Productivity is monitoring performance, comparing it with goals, and taking corrective action.

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16.1

Control: When Managers Monitor Performance

MAJOR QUESTION Why is control such an important managerial function?

THE BIG PICTURE

Controlling is monitoring performance, comparing it with goals, and taking corrective action. This section describes six reasons control is needed and four steps in the control process.

Control is making something happen the way it was planned to happen. Controlling is defined as monitoring performance, comparing it with goals, and taking corrective action as needed. Controlling is the fourth management function, along with planning, organizing, and leading, and its purpose is plain: to make sure that performance meets objectives.

· Planning is setting goals and deciding how to achieve them.

· Organizing is arranging tasks, people, and other resources to accomplish the work.

· Leading is motivating people to work hard to achieve the organization’s goals.

· Controlling is concerned with seeing that the right things happen at the right time in the right way.

All these functions affect one another and in turn affect an organization’s performance and productivity. (See Figure 16.1 .)

FIGURE 16.1 Controlling for effective performance What you as a manager do to get things done, with controlling shown in relation to the three other management functions. (These are not lockstep; all four functions happen concurrently.)Summary graphic of controlling for effective performance

Why Is Control Needed?

Lack of control mechanisms can lead to problems for both managers and companies. For example, in the wake of 11 reported deaths and dozens of injuries, more than 100 million autos have been recalled in the United States and worldwide due to faulty airbags manufactured by Takata, a Japanese auto parts maker.10 As the company’s CEO resigned and the scope of the ongoing recall grew,11 The New York Times reported that faulty airbags continued to be installed in new U.S. cars, including Fiat Chrysler, Toyota, Volkswagen, and Mitsubishi.12 Could greater control have helped avoid or reduce the consequences of these situations? Of course. Control can save lives!

Page 547https://html1-cluster-e.mheducation.com/smartbook2/data/151605/highlighted_epubmhe/OPS/img/chapter16/kin32657_p1601.png Control matters. The National Highway Traffic Safety Administration (NHTSA) concluded that the airbag recall from 14 different automarkers is the largest and most complex in U.S. history. The airbags, which were made by Takata, involved car models from 2002 through 2015. The purpose of management control system is to prevent mistakes, errors, and design flaws from reaching consumers.© Jochen Tack/Alamy

There are six reasons control is needed.

1. To Adapt to Change and Uncertainty

Markets shift. Consumer tastes change. New competitors appear. Technologies are reborn. New materials are invented. Government regulations are altered. All organizations must deal with these kinds of environmental changes and uncertainties. Control systems can help managers anticipate, monitor, and react to these changes.

Example: Self-driving cars are in the testing stage at many companies around the world. Early indications, including the recent death of a driver in a collision on a Florida highway, suggest that autonomous cars are probably years away from becoming a reality.13 But if successful, they are sure to bring changes in traffic patterns, safety regulations, road use and signage, insurance policies, auto design, and even car ownership patterns and customer expectations. As one writer predicts, “Driving is still going to be about the experience, but not the experience of driving.”14

2. To Discover Irregularities and Errors

Small problems can mushroom into big ones. Cost overruns, manufacturing defects, employee turnover, bookkeeping errors, and customer dissatisfaction are all matters that may be tolerable in the short run. But in the long run, they can bring about even the downfall of an organization.

Example: The National Highway Traffic Safety Administration (NHTSA) and Tesla Motors are both investigating the causes of the 2016 crash that killed the driver of a self-driving Tesla car on a Florida highway. Tesla says the car’s camera, part of its beta-phase Autopilot system, failed to spot the white tractor-trailer crossing the driver’s path on a bright day. NHTSA wants to know why. The agency, which is developing standards for self-driving cars, has also asked Tesla to share its reconstruction of the accident and has imposed a deadline to be enforced by the prospect of thousands of dollars in fines. If defects in the Autopilot system are found, a product recall could follow.15

3. To Reduce Costs, Increase Productivity, or Add Value

Control systems can reduce labor costs, eliminate waste, increase output, and increase product delivery cycles. In addition, controls can help add value to a product so that customers will be more inclined to choose them over rival products.

Example: Simple changes to an office environment can change employee attitudes and have a positive impact on productivity.16 The use of color, arrangement of space,Page 548 type of seating and lighting, and presence or absence of music can all affect productivity, perhaps by as much as 20%. Control mechanisms to monitor the results of such changes can be as simple as periodic employee satisfaction surveys.17

4. To Detect Opportunities and Increase Innovation

Hot-selling products. Competitive prices on materials. Changing population trends. New overseas markets. Controls can help alert managers to innovative opportunities that might have otherwise gone unnoticed.18

Example: Uniqlo, the big Asian apparel retailer, is locked in competition for global market share with “fast fashion” clothiers Zara (from Spain), H&M (Sweden), and online stores. Like those at most businesses, Uniqlo managers look at a monthly metric called EBIDTA, earnings before interest, depreciation, taxes, and amortization, to gauge their success in each new market they enter.19

5. To Provide Performance Feedback

Can you improve without feedback? When a company becomes larger or when it merges with another company, it may find it has several product lines, materials-purchasing policies, customer bases, and worker needs that conflict with each other. Controls help managers coordinate these various elements by providing feedback.20

Example: Global companies like Pepsi-Cola must manage broad and diverse arrays of brands and products at locations around the world. To ensure the same high level of quality everywhere despite dealing with a virtual army of suppliers, Pepsi relies on an interlocking set of sustainability and quality control policies covering everything from ingredients to packaging. It must abide by regulations imposed by the U.S. Food and Drug Administration and by agencies around the globe, including the European Food Safety Authority and Health Canada, for instance.21

6. To Decentralize Decision Making and Facilitate Teamwork

Controls allow top management to decentralize decision making at lower levels within the organization and to encourage employees to work together in teams. Facing a possible shortage of doctors in some areas of medicine, for instance, health care professionals are anticipating a rise in teamwork, small group practices, and the delegation of some routine patient services to nurse practitioners.22 Controls, including secure digital patient records, will be important in ensuring high-quality and personalized care.

The six reasons are summarized below. (See Figure 16.2 .)

FIGURE 16.2 Six reasons control is needed Summary graphic of the reasons control helps an organization.Page 549

Steps in the Control Process

Control systems may be altered to fit specific situations, but generally they follow the same steps. The four control process steps are (1) establish standards; (2) measure performance; (3) compare performance to standards; and (4) take corrective action, if necessary. (See Figure 16.3 .)

FIGURE 16.3 Steps in the control process Paying attention to the feedback is particularly important because of its dynamic nature.A graphic of the control process Access the text alternative for Figure 16 3.

Let’s consider these four steps.

1. Establish Standards: “What Is the Outcome We Want?”

A control standard, or performance standard or simply standard, is the desired performance level for a given goal. Standards may be narrow or broad, and they can be set for almost anything, although they are best measured when they can be made quantifiable.

Nonprofit institutions might have standards for level of charitable contributions, number of students or volunteers retained, or degree of legal compliance. For-profit organizations might have standards of financial performance, employee hiring, manufacturing defects, percentage increase in market share, percentage reduction in costs, number of customer complaints, and return on investment. Service organizations may look at number of customers, clients, or patients served; time spent with each; and resulting level of satisfaction. More subjective standards, such as level of employee satisfaction, can also be set, although they may have to be expressed more quantifiably in terms of, say, reduced absenteeism and sick days and increased job applications.

One technique for establishing standards is to use the balanced scorecard, as we explain later in this chapter.

2. Measure Performance: “What Is the Actual Outcome We Got?”

The second step in the control process is to measure performance, such as by number of products sold, units produced, or cost per item sold.23

Example: Some performance goals may seem difficult to quantify and therefore measure, but the key is to make them concrete. For instance, “Be on time for all meetings” and “Update your team members once a week on the status of your project” are more measurable standards than “Be punctual” and “Keep everyone informed.”24

Performance data are usually obtained from three sources: (1) employee behavior and deliverables; (2) peer input or observations; and (3) personal observation, as when a manager takes a stroll on the factory floor to see what employees are doing.

As we’ve hinted, measurement techniques can vary for different industries, such as for manufacturing industries versus service industries. We discuss this further later in the chapter.

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3. Compare Performance to Standards: “How Do the Desired and Actual Outcomes Differ?”

The third step in the control process is to compare measured performance against the standards established. Most managers are delighted with performance that exceeds standards, which becomes an occasion for handing out bonuses, promotions, and perhaps offices with a view. For performance that is below standards, they need to ask: Is the deviation from performance significant? The greater the difference between desired and actual performance, the greater the need for action.

How much deviation is acceptable? That depends on the range of variation built in to the standards in step 1. In voting for political candidates, for instance, there is supposed to be no range of variation; as the expression goes, “every vote counts.” In political polling, however, a range of 3%–4% error is considered an acceptable range of variation. In machining parts for the solar-powered space probe Juno, currently orbiting Jupiter after a five-year journey, NASA engineers could tolerate a range of variation a good deal smaller than someone machining parts for a power lawnmower.

Photo of the Juno space probe Control and space flight. The Juno space probe was built by Lockheed Martin and is operated by NASA. It began an orbit of Jupiter in July 2016 and is expected to conduct a 20 month scientific investigation. It uses very sophisticated equipment to measure the planet’s gravity field, magnetic field, and polar magnestosphere. This type of equipment requires high levels of accuracy.Source: NASA/JPL-Caltech

The range of variation is often incorporated in computer systems into a principle called management by exception. Management by exception is a control principle that states that managers should be informed of a situation only if data show a significant deviation from standards.

4. Take Corrective Action, If Necessary: “What Changes Should We Make to Obtain Desirable Outcomes?”

This step concerns feedback—modifying, if necessary, the control process according to the results or effects. This might be a dynamic process that will produce different effects every time you put the system to use. There are three possibilities here: (1) Make no changes. (2) Recognize and reinforce positive performance. (3) Take action to correct negative performance.

When performance meets or exceeds the standards set, managers should give rewards, ranging from giving a verbal “Job well done” to more substantial payoffs such as raises, bonuses, and promotions to reinforce good behavior.

When performance falls significantly short of the standard, managers should carefully examine the reasons and take the appropriate action. Sometimes the standards themselves were unrealistic, owing to changing conditions, in which case the standardsPage 551 need to be altered. Sometimes employees haven’t been given the resources for achieving the standards. And sometimes the employees may need more attention from management as a way of signaling that their efforts have been insufficient in fulfilling their part of the job bargain.