The Nature of Control in
Control is a process to regulate organizational
activities so that some targeted element of
performance remains within acceptable
limits. Without this regulation ,
organizations have no indication of how
well they perform in relation to their goals.
Example : ship’s rudder, keeps the
organization moving in the proper direction.
Like a rudder, control provides an
organization with a mechanism for
adjusting its course if performance fails
outside of acceptable boundaries.
What Is the Purpose of Control?
• It is one of the four basic
and has four basic
functions. What are the
– Adapts to environmental
– Limits accumulation of
– Helps coping with
– Helps minimize costs.
The Purpose of Control
Adapt to environmental change Limit the accumulation of error
Control helps the organization
Cope with organizational complexity Minimize costs
Adapts to environmental change.
All organizations need to contend with change. A properly
designed control system can help managers anticipate,
monitor, and respond to changing circumstances. In
contrast, an improperly designed system can result
organization performance that falls far below acceptable
Limits accumulation of error.
Small mistakes and errors do not often seriously damage
an organization's financial health. However, small errors
may accumulate and eventually become vary serious.
Controlling helps managers to rectify small mistakes and
errors so that they do not become a major problem for
the long run.
Helps coping with organizational complexity.
Small companies which produces only one product, has
simple organizational design, and enjoys constant
demand, can maintain control with a very basic and
simple system. But business that produce many products
and has a large market area, a complicated organization
design , many competitors needs sophisticated system to
maintain adequate control. Example : Emery Air Freight
was quite profitable until it bought Purolator Courier
Corporation. After the acquisition the company became
big, and more complex, but it added no new controls to
organization. Consequently, Emery lost market share
and was on the verge of bankruptcy.
Helps minimize costs.
When practiced effectively, control can help reduce costs
and boost output. Example : Georgia- pacific
Corporation, a furniture company, learned a new
technology that it could use thinner blades for its saws.
The company used its control system to calculate that
massive amount of wood could be saved by using the
thinner blades, and thus it could save them a huge cost.
As the company discovered, effective control systems
can eliminate waste, lower labor costs, and improve per
Types of Control
Organizations practice control in a number of different
areas and at different levels, and the responsibility for
managing control is widespread.
Areas of Control
Most organizations define areas of control in terms of the
four basic types of resources they sue : physical, human,
information, and financial resources.
Control of physical resources includes inventory
management, quality control, and equipment control.
Control of human resources includes selection and
placement, training and development, performance
appraisal, and compensation.
Control of information resources includes sales and
marketing forecasting, environmental analysis, public
relations, production scheduling, and economic
Financial control involves managing the organization’s debt
so that it does not become excessive, ensuring that the
firm always has enough cash on hand to meet its
obligations, also that receivables are collected and bills
paid on a timely basis.
Levels of Control
Levels of Control
• Operational control:
– Focuses on the processes used to transform
resources into products or services.
• Financial control:
– Concerned with financial resources. Example :
Monitoring receivables to make sure that
customers are paying their bills on time.
• Structural control:
– How the elements of organization’s structure are
serving the intended purposes. Example :
Monitoring the administrative ration to make sure
that staff expenses do not become excessive.
• Strategic control:
– How effective the organization’s corporate,
business, and functional strategies are succeeding
in helping the organization meet its goals and
objectives. Example : if a corporation has been
unsuccessful in implementing its strategy of
related diversification, its managers need to
identify the reasons, either change the strategy or
renew their efforts to implement it)
Responsibilities for Control
• Control rests with all managers. Managers decide which types
of control the organization will use, and they implement control
systems and take actions based on the information provided by
• Large corporations have one or more specialized managers
called controller. A controller is responsible for helping line
managers with their control activities, for coordinating the
organization's overall control system, and for gathering and
assimilating relevant information. The job of a controller in
especially important in organization where control systems are
• Many organizations are beginning to use operating employees
to help maintain effective control. Employees participation is
often used as a vehicle for allowing operating employees an
opportunity to help facilitate organizational effectiveness.
Steps in the Control Process
Steps in the Control Process
The first step in the control process is establishing
standards. A control standard is a target against which
subsequent performance will be compared. Example : at
Taco Bell Fast –food restaurant service standards are
– 95% of all the customers are greeted within 3 minutes
– Preheated chips will not sit in the warmer for more than 30
– All Empty tables will be cleaned within 5 minutes after being
Standard established for control should be expressed in
measurable terms. In the above example standard one is
95%, three is ‘‘ All Tables’’.
Control standards should be consistent with the
organization’s goals. Taco Bell has organizational goals
involving customer service, food quality, and restaurant
A final aspect of establishing standards is to identify
performance indicators. Performance indicators are
measures of performance that provide information that is
directly relevant to what is being controlled. Example : an
organization is following a tight schedule in building a new
plant. Relevant performance indicators can be buying a
site, selecting a building contractor, ordering equipment.
However, monthly sales increase are not relevant in this
regard. On the other hand, if control is focused on
revenue, then monthly sales increases are relevant,
whereas buying land for a new plant is less relevant.
This is the second step in the control process.
Performance measurement is a constant , ongoing
activity for most organization. For control to be
effective, performance measures must t be valid.
– Daily, weekly, and monthly sales figures measure sales
– Production performance may be expressed in terms of
unit cost, product quality, or volume produced.
– Employee performance is often measure in terms of
quality or quantity of output.
Compare Performance Against Standards.
Performance may be higher than, lower than, or identical
to the standard. In some cases comparison is easy.
The timetable for comparing performance to standards
depends on a variety of factors including the
importance and complexity of what is being controlled.
For longer-run and higher-level standards, annual
comparisons are necessary. In another circumstances,
more frequent comparisons are necessary. Example :
a business with a cash shortage may need to monitor
its on-hand cash reserves daily.
Consider Corrective Action
Decisions regarding corrective actions draw heavily on a
manager’s analytic and diagnostic skills. After
comparing performance against control standards, one
of the three actions is appropriate.
– Maintain status quo (do nothing) : preferable when
performance matches the standard
– Correct the deviation : some actions are needed to
correct the deviation. Sometimes, if performance is
higher than expected it may cause problems.
Example : Ford enjoyed a huge demand for Contour
(car). There were customers waiting list and many
were willing to pay more for the car. Ford did not
increase production in the fear that demand would
eventually drop. To deal with the excessive
demand, ford reduced its advertising for the car.
That curtailed the demand for the car.
– Change the standards: changing standard is
necessary if it was set too high or too low. This is
apparent if most employees routinely beat the
standard by a wide margin or if no employees ever
meet the standard. Also, standards that seemed
appropriate when they were established may need
to be adjusted because circumstances have
Characteristics of Effective
• Integration with
Integration With Planning
Control should be linked with planning. The explicit and
precise this linkage, the more effective the control
system. As goals are set during the planning process,
attention should be paid to developing standards that will
reflect how well the plan is realized. Example : Managers
at Champion Spark Plug Company developed twenty
one new products. Managers decided in advance what
level of sales they wanted to realize from each product
for each of the next five years. They established these
sales goals as standard against which actual sales
would be compared. Thus by accounting for their control
system, managers did an excellent job of integrating
planning and control.
The Control system itself must be flexible enough to
accommodate change. Example : an organization whose
diverse product line requires seventy five different raw
materials. The company’s inventory control system must
be able to manage and monitor all seventy five
materials. When a change in product line changes the
number or raw materials needed, or when the required
quantities of raw materials change, the control system
should be able to handle the revised requirements.
Because developing and implementing a new control
system is expensive.
Managers make large number of decisions based on
– Field representative may hedge their sales estimates to
make themselves look better.
– Production managers may hide costs to meet their
– Human resource managers may overestimate their
minority recruiting prospects to meet affirmative action
The results of these inaccurate information managers receive
is dramatic. If sales projection are inflated, a manager
might cut advertising. Hiding production costs may lead a
company quote a sales price much lower than desirable. In
each case, the results of inappropriate information results
inappropriate managerial action.
Timeliness does not mean quickness it rather describes a
control system that provides information as often as is
Champion Spark Plug has a wealth or historical data on its
sparkplug sales, it does not need information on sparkplug
as frequently as it needs sales feedback for its newer
Retail organization usually need sales results daily so that
they can manage cash flow and adjust advertising and
promotion. In contrast, they may require information about
physical inventory only quarterly or annually.
The more uncertain and unstable the circumstances, the more
frequently measurement is needed.
The control system should provide information that is as
objective as possible. Example : a manger responsible for
control of his organization’s human resources asks two
managers to submit reports.
– One manager reports that morale at his plant is ‘‘okay’’,
grievances are ‘‘ about where they should be’’, and
turnover is ‘‘under control’’
– Other manager reports that absenteeism at her plant is
running at 4 percent, that sixteen grievances have been
filed this year, and that turnover is 12 percent.
The second report almost always be more useful than the first