. +rgani,ational Change If an organi,ation does not have e1ective control over its activities it may not be able to change or adapt in response to a changing environment. +rgani,ational (hange is the movement of an organi,ation away from its present state and toward some desired future state to increase its e/ciency and e1ectiveness. There is a fundamental tension or need to balance two opposing forces in the control process that in6uences the way organi,ations change. 3ven though it is important to adopt the correct set of output and behavior controls to improve e/ciency 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 e1ectiveness. 6:ssessing the ;eed for Change C &rgani,ational change can a1ect practically all aspects of organi,ational functioning including organi,ation structure culture strategies control systems and groups and teams and human resource management systems as well as critical organi,ational processes such as communication motivation and leadership. It can also bring alterations in the way managers carry out the critical tasks of planning organi,ing leading and controlling and the ways they perform their managerial roles. <eciding how to change an organi,ation is a comple' matter because change disrupts the status quo and poses a threat prompting employees to resist attempts to alter work relationships and procedures. Or"ani7ational learnin" the process through which managers try to increase the ability of organi,ational members to understand and appropriately respond to changing conditions can be an important impetus for change. +ssessing the need for change calls for t'o important actiities5 re(ogni,ing that there is a pro1lem and identif0ing its sour(e. *ometimes the need for change is obvious but at other times problems develop gradually making it di/cult to recogni,e that change is needed. Thus during the frst step in the change process managers need to recogni,e that there is a problem that requires change. To discover the source of organi,ational problems managers need to look both inside and outside the organi,ation. -6e(iding on the Change to Ma2e/ &nce managers have identifed the source of the problem they must decide what they think the organi,ation.s ideal future state would be and begin planning how they are going to attain the organi,ation.s ideal future state. This step also includes identifying obstacles or sources of resistance to change. &bstacles to change are found at the corporate divisional departmental and individual levels of the organi,ation. !orporate-level changes even seemingly trivial ones may signifcantly a1ect how divisional and departmental managers behave. ;or this reason an organi,ation.s present strategy and structure can be powerful obstacles to change. 2hether a company.s culture is adaptive or inert facilitates or obstructs change. &rgani,ations with entrepreneurial 6e'ible cultures are much easier to change than organi,ations with more rigid cultures. The same obstacles to change e'ist at the divisional and departmental levels as well. o <ivision managers may di1er in their attitudes toward the changes proposed by top managers and if their interests and power seem threatened will resist those changes. o 4anagers at all levels usually fght to protect their power and control over resources. +t the individual level people are often resistant to change because change brings uncertainty and stress. D 4anagers must recogni,e and take into consideration potential obstacles that can make change a slow process. Improving communication and empowering employees by inviting them to participate in the planning for change can help overcome resistance and allay employees. fears. o In addition managers can sometimes overcome resistance by emphasi,ing group or shared goals such as increased organi,ational e/ciency and e1ectiveness. o The larger and more comple' an organi,ation is the more comple' is the change process. -%mplementing the Change/ Eenerally managers introduce and manage change from the top down or from the bottom up. .op do#n-(hange is implemented quickly. Top managers identify the need for change decide what to do and then move quickly to implement the changes throughout the organi,ation. 5ottom-up (hange is typically more gradual or evolutionary5 Top managers consult with middle and frst line managers and then over time managers at all levels work to develop a detailed plan for change. + ma$or advantage of bottom-up change is that it can co-opt resistance to change from employees. -E&aluating the Change5 The last step in the change process is to evaluate how successful the change e1ort has been in improving organi,ational performance. )sing such measures as market share profts or the ability of managers to meet their goals managers can compare how well an organi,ation is performing after the change with its performance prior to the change. 4anagers also can use 1en(hmar2ing which is the comparison of their performance on specifc dimensions with the performance of high performing organi,ations to decide how successful a change e1ort has been. %enchmarking is a key tool in total quality management. Entrepreneurship, Control, and Change Entrepreneurs are the people who bring about change to companies and industries because they see new and improved ways to use resources to create products customers will want to buy. 3ntrepreneurs assume the risk associated with starting a new business which is substantial since many new businesses fail. They receive all of the returns or profts associated with the new business venture. o 3mployees of e'isting organi,ations who notice opportunities for product or service improvements and are responsible for managing the development process are known as intrapreneurs. o Entrepreneurship is the mobili,ation of resources to take advantage of an opportunity to provide customers with new or improved goods and services. F o There is an interesting relationship between entrepreneurs and intrapreneurs. 4any intrpreneurs become dissatisfed when their employers decide not to support their new product ideas and development e1orts. Gery often they leave their employer to start new ventures that may compete with their previous company. o ;requently founding entrepreneurs lack the skill patience or e'perience to engage in the di/cult work of management. Therefore they must hire managers who can create an operating and control system that will help the new venture to prosper. #(