Chapter 14: Control TRUE/FALSE 1. Control is achieved when behavior and work procedures conform to standards and when company goals are accomplished. Answer: True 2. The control process begins when managers set goals. Answer: True 3. Benchmarking helps companies identify what their competitors do well. Answer: True 4. Companies may determine standards by evaluating their capacity to enable goal achievement, by listening to customers, by observing competitors, or by benchmarking other companies. Answer: True 5. Benchmarking is the process of setting corporate norms. Answer: False Benchmarking is the process of determining other companies’ standards. 6. Control is an intermittent activity that requires periodic attention from managers once or twice a month. Answer: False Control is not a one-time achievement or result. It continues over time (a dynamic process) and requires daily, weekly, and monthly attention from managers to maintain performance levels at the standard (i.e., cybernetic). 7. Feedback control is a mechanism for gathering information about performance deficiencies before they occur. Answer: False This is the definition of feedforward control. Feedback control gathers information about performance deficiencies after they occur. 8. U.S. Steel Corporation has filed a lawsuit challenging the European Commission’s 2006 decision to restrict the carbon dioxide emissions in its Slovakia unit because it believes the plant already complies with emission laws. The lawsuit is an example of feedback control. Answer: True 9. Concurrent control seeks to prevent or minimize performance deficiencies before they occur. Answer: False This is a characteristic of feedforward control. 10. Feedforward control provides information about performance deficiencies by monitoring inputs, not outputs. Answer: True 11. Sometimes the costs of control exceed its benefits. Answer: True 12. Control loss usually has no affect on goal achievement. Answer: False Control loss usually prevents goal achievement. 13. Control loss occurs when behavior and work procedures merely meet minimal acceptable standards rather than exceeding those minimal standards. Answer: False Control loss occurs when behavior and work procedures do not conform to standards (i.e., do not meet minimally acceptable standards). 14. Implementing controls is always worthwhile. Answer: False Implementing control isn’t always possible or worthwhile. 15. Cybernetic feasibility refers to the extent to which it is possible to implement each step of the control process. Answer: True 16. While the bureaucratic control model is designed to make companies more efficient, effective, and fair, it frequently has the opposite effect. Answer: True 17. According to Doing the Right Thing, “Don’t Cheat on Travel Expense Reports,” trust is the basis for a good working relationship Answer: True 18. The objective control approach to managerial control manifests itself as either behavior control or output control. Answer: True 19. In the behavioral approach to managerial control, a company’s widely shared values and beliefs guide workers’ behavior and decisions. Answer: False A company’s widely shared values and beliefs guide workers’ behavior and decisions in the normative approach to managerial control. In the behavior control approach to objective control, the organization regulates the behaviors and actions that workers perform on the job. 20. Concertive control produces less stress for workers than bureaucratic control. Answer: False Concertive control may lead to even more stress for workers to conform to expectations than bureaucratic control since workers must satisfy all team members, rather than only the boss. 21. When self-control is used, leaders and managers provide workers with clear boundaries within which they may guide and control their own goals and behaviors. Answer: True 22. The balanced scorecard approach to control emphasizes measurement of organizational performance in three equally important areas. These areas are finances, internal operations, and innovation and learning. Answer: False The balanced scorecard approach to control emphasizes measurement of organizational performance in four equally important areas: finances, customers, internal operations, and innovation and learning. 23. Generally, it does not matter which of the five approaches to managerial control an organization or individual manager chooses to employ. Answer: False There are more or less appropriate circumstances for using each of these control methods. See Exhibit 14.3. 24. The balanced scorecard method of control minimizes the chance of suboptimization. Answer: True 25. The term excessive value appropriated (EVA) refers to the amount by which profits (after expenses) exceed the cost of capital in a given year. Answer: False The appropriate term is economic value added. 26. One significant advantage of economic value added (EVA) is that it clearly specifies what specific actions managers should or should not take in order to improve financial performance. Answer: False Unlike many kinds of financial controls, EVA doesn’t specify what should or should not be done to improve performance. 27. Economic value added (EVA) is not as influential a measure of financial success as it once was thought to be as it doesn’t include the cost of capital. Answer: False EVA shows the importance of the cost of capital. 28. Customer satisfaction surveys are an accurate and effective way to answer the balanced scorecard question, “How do customers see us?” Answer: False Customer satisfaction surveys are often misleadingly positive. 29. A Manhattan federal judge ordered Visa USA to stop charging a special fee that penalized debit card issuers for jumping to its smaller rival MasterCard Inc. Visa USA was using the fee to shore up its internal perspective. Answer: False Customer defection is a customer perspective issue. 30. The only dimension needed to measure quality is its conformance to expectations. Answer: False Quality is typically defined and measured in terms of excellence, value, and conformance to expectations. 31. Quality is typically defined as the customer perception that the product provides an excellent value for its price. Answer: False Value is the customer perception that product quality is excellent for the price offered. 32. The innovation and learning perspective involves continuous improvement in ongoing products and services, and relearning and redesigning the processes by which products and services are created. Answer: True 33. The three levels of waste minimization are waste disposal, waste reduction, and recycling. Answer: False The four levels of waste minimization are waste disposal, waste treatment, recycle and reuse, and waste prevention and reduction. See Exhibit 14.8. 34. In 1996, outdoor-clothing manufacturer Patagonia developed a method for almost endless recycling of polyester, a method it still uses today. The development and use of this recycling method supports the innovation and learning perspective. Answer: True 35. The European Union is moving toward requiring consumers, not businesses, to be held responsible for recycling the products companies manufacture. Answer: False The European Union will hold companies, not consumers, responsible for recycling the products they manufacture. These products must be designed with recycling in mind. MULTIPLE CHOICE 1. The basic control process begins by: A. either benchmarking or key stoning B. setting standards C. comparing actual performance to expected performance D. problem identification E. determining corrective action if actual performance does not equal or exceed expected performance Answer: B Control begins by setting standards, measuring performance, and then comparing performance to the standards. See Exhibit 14.1. 2. _____________ is a regulatory process of establishing standards that will achieve organizational goals, comparing actual performance against the standards, and taking corrective action when necessary to restore performance to those standards. A. Implementation B. Goal-setting C. Control D. Suboptimization E. Benchmarking Answer: C Definition of control. 3. _____________ are criteria that are a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory. A. Standards B. Potentials C. Autonomous goals D. Degrees of centralization E. Resource goals Answer: A Definition of standards. 4. The objective of the company that manufactures Jägermeister liqueur is to grow its international business. It determines its success in the international market by comparing its 2005 annual exporting data with the data gathered in 1998—the first year it had double digit growth in exports. For this company, the 1998 exporting data provide a(n): A. autonomous measurement B. standard C. value ratio D. dependence measurement E. performance predictor Answer: B Standards are criteria that are a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory. 5. In October 2005, Cadbury Schweppes said higher commodity prices and the bankruptcy of one of its U.S. bottling plants had increased its production costs and led it to scale back its financial projections for the remainder of the year. These financial projections were _____________ for the beverage company. A. autonomous measurements B. standards C. value ratios D. dependence measurements E. performance charts Answer: B Standards are criteria that are a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory. 6. Companies may determine standards by: A. benchmarking other companies B. implementing vertical loading C. using outsourcing D. taking corrective action E. doing all of these Answer: A Standards are also determined by the goal achievement and by listening to customers. 7. Ford Motor has been attacked by its own sustainability committee for failing to do enough to cut vehicular greenhouse gas emissions. According to the committee’s 2005 report, “Ford has failed to define a goal for reducing global emissions from the company’s products.” The report called for the company to set clear targets to improve fuel economy and cut factory emissions. This committee wants Ford to establish emission control: A. autonomous measurements B. standards C. value ratios D. dependence measurements E. performance predictors Answer: B Standards are criteria that are a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory. 8. Sergio Marchionne, CEO of the Fiat Group, says that his marketing inspirations come from outside the automobile industry. “If you were to ask me today what the Toyota brand stands for, I couldn’t tell you,” he says. “I grew up in North America, and I remember when Apple started manufacturing computers. How much care Steve Jobs took in nurturing its place in the market is just phenomenal. We [Fiat] need to learn how to do that.” Marchionne believes that Fiat should use _____________ to understand Apple’s effective marketing strategy. A. communication methods B. benchmarking C. a marketing paradigm D. a noncompetitive model E. an aping strategy Answer: B Benchmarking is the process of identifying outstanding practices, processes, and standards in other companies and adapting them to your company.. 9. Benetton, the Italian clothing manufacturer, set as one of its _____________ for 2007 to send fresh clothing and display ideas to its various retailers every 15 days. A. standards B. potentials C. autonomous goals D. functional criteria E. resource goals Answer: A Standards are criteria that are a basis of comparison for measuring the extent to which organizational performance is satisfactory or unsatisfactory. 10. _____________ allows a trucking company not only to compare its safety performance with other companies but to also adopt those practices found to be superior. A trucking company can gather data on how its competitors deal with total accidents per million miles, numbers of high severity accidents by type, missed deliveries, spills, driver out-of-service by type, and vehicle out-of-service by type and can use this information to improve its own safety record. A. Benchmarking B. Data decentralization C. Information processing D. Mirroring E. Comparative criterion Answer: A Benchmarking is the process of identifying outstanding practices, processes, and standards in other companies and adapting them to your company. 11. When Marriott decided to improve the quality of service it offered its customers, it asked special corporate guests to comment on the good and bad issues of their stay, and also to tell what the competition is doing that is better than Marriott. The Marriott acted accordingly. In other words, it used: A. benchmarking B. data decentralization C. information processing D. mirroring E. comparative criterion Answer: A Benchmarking is the process of identifying outstanding practices, processes, and standards in other companies and adapting them to your company. 12. A chain of specialty fashion stores has interviewed a sample of its female customers and learned that on average a customer can be expected to visit the store every two weeks looking for new merchandise. As a result, the chain has new merchandise delivered daily. If items have not been sold after a month on display at the store, the items are removed from the store to either be sold at another location or returned to the manufacturer. The chain of stores was able to set this standard through: A. evaluating the standard’s capacity to enable goal achievement B. benchmarking competitors C. listening to customers D. outsourcing E. value communications Answer: C Listening to customers comments is one means for determining standards. 13. In 2007, Symantec Corp., maker of Norton Antivirus software, filed lawsuits against eight companies accusing them of distributing illegally copied Symantec software. Symantec alleges that the companies engaged in trademark infringement, copyright infringement, fraud, unfair competition, trafficking in counterfeit labels and documentation, and false advertising. In terms of the control process, Symantec has: A. set benchmarks B. suboptimized its feedback mechanisms C. implemented feedforward plans D. taken corrective action E. created cybernetic controls Answer: D At the corrective action stage of the control process, the company must identify performance deviations, analyze those deviations, and then develop and implement programs to correct them. 14. Control is a _____________ process. A. standardized, periodic, and cybernetic B. flexible, intermittent, and automated C. standardized, periodic, and robotic D. continuous, flexible, and automated E. continuous, dynamic, and cybernetic Answer: E This process is shown in Exhibit 14.1. 15. Control is a continuous process because it: A. has a feedback loop B. is an intermittent process C. is the first management function D. uses automated benchmarks E. can be a completely automated process Answer: A In this process, managers must repeat the entire process again and again in an endless feedback loop (a continuous process). 16. The three basic control methods are: A. feedback control, feedforward control, and symmetry control B. balance control, vertical control, and symmetry control C. concurrent control, feedback control, and feedforward control D. feedforward control, presumptive control, and stasis control E. stasis control, feedback control, and simultaneous control Answer: C Feedback control, concurrent control, and feedforward control are the three basic control methods. 17. A manufacturer of automatic locking devices for vehicles shipped 20,000 devices to a car manufacturer that was unable to use them because of a design flaw. If the manufacturer of the devices waited until the parts were returned before determining why it created unusable component parts, it would be using _____________ control. A. feedforward B. feedback C. balanced D. dynamic E. concurrent Answer: B Feedback control is a mechanism for gathering information about performance deficiencies after they occur. 18. An accident in November 2005 at a U.S. refinery operated by Valero killed two workers. By gathering information about how the men died so as to prevent a recurrence, Valero used _____________ control. A. concertive B. normative C. feedback D. concurrent E. bureaucratic Answer: C Feedback control is a mechanism for gathering information about performance deficiencies after they occur. 19. _____________ control is a method of gathering information about performance deficiencies after they occur. A. Feedback B. Stasis C. Concurrent D. Feedforward E. Preemptive Answer: A Definition of feedback control. 20. _____________ control is a method of gathering information about performance deficiencies as they occur. A. Feedback B. Simultaneous C. Concurrent D. Feedforward E. Stasis Answer: C Definition of concurrent control. 21. _____________ control is a method of gathering information about performance deficiencies before they occur. A. Feedback B. Stasis C. Preemptive D. Feedforward E. Concurrent Answer: D Definition of feedforward control. 22. In terms of the basic methods of control, _____________ control is an improvement over _____________ control because it attempts to eliminate or shorten the delay between performance and feedback about the performance. A. feedback; concurrent B. concurrent; feedback C. feedback; feedforward D. feedforward; feedback E. concurrent; stasis Answer: B Concurrent control is an improvement over feedback control. 23. In October 2004, Caterpillar announced plans to cut its predicted production of construction equipment for 2005 due to forecasted increases in steel prices and growing concern about a tire shortage. By discovering the problem with product inputs and letting customers know that its output will fall short, Caterpillar used _____________ controls. A. feedforward B. feedback C. concurrent D. stasis E. goal-based Answer: A Caterpillar is monitoring its inputs and has realized a problem with its output will occur in the near future. 24. A car manufacturer ordered 20,000 window assemblies from a supplier. To make sure the assemblies were made to specifications, the supplier of the window assemblies shipped a sample to the car manufacturer for testing. This is an example of _____________ control. A. feedback B. contiguous C. suboptimal D. feedforward E. synergistic Answer: D Feedforward control is a mechanism for monitoring performance inputs rather than outputs to prevent or minimize performance deficiencies before they occur. 25. Which approach to control monitors inputs rather than outputs? A. Feedforward control B. Feedback control C. Concurrent control D. Stasis control E. All of these Answer: A Feedforward control provides information about performance deficiencies by monitoring inputs rather than outputs. 26. To use feedforward control, a manager must: A. create open channels of communications between the producer and the customer B. establish a mechanistic system C. collect data at monthly intervals D. must store all relevant information in an easy-to-use information storage system E. monitor inputs, not outputs Answer: E Feedforward control provides information about performance deficiencies by monitoring inputs rather than outputs. 27. _____________ occurs when behavior and work procedures do not conform to standards. A. Benchmark points B. Control loss C. Suboptimization D. Cybernetic infeasibility E. Satisficing Answer: B Definition of control loss. 28. McDonald’s fast-food restaurants have a well-designed training program for all new employees. Each new employee is supposed to learn how to perform standardized tasks required to maintain McDonald’s service quality. Due to labor shortages in some areas, new employees begin work as soon as they are hired and do not receive any off-the-job training. This nonconformity to standards creates: A. ambiguous group norms B. motivational grapevines C. negative benchmarks D. control loss E. monitoring valences Answer: D Control loss occurs when behavior and work procedures do not conform to standards. 29. Which of the following factors can help managers determine whether more or different control is worthwhile? A. Regulation costs B. Customer flows C. Channelization D. Synergy E. Subordinate empathy Answer: A Regulation costs are the costs associated with implementing or maintaining control. 30. _____________ costs are the costs associated with implementing or monitoring control. A. Cybernetic B. Heuristic C. Regulation D. Benchmarked E. Targeted Answer: C Definition of regulation costs. 31. Sony is losing revenue to music pirating. To prevent further illegal copying of its music CDs, Sony has begun placing a software program called Rootkit on its music CDs. When the CD is played in the computer, this program attaches itself to the computer’s memory and prevents any music from being illicitly copied. The _____________ of this control device has been the software’s use by hackers who use it to hide their own activities. A. outsourced corollary B. inadvertent significance C. involuntary result D. deliberate benchmarking E. unintended consequence Answer: E Unintended consequences sometimes accompany increased control. 32. An often overlooked factor in determining the cost of control is: A. serendipitous consequences that accompany decreased supervision B. problems with trade barriers C. cybernetic feasibility D. quasi-control options E. unintended consequences that accompany increased control Answer: E These unintended consequences often are an overlooked factor in determining the cost of control. 33. Imagine a manufacturer that has a 99-percent error-free production rate and decides it wants 100-percent error-free production. Its management needs to examine _____________ to determine if the costs of increased controls outweigh the benefits of error-free production. A. cybernetic costs B. benchmarks C. financial ratios D. regulation costs E. feedback loops Answer: D Regulation costs are the costs associated with implementing or maintaining control. 34. _____________ is the extent to which it is possible to implement each step in the control process. A. Control feasibility B. Cybernetic feasibility C. A quasi-control assessment D. A balanced scorecard assessment E. Information management Answer: B Definition of cybernetic feasibility. 35. According to the text, which of the following factors can help managers to determine whether more control is possible? A. Task downsizing B. Cybernetic feasibility C. Outsourcing D. Channelization E. Synergistic intelligence Answer: B Cybernetic feasibility is the extent to which it is possible to implement each step in the control process. 36. An accident in November 2005 at a U.S. refinery operated by Valero killed two workers who were in the process of performing maintenance on a vat that contained nitrogen even though step-by-step safety procedures were available that could have prevented the deaths. This incident demonstrates how _____________ can influence the control process. A. job downsizing B. cybernetic feasibility C. outsourcing D. channelization E. synergistic intelligence Answer: B Cybernetic feasibility is the extent to which it is possible to implement each step in the control process. 37. Many public school systems have been establishing methods of controlling what students learn in the classroom. One commonly used control device is testing at various grade levels. In a recent testing situation, the company that produced the testing devices sent schools the wrong answer sheet on which to code the test answers. These faulty answer sheets resulted in much lower test scores than expected. The school system’s need to use the testing company reflects a control problem with: A. control synergy B. participative controls C. resource flow D. cybernetic feasibility E. autonomy Answer: D Cybernetic feasibility is the extent to which it is possible to implement each step in the control process. 38. Which of the following is a method managers can use to achieve control in their organizations? A. Bureaucratic B. Self-control C. Concertive D. Normative E. All of these Answer: E The five methods used to achieve control are bureaucratic, objective, normative, concertive, and self-control. 39. _____________ control is top-down control, in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures. A. Bureaucratic B. Normative C. Concertive D. Objective E. Administrative Answer: A 40. Sergio Marchionne is the new CEO of the Fiat Group, which produces Fiat and Alfa Romeo automobiles. When he took over, Marchionne learned that 2,000 Alfa Romeo customers had called the company the year before and received no reply. He ordered employees to call the customers back with personal apologies, warning that otherwise employees would lose their jobs. This action is an example of _____________ control. A. bureaucratic B. objective C. self-control D. autocratic E. connotative Answer: A Bureaucratic control is top-down control in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures. 41. Which of the following is NOT a method managers can use to achieve control in their organizations? A. Bureaucratic B. Objective C. Suboptimal D. Self-control E. Concertive Answer: C The five methods used to achieve control are bureaucratic, objective, normative, concertive, and self-control. 42. Companies that rely on bureaucratic control tend to: A. have no contingency plans B. rely on group norms rather than formalized rules and regulations C. value their human resources above all others D. be extremely responsive to their customers’ needs E. be highly resistant to change Answer: E These companies are resistant to change because they are highly committed to their rule- and policy-driven decision making. 43. When the local fast-food restaurant manager caught one of her employees giving free food to his friends, she fired him on the spot. When another employee stayed late after work one night to help a woman start her car, the manager rewarded him. What type of control did the restaurant manager use in these two instances? A. Bureaucratic B. Objective C. Self-control D. Autocratic E. Connotative Answer: A Bureaucratic control is defined as top-down control in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures. 44. An organization that relies heavily on _____________ controls is likely to be highly resistant to change and slow to respond to customers and competitors. A. behavior B. bureaucratic C. subjective D. normative E. output Answer: B These companies are resistant to change and slow to respond because they are highly committed to their rule- and policy-driven decision making. 45. _____________ controls should be used when it is necessary to standardize operating procedures and establish limits. A. Bureaucratic B. Normative C. Concertive D. Input E. Output Answer: A Exhibit 14.3. lists the methods used to determine which controls should be used. 46. The two types of objective controls managers use are: A. output and input B. administrative and participative C. self-control and organizational control D. autonomous and individualized E. behavior and output Answer: E There are two kinds of objective control: behavior control and output control. 47. A sales manager requires each member of his sales force to make three calls per day on current customers, to call on two potential customers every week, and to sell a minimum of $10,000 worth of merchandise weekly. Which of the following control methods does this indicate the sales manager is using? A. Normative B. Market-oriented C. Industrial betterment D. Objective E. Administrative Answer: D Objective control is the use of observable measures of worker behavior or output to assess performance and influence behavior. 48. In many companies, bureaucratic control has evolved into _____________, which uses observable measures of employee behavior or output to assess performance and influence behavior. A. centralized control B. objective control C. self-control D. autocratic control E. connotative control Answer: B Whereas bureaucratic control focuses on whether policies and rules are followed, objective control focuses on observing and measuring worker behavior or output. 49. What type of control would a hospital administrator be using if he gauged the performance of emergency room staff by the number of insured patients admitted to the hospital for further care? A. Bureaucratic control B. Objective control C. Self-control D. Autocratic control E. Connotative control Answer: B Objective control is the use of observable measures of worker behavior or output to assess performance and influence behavior. 50. _____________ control regulates workers’ actions and routines on the job, while _____________ control measures the results of their efforts. A. Input; behavior B. Motivation; output C. Concertive; normative D. Behavior; output E. Input; output Answer: D Behavior control is regulating behaviors and actions that workers perform on the job, while output control measures the results of their efforts. 51. Marriott’s top management decided that there was a need for a serious effort to “put democracy back in the company” and make employees feel “involved in the success of the company.” Managers adopted the theme “Ladies and Gentlemen serving Ladies and Gentlemen.” This was the rule its employees were told to use when dealing with customers. Employees asked special corporate guests to comment on the good and bad issues of their stay, and also to tell what the competition is doing that is better than Marriott. Then the employees acted accordingly. Marriott adopted _____________ controls. A. autonomous B. concertive C. normative D. control E. focus Answer: C Normative controls refer to regulation of workers’ behavior and decisions through widely shared organizational values and beliefs. 52. _____________ should be used when it is difficult to create good measures of worker behavior and output, and when organizational culture, values, and beliefs are strong. A. Bureaucratic control B. Normative control C. Concertive control D. Self-control E. Input control Answer: B Exhibit 14.3 lists the methods used to determine which controls should be used. 53. Which of the following statements about normative controls is true? A. Normative controls tend to create an organization that is highly resistant to change. B. With normative controls, managers focus on work behavior or outputs. C. Normative controls lead to an emphasis on very selective hiring. D. Normative controls arise when companies give autonomous work groups complete responsibility for task completion. E. None of these statements about normative controls is true. Answer: C Normative controls refer to regulation of workers’ behavior and decisions through widely shared organizational values and beliefs. One way for an organization to implement normative controls is to have very selective hiring practices. 54. Normative controls should be used when: A. cause-and-effect relationships are clear B. workers have been taught self-control skills C. responsibility for task accomplishment is given to autonomous work groups D. it is necessary to standardize all operations E. organizational culture, values, and beliefs are strong Answer: E Exhibit 14.3 lists the methods used to determine which controls should be used. 55. _____________ control is associated with autonomous work groups. A. Objective B. Normative C. Behavior D. Concertive E. Output Answer: D Concertive controls usually arise when companies give work groups complete autonomy. 56. Ironically, _____________ control may lead to even more stress for workers to conform to expectations than _____________ control. A. concertive; normative B. normative; concertive C. bureaucratic; concertive D. concertive; bureaucratic E. behavior; concertive Answer: D Under bureaucratic control, workers worry about pleasing the boss. But with concertive control, their behavior has to satisfy the rest of their team members. 57. Instead of individual salespeople calling on its business customers, Cedar tree Tech uses sales teams composed of marketing personnel, engineers, human resources personnel, and buyer–seller liaisons. The sales team is given complete responsibility for developing long-term partnering relationships with each customer. What kind of controls would the company’s sales managers most likely approve? A. Human resources control B. Participative control C. Self-control D. Administrative control E. Concertive control Answer: E Concertive control is regulation of workers’ behaviors and decisions through work group values and beliefs. 58. Self-control is sometimes called: A. behavior control B. concurrent control C. self-management D. personal responsibility E. autonomy Answer: C Self-control is also known as self-management. 59. _____________ should be used when it is difficult to create good measures of worker behavior and output, and workers are intrinsically motivated to do their jobs well and have self-leadership skills. A. Autonomy B. Normative control C. Concertive control D. Self-control E. Delegation Answer: D Exhibit 14.3 lists the methods used to determine which controls should be used. 60. Rafe’s manager has instructed Rafe and his fellow workers to develop a daily theme such as patience, empathy, and kindness. Each day, the workers are to try to emphasis the theme as they work with customers, suppliers, and each other. What kind of a control system is Rafe’s manager using? A. Self-control B. Human resources control C. Non-administrative control D. Output control E. Bureaucratic control Answer: A Self-control is a control system in which managers and workers control their own behavior by setting their own goals, monitoring their own progress, and rewarding themselves for goal achievement. 61. When it comes to finances, the balanced scorecard focuses on one simple question. That question is: A. How are we performing for our shareholders? B. How do we look to our customers? C. Are we making a profit? D. What is the bottom line? E. Are we retaining enough earnings to allow for market growth? Answer: A This question addresses the financial perspective. 62. The death toll from the 2005 blast at the British-based BP oil refinery in Texas City was 15. The U.S. Chemical Safety and Hazard Investigation Board, one of several agencies that examined the causes of the blast, said internal BP documents show that when BP acquired the refinery, it ordered an immediate 25 percent cut in fixed costs at its refineries without specifying how the cuts were to be made. Managers at the refinery let safety standards decline to meet this goal. A _____________ approach to control would have minimized the possibility of suboptimization. A. benchmarking B. customer churn C. balanced scorecard D. customer defection E. financial ratio analysis Answer: C One of the advantages of the balanced scorecard approach to control is that it minimizes the change of suboptimization, which occurs when performance improves in one area (lower fixed costs), but only at the expense of decreased performance in others (safety). 63. _____________ is a control method that encourages managers to look beyond traditional measures to evaluate four different perspectives on company performance. A. Optimization B. Customer churn C. Balanced scorecard D. Customer defection E. Financial ratio analysis Answer: C The four perspectives relate to customers, internal operations, innovation and learning, and finances. 64. Which of the following is NOT one of the four perspectives measured in the balanced scorecard approach to control? A. Financial perspective B. Policies and procedures perspective C. Customer perspective D. Internal operations perspective E. Innovation and learning perspective Answer: B The four perspectives relate to customers, internal operations, innovation and learning, and finances. 65. A provider of computer technical support that is using the balanced scorecard approach to control would look at: A. the percentage of its employees who have received training during the last year B. customer defections C. its cash flow D. percentage of computer owners who requested support more than five times in a month E. all of these and more Answer: E All of these factors and more would be important when using the balanced scorecard approach. 66. A manufacturer of transmissions has traditionally used standard financial and accounting measures to determine the company’s annual performance. Assuming it wants to improve its method of control, the company should: A. use a balanced scorecard B. eliminate concern about its financial performance from its analysis C. only monitor its external environment D. institute a TQM approach E. do all of these Answer: A The only control methodology listed is the balanced scorecard. 67. Which of the following statements about the balanced scorecard approach to control is true? A. The customer perspective is the most important in the control process. B. The company’s analysis of its controllable environment is most important to the company’s success. C. The innovation and learning perspective is the most important in the control process. D. The company’s analysis of its noncontrollable environment is most important to the company’s success. E. All of the perspectives examined by the balanced scorecard approach are of equal importance to a company’s success. Answer: E The balanced scorecard is a measurement of organizational performance in four equally important areas: finances, customers, internal operations, and innovation and learning. 68. _____________ should be used when it is difficult to create good measures of worker behavior, and when organizational culture, values, and beliefs are strong. A. Bureaucratic control B. Normative control C. Concertive control D. Self-control E. Input control Answer: B Exhibit 14.3 lists the methods used to determine which controls should be used. 69. Normative controls should be used when: A. cause-and-effect relationships are clear B. workers have been taught self-control skills C. responsibility for task accomplishment is given to autonomous work groups D. it is necessary to standardize all operations E. it is difficult to create good measure of worker output, and when organizational culture, values, and beliefs are strong. Answer: E Exhibit 14.3 lists the methods used to determine which controls should be used. 70. _____________ controls should be used when it is necessary to establish limits. A. Bureaucratic B. Normative C. Concertive D. Input E. Output Answer: A Exhibit 14.3 lists the methods used to determine which controls should be used. 71. _____________ occurs when performance improvement is attained in one part of an organization but only at the expense of decreased performance in another part. A. Suboptimization B. Control loss C. Cybernetic infeasibility D. Feedforward control E. sacrificing Answer: A Definition of suboptimization. 72. A large university library is concerned about possible pilferage of documents from its special collection of Civil War memorabilia. It has decided to make it nearly impossible for all but the most renowned Civil War experts to have access to the collection. The librarian in charge of the special collection feels that this new policy will adversely influence the use of the collection in research on the experiences of everyday people during the war. This is an example of the use of control creating: A. suboptimization B. control loss C. cybernetic infeasibility D. feedforward control E. sacrificing Answer: A Suboptimization occurs when performance improvement is attained in one part of an organization but only at the expense of decreased performance in another part. 73. One of the advantages the balanced scorecard has over traditional control processes that rely solely on financial measures is that it: A. encourages control delegation B. eliminates problems with regulation costs C. minimizes the chances of suboptimization D. allows companies to determine the ideal control methods E. creates functional independence Answer: C Suboptimization occurs when performance improvement is attained in one part of an organization but only at the expense of decreased performance in another part. 74. The balanced scorecard approach to control: A. forces managers at each level of the company to set specific goals and measure performance in each of four areas B. places greatest priority on the most important aspect of control, the financial perspective C. maximizes the chances of suboptimization D. only looks at factors within a company’s controllable environment E. has no real advantages over traditional control techniques Answer: A This is one of the advantages inherent in the use of the balanced scorecard. 75. In the traditional control systems used at most companies, _____________ measures are used to assess performance. A. financial B. customer C. value/quality D. quality/profit E. optimization Answer: A Most companies measure performance using standard financial and accounting measures. 76. Which of the following statements about economic value added (EVA) is true? A. EVA is one of the best ways to answer the question, “Are we providing our customers with expected value?” B. EVA is the amount by which profits (after expenses) exceed the cost of capital in a given year. C. EVA is only useful to top managers. D. The final step in calculating EVA is to compute the net operating profit after taxes. E. All of these statements about economic value added are true. Answer: B Economic value added (EVA) is the amount by which company profits exceed the cost of capital in a given year. EVA allows managers at all levels to examine their performances in terms of the organizational performance. The last step in the EVA calculation is to subtract the total dollar cost of capital from net profit after taxes. 77. Which of the following statements about economic value added (EVA) is true? A. EVA is one of the best ways to answer the question, “How do we look to shareholders?” B. EVA is the amount by which profits (after expenses) exceed the cost of capital in a given year. C. EVA is fairly easy for managers and workers to understand. D. EVA makes all managers and workers pay close attention to their segment of business E. All of these statements about economic value added are true. Answer: E All of the statements are true with regard to economic value added. 78. When it comes to internal operations, the balanced scorecard focuses on one simple question. That question is: A. At what must we excel? B. How do we look to our customers? C. Are we making a profit? D. What is the bottom line? E. Are we retaining enough earnings to allow for market growth? Answer: A 79. Economic value added is so important because it: A. demonstrates the importance of a business or subset of a business to customers B. makes managers and workers at all levels pay much closer attention to their segment of the business C. causes managers and workers to maintain the status quo D. determines if a business or unit of a business is a star, question mark, cash cow, or dog and the necessary action to follow E. is an improved form of the balanced scorecard approach to control Answer: B This is because economic value added for subsets of the organization can be so easily calculated. 80. Economic value added (EVA) is so important to workers and managers because it: A. eliminates the need for quantitative motivation B. encourages the use of participative management techniques C. specifies what should be done to improve EVA performance D. creates strategic windows E. shows whether a business or subset of a business is really making a profit Answer: E Determining if the company is actually making a profit is the most important reason for calculating economic value added. 81. An article on public libraries contained the following statement: “The balanced scorecard helps organize and run the library according to a specific strategic plan, while demonstrating the library’s value to the community as a whole.” When dealing with the customer area of the balanced scorecard, the article advised librarians to use customer surveys. Why might this be a poor strategy to use? A. It could create information overload. B. Customer surveys are never reliable. C. Stakeholders should not be involved in the creation of a balanced scorecard. D. Results may only reveal halo effects. E. Customer surveys are typically misleading positively. Answer: E Most companies try to answer the customer perspective question by the use of customer satisfaction surveys, but these are often misleadingly positive. 82. According to the balanced scorecard approach to control, customer satisfaction surveys would be an appropriate measure to assess: A. the potential for customer churn B. customer store and brand loyalty C. how the company controls quality D. the competition’s performance E. none of these Answer: E Most unhappy customers do not complain, so customer surveys tend to be positively skewed. 83. According to the balanced scorecard approach to control, an analysis of _____________ is much less likely to have a positive approach on a company’s bottom line than is an analysis of _____________. A. new product innovativeness; the competition B. financial ratios; budgets C. customer value; competitive value D. customer satisfaction; customer defection E. quality management techniques; value-added benefits Answer: D Most unhappy customers do not complain so customer surveys tend to be positively skewed. They will, however, find another product provider. 84. The traditional approach to controlling financial performance does NOT examine: A. financial ratios B. customer defections C. cash flow D. income statements E. budgets Answer: B Customer defections are unique to the balanced scorecard approach, which is not a traditional approach to controlling financial performance. 85. _____________ is a performance assessment in which companies identify which customers are leaving and the rate at which customers are leaving. A. Customer subjectivity B. Customer satisfaction C. Customer defection D. Customer objectivity E. Customer benefitizing Answer: C Definition of customer defection. 86. Quality is typically defined and measured in three ways. They are: A. costs, profitability, and customer satisfaction B. value, customer satisfaction, and conformance to expectations C. profitability, reliability, and conformance D. excellence, value, and conformance to expectations E. performance, conformance, and reliability Answer: D Quality is typically defined and measured by excellence, value, and conformance to expectations. 87. Since 1874, the brand name Chris-Craft has been virtually synonymous with pleasure boating. After a series of ill-advised expansions, buyouts, and mergers in the 1990s, Chris-Craft Industries has returned to its area of expertise: building boats. What perspective of the balanced scorecard did the boat manufacturer most likely use to determine where its success should lie? A. Financial perspective B. Policies and procedures perspective C. Customer perspective D. Internal perspective E. Innovation and learning perspective Answer: D An internal perspective answers the question, “At what must we excel?” 88. An article on public libraries contained the following statement: “The balanced scorecard helps organize and run the library according to a specific strategic plan, while demonstrating the library’s value to the community as a whole.” When dealing with the _____________ area of the balanced scorecard, the article advised librarians to ask, “At what activities must we excel?” A. financial perspective B. policies and procedures perspective C. customer perspective D. internal business perspective E. innovation and learning perspective Answer: D An internal perspective answers the question, “At what must we excel? Quality of service would be a concern for this section of the balanced scorecard. 89. For the internal perspective of the balanced scorecard, managers ask the question: A. “At what must we excel?” B. “How do we provide value to our stakeholder?” C. “What is the bottom line?” D. “How important is customer satisfaction?” E. “What can we do to improve and create value?” Answer: A 90. When a company emphasizes _____________ as its quality goal, managers must simultaneously control excellence, price, durability, or other features of a product or service that customers strongly associate with it. A. excellence B. value C. conformance to expectations D. profitability E. performance Answer: B Value is the customer perception that the product quality is excellent for the price offered. 91. An article on public libraries contained the following statement: “The balanced scorecard helps organize and run the library according to a specific strategic plan, while demonstrating the library’s value to the community as a whole.” When dealing with the _____________ area of the balanced scorecard, the article advised librarians to ask, “How can the library continue to improve and create value?” A. financial perspective B. policies and procedures perspective C. customer perspective D. internal business perspective E. innovation and learning perspective Answer: E This area involves continuous improvement. 92. Jägermeister liqueur is the only product made by its manufacturer. The company is carefully evaluating what it learned in becoming such a success to see if it could use the same strategy to expand its international market. Which perspective of the balanced scorecard is the liqueur manufacturer emphasizing? A. Financial perspective B. Policies and procedures perspective C. Customer perspective D. Internal business perspective E. Innovation and learning perspective Answer: E This perspective addresses the question, “Can we continue to improve and create value?” 93. Computer CPUs contain elements that are dangerous to our environment. It is imperative that older computers be disposed of cautiously. At least two companies have been established that do nothing else but recycle and reuse older computers. Organizations that want to address the _____________ perspective of their balanced scorecard approach to control could contract with these companies to make better use of discarded computers. A. inventory management B. waste management C. community D. innovation and learning E. financial Answer: D This perspective addresses the question, “Can we continue to improve and create value for our stakeholders?” 94. According to the text, which of the following levels of waste minimization produces the greatest minimization of waste? A. Waste prevention and reduction B. Recycle and reuse C. Waste treatment D. Waste disposal E. Waste remarketing Answer: A The top level of waste minimization is waste prevention and reduction. 95. Several extended-stay hotel chains ask guests to hang their towels so they can be reused as a way to help the environment. This request reflects which stage of waste minimization? A. Waste prevention and reduction B. Recycle and reuse C. Waste treatment D. Waste disposal E. Waste remarketing Answer: B Waste from laundering is reduced by reusing towels. 96. Process modification, material/product substitution, and _____________ are the three strategies used for waste prevention and reduction. A. collective reuse B. modification of organizational culture C. process diversification D. good housekeeping E. product innovation Answer: D 97. Refer to “What Would You Do?” At Subaru, wood pallets that are no longer useable are shredded into mulch for gardens. This is an example of: A. waste prevention B. recycling C. waste treatment D. waste disposal E. waste management Answer: B At the recycle and reuse level, wastes are reduced by reusing materials. 98. Refer to “What Would You Do?” When the paint systems at Subaru need to change colors, workers flush the system with toxic solvents to remove the residual of the old color. Instead of hauling the used solvent away, Subaru devised an in-house distilling process that removes the paint impurities and allows the solvent to be reused, thus eliminating wastes. This is an example of: A. setting standards B. measuring performance C. identifying deviations D. developing corrective action E. providing feedback controls Answer: D In the control process, performance deviations are identified, the deviations are analyzed, and then programs to correct them are developed and implemented. 99. Refer to “What Would You Do?” Subaru rival Nissan is launching a car, the Nissan Leaf, that will have a range of 40 miles per charge. Nissan manufacturers determined all of its electric cars should have this range, thus it is a: A. benchmark B. control C. standard D. value E. information Answer: C Standards are a basis of comparison for measuring the extent to which various kinds of organizational performance are satisfactory or unsatisfactory. SHORT ANSWER 1. List the steps in the basic control process. How would you respond to the statement, “Control is a process that should be employed intermittently?” Answer: The basic regulatory process of control (1) begins with the establishment of clear standards of performance that will achieve organizational goals, (2) involves a comparison of actual performance to performance standards, (3) and identifies and corrects performance deviations. Control is thus a continuous, dynamic, cybernetic process, rather than a one-time achievement or result. 2. Define benchmarking. List the three steps in this process. Answer: Benchmarking is the process of determining how well other companies (though not just competitors) perform business functions or tasks. In other words, benchmarking is the process of determining other companies’ standards. The three steps in benchmarking are (1) determining what to benchmark (2) identifying the companies against which to benchmark your standards, and (3) collecting data to determine other companies’ performance standards. 3. Explain the term cybernetic and its relevance to the control process. Answer: The term cybernetic takes its meaning from the Greek word kubernetes, which means “steersman,” that is, one who steers or keeps on course. The control process in organizations is cybernetic because of the feedback loop in which actual performance is compared to standards to minimize or correct deviations from those standards. Maintaining control of organizational processes is thus an ongoing, dynamic, cybernetic process, since comparisons and adjustments are constantly made to keep the process “on track.” 4. Identify and briefly define the three basic control methods. Answer: The three basic control methods are feedback control (after the fact performance information, or gathering information about performance deficiencies after they occur), concurrent control (simultaneous performance information, or gathering information about performance deficiencies as they occur), and feedforward control (preventive performance information, or gathering information about performance deficiencies before they occur). 5. List and briefly identify the five methods that managers can use to achieve control in their organizations. Answer: There are five methods that managers can use to achieve control in their organizations. Bureaucratic control is top-down control, in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures. Objective control is the use of observable measures of employee behavior (i.e., behavior control) or the results of that behavior (i.e., output control) to assess performance and influence behavior. Normative control is the regulation of workers’ behavior and decisions through widely shared organizational values and beliefs. Concertive control refers to the regulation of workers’ behavior and decisions through work group values and beliefs and is typically associated with the use of autonomous work groups. Self-control (also called self-management) is a control system in which managers and workers control their own behavior by setting their own goals, monitoring their own progress, and rewarding themselves for goal achievement. 6. Some approaches to control tend to be more stressful for employees than others. Discuss how bureaucratic and concertive control influence workers. Answer: The five methods that managers can use to achieve control in their organizations are bureaucratic, objective, normative, concertive, and self-control (also called self-management). Ironically, concertive control may lead to even more stress for workers to conform to expectations than bureaucratic control. Under bureaucratic control, most workers only have to worry about pleasing “the boss.” But with concertive control, they have to keep the rest of their team members satisfied with their behavior. For example, one team member said, “I don’t have to sit there and look for the boss to be around; and if the boss is not around, I can sit there and talk to my neighbor or do what I want. Now the whole team is around me and the whole team is observing what I’m doing.” Plus, with concertive control, team members have a second, much more stressful role to perform––that of making sure that their team members adhere to team values and rules. 7. Briefly describe the balanced scorecard approach to control. Explain how it differs from the traditional approach to control used in most companies. Answer: In most companies, performance is measured using standard financial and accounting measures, such as return on capital, return on assets, return on investments, cash flow, net income, and net margins. The balanced scorecard approach to control encourages managers to look beyond traditional financial measures to four different perspectives on company performance, as follow: How do customers see us? (the customer perspective); At what must we excel? (the internal perspective); Can we continue to improve and create value? (the innovation and learning perspective); and How do we look to shareholders? (the financial perspective). Thus, the balanced scorecard approach includes the financial perspective of the traditional approach but goes significantly beyond it in assessing additional perspectives relevant to overall company performance. 8. How does financial control in the balanced scorecard approach differ from its use in the traditional approach to control? Answer: The traditional approach to controlling financial performance focuses on measures such as analysis of financial ratios, cash flow, budgets, balance sheets, and income statements. Unfortunately, most managers don’t (but should) have a good understanding of these accounting tools. Sometimes, these tools simply provide too much information for the average manager to make sense of. On the other hand, the balanced scorecard focuses on one simple question when it comes to finances: How do we look to shareholders? One of the best ways to answer that question is through something called economic value added. Conceptually, economic value added is fairly easy for managers and workers to understand. It is the amount by which profits (after expenses) exceed the cost of capital in a given year. It can be a more effective method of financial control for the long term, since, for a business to truly grow, its revenues must be large enough to cover both short-term costs (annual expenses and taxes) and long-term costs (the cost of borrowing capital from bondholders and shareholders). 9. In an effort to determine of the effectiveness of their control system, how do most companies attempt to determine how they are seen by their customers? What is wrong with this technique? Answer: Most companies try to answer the question “How do customers see us?” through the use of customer satisfaction surveys that are often misleadingly positive. Most customers are reluctant to talk about their problems, and even very satisfied customers will leave to do business with competitors. Customer satisfaction surveys greatly overestimate the degree to which customers will buy from a company again. Thus, instead of using customer surveys, companies would be better off closely monitoring customer defections (i.e., by identifying which customers are leaving the company and measuring the rate at which they are leaving). In contrast to customer satisfaction surveys, customer defections and retention have a much greater effect on profits. Very few managers realize that it costs ten times as much to obtain a new customer as it does to keep a current one. Further, customers who have defected to other companies are much more likely than current customers to tell you what you are doing wrong. Finally, companies that understand why customers leave cannot only take steps to fix ongoing problems but can also identify which customers are likely to leave and make changes to prevent them from leaving. 10. Identify which of the four perspectives from the balanced scorecard approach the topic of waste minimization is related. Specify the four levels of waste minimization in order (from that producing the greatest minimization to that producing the smallest minimization). Answer: The topic of waste minimization is related to the innovation and learning perspective from the balanced scorecard approach. The four levels of waste minimization in order (from that producing the greatest minimization to that producing the smallest minimization) are (1) waste prevention and reduction, (2) recycle and reuse, (3) waste treatment, and (4) waste disposal. ESSAY 1. Describe the nature of the control process. Identify its basic steps, as well as the three basic methods of control. Explain how specific policies and procedures related to grading used at a college or university could be seen as an example of the control process, and specify which method(s) of control your example(s) represent. Answer: Control is a regulatory process of establishing standards to achieve organizational goals and then measuring and maintaining performance at levels that meet those standards, thereby achieving organizational goals. The first step in the control process is to set goals and performance standards. The second is to compare actual performance to performance standards. The better a company’s information and measurement systems, the easier it is to make these comparisons. The last step is to identify and correct performance deviations. However, control is a continuous, dynamic, cybernetic process, not a one-time achievement or result. Control requires frequent managerial attention to keep organizational processes “on course.” The three basic control methods are feedback control (after the fact performance information, or gathering information about performance deficiencies after they occur), concurrent control (simultaneous performance information, or gathering information about performance deficiencies as they occur), and feedforward control (preventive performance information, or gathering information about performance deficiencies before they occur). Grading procedures at colleges and universities are typically set up to evaluate student performance after the fact in individual courses and take corrective action where necessary (such as putting a student on probation or severing their relationship with the school if grades/performance drop too low). Thus, grading systems are typically an example of feedback control. The organizational goal that these systems are established for is twofold: (1) to provide feedback to students on their performance, in order to help them to develop and maintain effective learning strategies and (2) to ensure that graduates of the institution meet certain minimal performance (i.e., knowledge) standards. In addition, grades are used to recognize and reward exemplary performance, as for example, in posting of Dean or President’s lists. High-quality critical thinking answers may go into considerably greater detail in this analysis, as it could be taken much further depending upon the procedures in effect at any individual school. For example, weak measurement systems in the form of unreliable or invalid testing and grading methods would reduce the accuracy of performance measurements and reduce the effectiveness of the whole system, perhaps by causing students to transfer to a different section of a course or even a different school. If an institution lowers its grading standards to maintain enrollments in a competitive environment, alumni may reduce their donations if and when they become aware of the reduction in quality and the consequent dilution of their personal academic reputations as graduates of the school. Some schools include early warning systems of grading, such as mid-semester grades for first-year students that allow them to adjust their behavior or course load based upon feedback on their performance in all courses to date. Such a system could be construed as an example of a concurrent control system, since it is gathering information about performance deficiencies as they occur. Such a system is an improvement over feedback, since it attempts to eliminate or shorten the delay between performance and feedback about the performance. From the student’s perspective, such early warning grading systems give them important information about their progress in their courses (in terms of grade earned to date), which can allow them to either drop a particularly difficult course in which they are doing poorly (to maintain an acceptable grade point average) or change their study strategy in order to increase their grade at the end of the semester. To the extent that specific instructors/courses include multiple graded components and a clear mechanism for calculating how one is doing grade-wise throughout the course, we would have another example of a concurrent control system. Better student answers will emphasize how such a system epitomizes organizational control by acting as a continuous, dynamic, cybernetic process to allow the student to adjust his or her behavior to stay on course toward a good grade. Other examples could also be appropriate responses to this question. (For example, it could be argued that more stringent selection procedures, which require a higher grade point average to declare or maintain a specific major, could be considered an example of feedforward control, which attempts to control performance deficiencies by monitoring inputs rather than outputs). Such creative examples should be evaluated in terms of their appropriate fit with the concepts of control. Better answers will clearly explain how the components and effects of the grading system described correspond conceptually to the components and effects of a control system, as explained in the text. 2. Compare and contrast the nature and operational basis of the five methods of control available to managers and organizations. Comment on whether it matters that a manager selects one method of control over another in a given set of circumstances. Answer: There are five methods of control available to managers and organizations: bureaucratic, objective, normative, concertive, and self-control (self-management). At the most basic level, all of these are examples of the regulatory process of control, which involves establishing standards that will achieve organizational goals, comparing actual performance to those standards, and then, if necessary, taking corrective action to restore performance to those standards. Within the five methods, there are some specific similarities and differences. Bureaucratic and objective controls are top-down, management- and measurement-based. Normative and concertive controls represent shared forms of control, because they evolve from company-wide or team-based beliefs and values. Self-control, or self-management, is a control system in which managers largely, but not completely, turn control over to the individuals themselves. Bureaucratic control is based on organizational policies, rules, and procedures. Objective controls are based on reliable measures of behavior or outputs and are frequently differentiated as either behavior control or output control. Normative control is based on strong corporate beliefs and careful hiring practices. Concertive control is based on the development of values, beliefs, and rules in autonomous work groups. Self-control is based on individuals’ setting their own goals, monitoring themselves, and rewarding or punishing themselves with respect to goal achievement. The selection of particular methods of control to use under particular circumstances should not be a random matter. There are more or less appropriate circumstances for using each of these control methods, as outlined in Exhibit 14.3. For example, bureaucratic control tends to be more appropriate when it is necessary to standardize operating procedures, and it is also necessary to establish limits. Behavior control is appropriate to use when it is easier and more effective to measure what workers do than what they accomplish, and when clear cause-effect relationships between behavior and work success are known. Output control is more effective when such cause-effect relationships are unclear, when it is easier to measure what workers accomplish on the job than what they do on the job, and when it is possible to set clear goals and standards for worker output. Normative control tends to be more appropriate under circumstances when it is difficult to create good measures of worker behavior and output, and organizational culture, values, and beliefs are strong. Concertive control should be considered when management desires a strong form of worker-based control and wants workers to take ownership of their behavior and outputs while delegating responsibility for task accomplishment to autonomous work groups. Self-control is appropriate under circumstances when it is difficult to create good measures of worker behavior and output, and when workers are intrinsically motivated to do their jobs well and have or are taught self-control and self-leadership skills. While student answers need not go into this level of detail on these contingencies for selecting one control method over another, they should demonstrate a general understanding of using a contingency approach to the selection of any given method. 3. Identify and explain the balanced scorecard approach to control. Specify its advantages and how it differs from the traditional approach to control used in most companies. Comment on which approach (the traditional or balanced approach to control) is more likely to help a company adapt to a changing, competitive marketplace. Answer: In most companies, performance is measured using standard financial and accounting measures, such as return on capital, return on assets, return on investments, cash flow, net income, and net margins. The balanced scorecard approach to control encourages managers to look beyond traditional financial measures to four different perspectives on company performance. These are (1) How do customers see us? (the customer perspective); (2) At what must we excel? (the internal perspective); (3) Can we continue to improve and create value? (the innovation and learning perspective); and (4) How do we look to shareholders? (the financial perspective). The balanced scorecard has advantages over traditional control processes that rely solely on financial measures. First, it forces managers at each level of the company to set specific goals and measure performance in each of the four areas. Second, it minimizes the chances of suboptimization, where the use of a specific control procedure improves performance in one area, but only at the expense of decreased performance in others. The traditional approach to control, with its sole reliance on financial and accounting measures, may miss important factors in company performance until they become serious problems and may well result in significant suboptimization and loss of competitive position. Since the balanced scorecard approach to control measures performance in terms of multiple, interrelated perspectives, all of which are likely to have a long-term impact on the company’s competitive position, it is much more likely to help a company adapt to a changing, competitive marketplace. For example, some of the ways that companies are currently using the balanced scorecard approach to enhance competitive position through effective control include economic value added (from the financial perspective), evaluating customer defections (from the customer perspective), assessing total quality management (from the internal perspective), and emphasizing new product development (from the innovation and learning perspective). 4. What is economic value added? Why it is so important in comparison to the traditional approach to controlling financial performance? Answer: The traditional approach to controlling financial performance focuses on measures such as analysis of financial ratios, cash flow, budgets, balance sheets, and income statements. However, most managers don’t (but should) have a good understanding of accounting measures. Thus, controlling financial performance using such traditional approaches may be problematic since many experienced managers find them difficult to work with. On the other hand, the balanced scorecard focuses on one simple question when it comes to finances: How do we look to shareholders? One of the best ways to answer that question is through something called economic value added. Conceptually, economic value added (EVA) is fairly easy for managers and workers to understand. It is the amount by which profits (after expenses) exceed the cost of capital in a given year. It is based on the simple idea that it takes capital to run a business and that capital comes at a cost. If a business is to truly grow, its revenues must be large enough to cover both short-term costs (annual expenses and taxes) and long-term costs (the cost of borrowing capital from bondholders and shareholders). So why is EVA so important? First and most important, since it includes the cost of capital, it shows whether a business, division, department, or profit center is really paying for itself. Second, because EVA can easily be determined for subsets of a company, such as divisions, regional offices, manufacturing plants, and sometimes even departments, it makes managers at all levels pay much closer attention to how they run their segment of the business. Finally, unlike many kinds of financial controls, EVA doesn’t specify what should or should not be done to improve performance. Thus, it encourages managers and workers to be creative as they try to find ways to improve EVA performance. In summary, we can say that EVA is the amount by which profits (after expenses) exceed the cost of capital in a given year. So the more that return on capital exceeds the cost of capital, the better a company is using investors’ money. Since EVA is easy to understand and use, can be calculated for subsets of a business, and can motivate managers and workers to come up with creative solutions to the challenge of increasing its value, EVA can be a much more effective financial control tool than traditional measures. In essence, EVA motivates the entrepreneurial spirit in managers and gets them to think like small business owners. Test Bank for Effective Management Chuck Williams 9781285866246
Download
Close
Close
