CH10: Managing: A competency based approach, Hellriegel & Jackson
Transcript of CH10: Managing: A competency based approach, Hellriegel & Jackson
Chapter 10: Achieving OrganizationalControl
Don Hellriegel
Susan E. Jackson
John W. Slocum, Jr.
MANAGING: A COMPETENCY BASED APPROACH
11th Edition
Prepared by
Argie ButlerTexas A&M University
Chapter 10: PowerPoint 10.1
Learning Goals
1. Explain the foundations of control
2. Identify the six phases of the corrective control model
3. Describe the primary methods of organizational control
4. Explain key corporate governance issues and control mechanisms
Chapter 10: PowerPoint 10.2
Processes for ensuring that behaviors and decisions conform to an organization’s standards and legal requirements, including its rules, policies, procedures, and goals
How controls and planning support each other
Controls help ensure that decisions, actions, and results are consistent with plans
Controls help maintain or redirect actual behaviors and results toward those desired in plans
Controls help provide essential information needed to plan
Plans indicate the purposes to be served by controls
Controls help ensure that decisions, actions, and results are consistent with plans
Controls help maintain or redirect actual behaviors and results toward those desired in plans
Controls help provide essential information needed to plan
Plans indicate the purposes to be served by controls
Chapter 10: PowerPoint 10.3
Mechanisms intended to reduce the likelihood of an unwanted event and thereby minimize the need for corrective action
A few forms:
1. Rules and regulations
2. Standards
3. Recruitment and selection procedures
4. Training and development programs
1. Rules and regulations
2. Standards
3. Recruitment and selection procedures
4. Training and development programs
Chapter 10: PowerPoint 10.4
Corrective Controls
Corrective Controls
Mechanisms intended to reduce or eliminate unwanted behaviors or results and thereby return the situation to conformity with the organization’s regulations and standards
A few forms:
1. Direct supervision and feedback
2. Disciplinary action
3. Procedures for reporting misconduct
4. Monthly or even daily financial reports
1. Direct supervision and feedback
2. Disciplinary action
3. Procedures for reporting misconduct
4. Monthly or even daily financial reports
Chapter 10: PowerPoint 10.5 (Adapted from Table 10.1)
Source of Control Preventive Corrective
Stakeholders Maintaining quotas for hiring personnel in protected class
Changing recruitment policies to attract qualified personnel
Organization Using budgets to guide expenditures
Disciplining an employee for violating a “No Smoking” safety regulation in a hazardous area
(continued)
Chapter 10: PowerPoint 10.6 (Adapted from Table 10.1)
Source of Control Preventive Corrective
Group Advising a new employee about the group’s norm in relation to expected level of output
Harassing and socially isolating a worker who doesn’t conform to group norms
Individual Deciding to skip lunch in order to complete a project on time
Revising a report you have written because you are dissatisfied with it
Chapter 10: PowerPoint 10.7 (Adapted from Figure 10.1)
Objective controls
Acceptable controls
Complete controls
Timely controls
To AchieveStrategic
Goals
Chapter 10: PowerPoint 10.8
How Much Organizational Control?How Much Organizational Control?
Core questions
1. For what desired behaviors and results should organizational controls be developed?
2. What are the costs and benefits of the organizational controls required to achieve the desired behaviors and results?
3. What are the costs and benefits of utilizing alternative controls; such as self-managed teams, informal peer control, or individual self-control?
Chapter 10: PowerPoint 10.9
Internal ControlInternal Control
A process—effected by an organization’s board of directors, management, and other personnel—designed to provide reasonable assurance regarding the achievement of goals in the various categories
A process—effected by an organization’s board of directors, management, and other personnel—designed to provide reasonable assurance regarding the achievement of goals in the various categories
Major categories of internal control Major categories of internal control
1. Effectiveness and efficiency of operations
2. Reliability of financial reporting
3. Compliance with applicable laws and regulations
1. Effectiveness and efficiency of operations
2. Reliability of financial reporting
3. Compliance with applicable laws and regulations
Chapter 10: PowerPoint 10.10 (Figure 10.2)
Control Environment
Risk Assessment
Control ActivitiesInformation and Communication
MonitoringInternalControl
Chapter 10: PowerPoint 10.11
Snapshot
Larry Rittenberg, Chairman, COSO—Committee of Sponsoring Organizations of the Treadway Commission
“Fundamentally, control existsonly to mitigate risk. So every internal
control framework has to start with a systematic approach to identifying risk…Look at some of the
major recent corporate failures. Where did the problems fundamentally arise? They occurred
primarily because of breakdowns in thecontrol environment.”
Chapter 10: PowerPoint 10.12
Limitations of internal controlLimitations of internal control
Cannot change a bad manager into a good one Cannot change a bad manager into a good one
External influences may be beyond management’s control
External influences may be beyond management’s control
Judgments may be faulty Judgments may be faulty
May be circumvented by collusion of two or more employees
May be circumvented by collusion of two or more employees
Management can override the control system Management can override the control system
Chapter 10: PowerPoint 10.13 (Figure 10.3)
1. Define theSystem
1. Define theSystem
6. Diagnoseand Correct
Problems
6. Diagnoseand Correct
Problems
5. MakeComparisons
5. MakeComparisons
4. CollectInformation
4. CollectInformation
If okaycontinue
If okaycontinue
If deviationsIf deviations
2. Identify KeyCharacteristics
2. Identify KeyCharacteristics
3. SetStandards
3. SetStandards
Chapter 10: PowerPoint 10.14
Snapshot
Robert J. Herbold, Former Chief Operating Officer of Microsoft, and author of The Fiefdom Syndrome
“Many large companies suffer the ravages of fiefdoms, turf wars and bureaucracy. It’s a problem that begins when individuals, groups, or divisions try to protect their turfs, reshaping their environments to gain as much control as possible…Ultimately, fiefdoms lose their ability to act consistently on behalf of the greater good of the company.”
Chapter 10: PowerPoint 10.15 (Figure 10.4)
Chapter 10: PowerPoint 10.16 (Adapted from Table 10.2)
Use of detailed rules andprocedures wheneverpossible
Top-down authority, withemphasis on positionalpower
Activity-based jobdescriptions that prescribeday-to-day behaviors
Use of detailed rules andprocedures wheneverpossible
Top-down authority, withemphasis on positionalpower
Activity-based jobdescriptions that prescribeday-to-day behaviors
Use of detailed rules andprocedures only whennecessary
Flexible authority, withemphasis on expert powerand networks of influence
Results-based jobdescriptions that emphasizegoals to be achieved
Use of detailed rules andprocedures only whennecessary
Flexible authority, withemphasis on expert powerand networks of influence
Results-based jobdescriptions that emphasizegoals to be achieved
Mechanistic Control Methods Organic Control Methods
(continued)
Chapter 10: PowerPoint 10.17 (Adapted from Table 10.2)
Emphasis on extrinsicrewards (wages, pensions,status symbols)
Distrust of teams, based onan assumption that teamgoals conflict withorganizational goals
Emphasis on extrinsicrewards (wages, pensions,status symbols)
Distrust of teams, based onan assumption that teamgoals conflict withorganizational goals
Emphasis on both extrinsicand intrinsic rewards(meaningful work)
Use of team, based on anassumption that team goalsand norms assist inachieving organizationalgoals
Emphasis on both extrinsicand intrinsic rewards(meaningful work)
Use of team, based on anassumption that team goalsand norms assist inachieving organizationalgoals
Mechanistic Control Methods Organic Control Methods
Chapter 10: PowerPoint 10.18
The collection and evaluation of data related to sales, prices, costs, and profits for guiding decisions and evaluating results
The collection and evaluation of data related to sales, prices, costs, and profits for guiding decisions and evaluating results
Market controls require: Market controls require:
1. The costs of the resources used in producing outputs to be measured monetarily
2. The value of the goods and services produced to be defined clearly and priced monetarily
3. The prices of the goods and services produced to be set competitively
1. The costs of the resources used in producing outputs to be measured monetarily
2. The value of the goods and services produced to be defined clearly and priced monetarily
3. The prices of the goods and services produced to be set competitively
Chapter 10: PowerPoint 10.19
Mechanisms for preventing or correcting the misuse and misallocation of resources, especially monetary resources
Mechanisms for preventing or correcting the misuse and misallocation of resources, especially monetary resources
Comparative financial control: evaluation of a firm’s financial condition for two or more time periods
Comparative financial control: evaluation of a firm’s financial condition for two or more time periods
Ratio analysis: selecting two significant figures (or a combination of a number of figures), expressing their relationship as a fraction or percent, and comparingthe value for two or more periods of time
Ratio analysis: selecting two significant figures (or a combination of a number of figures), expressing their relationship as a fraction or percent, and comparingthe value for two or more periods of time
Example: return on investment (ROI) ratio is net profit before tax divided by net worth and is a measure of the efficiency of total assets in generating net profits
Example: return on investment (ROI) ratio is net profit before tax divided by net worth and is a measure of the efficiency of total assets in generating net profits
Chapter 10: PowerPoint 10.20
Budgetary control: the process of monitoring,comparing, and evaluating actual expenditurelevels in various categories in relation to budgetedamounts, and making changes as needed during the budget time period
Purposes of budgeting
1. Help in planning work effectively
2. Assist in allocating resources
3. Aid in controlling and monitoring resource utilization during the budget period
1. Help in planning work effectively
2. Assist in allocating resources
3. Aid in controlling and monitoring resource utilization during the budget period
Chapter 10: PowerPoint 10.21
Common Types of Budgets in a Business
Sales budget Capital budget
Materials budget Research anddevelopment budget
Labor budget Cash budget
Chapter 10: PowerPoint 10.22
Automation: the use of self-regulating devices and processes that operate independently of people
Machine control: utilizes self-regulating instruments or devices to prevent and correct deviations from preset standards
In continuous process or robotic operations, machines control other machines
Chapter 10: PowerPoint 10.23
The pattern of relations and controls between the stockholders, the board of directors, and the top management of a company
Expectations: set by the organization through policies, procedures, practices and guidelines
Communication: makes sure that expectations are understood throughout the organization, and that there is proper training
Accountability: holds people accountable for meeting the expectations that have been set
Chapter 10: PowerPoint 10.24
Board ofdirectors
Corporate Governance: A Sample ofKey Terms and Elements
Bylaws
Annual meeting
Annualreport and
Annualmeeting
Proxystatement
Chapter 10: PowerPoint 10.25
Laws and regulatory agencies
Possibility of being acquired
Proxy statements: voting by
shareholders
Lawsuits by stakeholders
Chapter 10: PowerPoint 10.26
Eleven major sections dealing with such issues as:
1. Auditor independence
2. Corporate responsibility
3. Enhanced financial disclosures
4. Conflicts of interest
5. Corporate accountability
Chapter 10: PowerPoint 10.27
Certification: requires CEOs and CEOs of publicly traded companies to personally “testify”/sign that valid financial accounting processes have been established and used
Auditability: requires companies to develop and publish internal processes so that outsiders can confirm the existence of appropriate controls
Disclosure: companies must report financial results and material changes in corporate financial condition or operations “on a rapid and current basis”
Criminal accountability
Whistle-blower protection
Chapter 10: PowerPoint 10.28
Independent Boards of directors
Compensation contracts that attempt to align the interests of top executives with those of stockholders
Corporate bylaws that set ground rules for the responsibilities of top executives and board members
Evaluation of CEO by the Board
Strategic allocation of corporate resources by Board
Exercise of fiduciary responsibility and control by the Board