be an overemphasis on one approach
instead of multiple approaches.
Ratio analysis is the practice of evaluating
financial ratios. Managers may use this tool
to determine an organization's financial
health, such as liquidity ratios, debt
management ratios, or return ratios.
• Audits are formal verifications of an
organization's financial and operational
systems. Audits are of two types. An external
audit is formal verification of an
organization's financial accounts and
statements by outside experts. An internal
audit is a verification of an organization's
financial accounts and statements by the
organization's own professional staff.
to solve a special or one-time problem.
(2) Outsourcing is the subcontracting of
services and operations to an outside vendor.
(3) Reduced cycle time consists of reducing
the number of steps in a work process.
(4) Statistical process control is a statistical
technique that uses periodic random
samples from production runs to see if
quality is being maintained within a standard
range of acceptability.
0
.
fast but comprehensive view of the
organization via four indicators: (1) financial
measures, (2) customer satisfaction,
(3) internal processes, and (4) innovation
and improvement activities.
• The strategy map, a visual representation of
the four perspectives of the balanced
scorecard-financial, customer, internal
business, and innovation and learning-
enables managers to communicate their
goals so that everyone in the company can
understand how their jobs are linked to the
overall objectives of the organization.
• Measurement-managed companies use
measurable criteria for determining strategic
success, and management updates and
reviews three or more of six primary
performance areas: financial performance,
operating efficiency, customer satisfaction,
employee performance, innovation/change,
and community/environment.
• Four mechanisms that contribute to the
success of such companies are top
executives agree on strategy, communication
is clear, there is better focus and alignments,
and the organizational culture emphasizes
teamwork and allows risk taking.
• Four barriers to effective measurement are
objectives are fuzzy, managers put too much
trust in informal feedback systems,
employees resist new management systems,
and companies focus too much on
measuring activities instead of results.
• Some areas are difficult to measure, such as
those in service industries.
16.6 Managing Control Effectively
Successful control systems have four
common characteristics: (1) They are strategic
and results oriented. (2) They are timely,
accurate, and objective. (3) They are realistic,
positive, and understandable and they
encourage self-control. (4) They are flexible.
• Among the barriers to a successful control
system are the following: (1) Organizations
may exert too much control. (2) There may
be too little employee participation. (3) The
organization may overemphasize means
instead of ends. (4) There may be an
overemphasis on paperwork. (5) There may
16.7 Managing for Productivity
A manager has to deal with six challenges,
managing for competitive advantage, diversity,
globalization, information technology, ethical
standards, sustainability, and his or her own
happiness and meaningfulness.
The manager must make decisions about the
four management functions-planning,
organizing, leading, and controlling-to get
people to achieve productivity and realize
results.
• Productivity is defined by the formula of
outputs divided by inputs for a specified
period of time. Productivity is important
because it determines whether the
organization will make a profit or even survive.
Much of productivity growth is thought to
result from the implementation of information
technology, including enterprise resource
planning (ERP) systems. Productivity
depends on control.
Understanding the Chapter: What Do I Know?
16.5 Total Quality Management
• Much of the impetus for quality improvement
came from W. Edwards Deming, whose
philosophy, known as Deming management,
proposed ideas for making organizations more
responsive, more democratic, and less wasteful.
• Among the principles of Deming
management are (1) quality should be aimed
at the needs of the consumer; (2) companies
should aim at improving the system, not
blaming workers; (3) improved quality leads
to increased market share, increased
company prospects, and increased
employment; and (4) quality can be
improved on the basis of hard data, using
the PDCA, or plan-do-check-act, cycle.
• Total quality management (TQM) is defined as
a comprehensive approach-led by top
management and supported throughout the
organization -dedicated to continuous
quality improvement, training, and customer
satisfaction. The two core principles of TQM
are people orientation and improvement
orientation.
In the people orientation, everyone involved
with the organization is asked to focus on
delivering value to customers, focusing on
quality. TQM requires training, teamwork,
and cross-functional efforts.
• In the improvement orientation, everyone
involved with the organization is supposed to
make ongoing small, incremental improvements
in all parts of the organization. This orientation
assumes that it's less expensive to do things
right the first time, to do small improvements all
the time, and to follow accurate standards to
eliminate small variations.
• TQM can be applied to services using the
RATER scale, which stands for reliability,
assurance, tangibles, empathy, and
responsiveness.
• Several techniques are available for improving
quality. (1) Employee involvement can be
implemented through self-managed teams,
and special-purpose teams-teams that meet
1. What is control, and what are six reasons control is
needed?
2. Explain the steps in the control process, and
describe the three levels of control.
3. Distinguish among the six areas of organizational
control: physical, human, informational, financial,
structural, and cultural.
4. Explain the four indicators of the balanced
scorecard, and state what a strategy map is.
5. What are four mechanisms of success for
measurement-managed firms and four barriers to
effective measurement?
6. Define incremental budgeting and give some
examples of types of budgets.
7. Explain the following financial tools used for
control: financial statement, balance sheet, income
statement, ratio analysis, and audits (both external
and internal).
8. Discuss total quality management, its two core
principles, and the concept of continuous improvement.
9. Explain the following TQM tools and techniques:
reduced cycle time, the ISO 9000 series, the ISO
14000 series, statistical process control, and Six
Sigma and lean Six Sigma.
10. What is the formula for defining productivity?
16.4 Some Financial Tools for Control
• Financial controls include (1) budgets,
(2) financial statements, (3) ratio analysis,
and (4) audits.
• A budget is a formal financial projection.
The most important budget-planning
approach is incremental budgeting, which
allocates increased or decreased funds to a
department by using the last budget period as
a reference point; only incremental changes in
the budget request are reviewed. Budgets are
either fixed, which allocate resources on the
basis of a single estimate of costs, or variable,
which allow resource allocation to vary in
proportion with various levels of activity.
• A financial statement is a summary of some
aspect of an organization's financial status.
One type, the balance sheet, summarizes an
organization's overall financial worth-assets
and liabilities-at a specific point in time. The
other type, the income statement, summarizes
an organization's financial results-revenues
and expenses-over a specified period of time.
.
Management in Action
UPS Relies on Sophisticated Control Systems
to Manage Package Deliveries
Scott Abell is fretting about free-range turkeys. It's No-
vember 20 [2013], and United Parcel Service will soon
pick up 11,000 of them from a ranch in northern Cali-
fornia and ship them overnight to customers of
Williams-Sonoma in time for Thanksgiving. Abell, a
31-year veteran of UPS, is known inside the organiza-
tion as Mr. Peak. He plans next-day, two-day, and
three-day shipments during the holidays, UPS's busiest
Control Systems & Quality Management
CHAPTER 16
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546
PART 6
Controlling
the two groups operated in different buildings. Abell
says he liked it that way.
Source: Excerpted from "He'll Make Your Dreams Come True,"Bloomberg
Businessweek, December 23, 2013-January 5, 2014. Used with permission
of Bloomberg L. P. Copyright (c) 2014. All rights reserved.
FOR DISCUSSION
months the peak team revises it, producing two more
versions, one in August and a final version in Septem-
ber. They will be circulated to the company's 15 district
managers who have their own gripes and suggestions.
“That's why peak planning goes on all year long," says
Marty Fry, one of Abell's planners....
But plans can be ephemeral. Abell grows slightly
exasperated talking about a last-minute decision by
one of his largest customers that will dump a huge
number of packages into UPS's network on the week-
end before Christmas. As a result, Abell spent five
days developing a new plan allowing UPS to operate
double shifts at Worldport during the final weekend
before Christmas. By late November, Abell finally had
all the pieces in place: the planes, the pilots, and the
extra package handlers. ...
During the holidays, the peak planning team
works closely with the UPS contingency department,
located one floor below in the same building. The peak
guys and their contingency peers have a complicated
relationship: The contingency team responds when the
peak team's planning goes awry. Often because of the
weather and the whims of customers, crises emerge.
Among other things, the contingency department has
18 planes positioned around the country that can take
off at 30 minutes' notice in emergencies to ensure that
boxes are delivered on schedule. Until two years ago
1. Which of the six reasons that control is needed are
apparent in this case? Explain.
2. To what extent does the process Scott Abell uses to
manage shipments of packages during holiday peri-
ods follow the control process shown in Figure 16.3?
Discuss.
3. If you were charged with creating a balanced Scorecard
for Scott Abell, what SMART goals (see Chapter 5),
would you use as standards to assess performance in
the four categories in your scorecard? Develop one
SMART goal for each scorecard category.
4. To what extent does UPS use the PDCA process?
Explain your rationale.
5. Which of the keys to successful control systems are
being used by UPS? Explain.
6. What are the most important takeaways from this
case? Discuss.
time of the year. He starts drafting his plan in January
and spends the rest of the year refining it. The turkeys
are his first big test of the 2013 peak season, which
starts in five days.
The birds are impressive: A 24-pounder sells for
$185—plus shipping. UPS must handle them gently.
The turkeys are not frozen but “meticulously chilled”
at around 37F to keep them fresh. ...
An athletic 53-year-old with wire-rimmed glasses, a
neatly trimmed mustache, and carefully parted graying
hair, Abell is unfailingly gracious, if a little high-strung.
He has an elaborate delivery process in store for the "Wil-
lie Birds.” On November 25, three days before Thanksgiv-
ing, UPS drivers will pick them up at the ranch and
transport them to two of the company's large distribution
centers. From there, they will be flown to UPS sorting fa-
cilities. The ones bound for the Southwest will be divvied
up at UPS distribution in Ontario, California. The ones
headed east of the Rockies will be processed at Worldport,
an enormous operation near Abell's office in Louisville.
Then the turkeys will be jetted to local UPS hubs and
handed over to drivers who will carry them to their final
destinations. Ideally, this will all happen in 24 hours.
The flight of the Willie Birds has become a holiday
ritual for UPS. Concerned about getting it right, Abell
has even distributed pictures of Willie Bird boxes to the
6,000 workers who sort packages daily at Worldport so
they recognize them. The last thing Mr. Peak wants is
for the birds to arrive spoiled. If they're late, UPS has
to reimburse the disappointed Thanksgiving diners.
Coordinating the most time-sensitive shipments
during the most hectic time of year has always been a
challenge for UPS, but the Internet has made Abell's
job more crucial than ever. It's become so easy for
people to shop via computers and smartphones that
they frequently delay their purchases until the last
minute. Mr. Peak's job, in effect, is to fulfill the Inter-
net’s promise of instant gratification.
If Abell can't come up with a viable scheme, UPS is
in trouble. The company expects to ship more than 132
million parcels globally during the week before Christ-
mas alone. If it can't find space for them all, retailers will
almost surely turn to FedEx. In addition, Abell must
keep a lid on costs. In the past some investors have wor-
ried that UPS is too e-commerce focused. David Vernon,
an analyst for AllianceBernstein, notes that it's usually
more profitable to carry large shipments to businesses
than to transport books to the cozy homes of Internet
shoppers. But he says UPS is managing to turn a profit
on the latter with careful planning. “I think some of those
fears are starting to recede,” he says.
Maintaining profitability is especially difficult dur-
ing peak season when UPS's delivery expenses rise.
This year, UPS is adding 55,000 part-time holiday
workers, leasing 23 extra planes, and effectively build-
ing a second trucking fleet to handle the seasonal
package flow. None of this is cheap. It's up to Mr. Peak
to plan accordingly.
Perhaps the biggest holiday challenge for UPS is
satisfying Amazon.com, which doesn't behave like a
traditional retailer. In November, Amazon unveiled a
plan to deliver packages on Sundays with the help of
the U.S. Postal Service rather than UPS. In December,
Jeff Bezos, Amazon's chief executive officer, told 60
Minutes the company was experimenting with deliver-
ing packages by drone. Many people snickered. UPS
did not. Ross McCullough, vice president of corporate
strategy, says UPS is studying drone delivery, too. “I
believe these things will be part of the system in the
future,” he says. “I don't know when.” He says UPS is
also weighing the potential use of driverless vehicles.
Then there are the factors Mr. Peak can't control.
This year there are only 26 shopping days between
Thanksgiving and Christmas, compared with 32 last
year. That means UPS has to shove what it describes as
a record number of parcels through a smaller window.
Winter storms can also upset Abell's plans. “The big-
gest challenge is the weather. When you have a shorter
season, you have less time for recovery,” says UPS
CEO D. Scott Davis. “You just hope you don't have
ice storms.” It isn't only that ice can ground UPS jets
and halt its trucks. The company has found that when
people are snowed in, they do more online shopping.
So when UPS digs itself out, it has to deliver even
more presents. Abell doesn't know what to expect this
year from the weather, but he is ready to sort boxes by
hand himself if an emergency arises. “I hustled boxes
before,” he says. “I can do it again.”..
In October, UPS and FedEx announced their holiday
shipping forecasts. FedEx said it would carry more than
85 million shipments in the first week of December. UPS
predicted it would deliver 129 million packages that same
week, easily topping its rival. And UPS will see a second
holiday rush during the week before Christmas....
Abell and his team meet with most of their 25
largest customers to see how they feel about the way
things went. They're especially attentive to Nord-
strom. UPS develops an annual 50-page peak season
plan solely for the store. Early in the season, the
high-end retailer relies heavily on UPS's trucks to de-
liver items within five days. But during the week be-
fore Christmas, Nordstrom runs out of time and has
to start moving packages by jet. That means Abell
has to schedule several daily flights in and out of the
UPS hub in Cedar Rapids, Iowa, near Nordstrom's
distribution center. ...
Armed with data from its largest clients, UPS creates
a preliminary plan in March. It's really 60 plans in one,
taking into account how time-sensitive packages will
flow through the system depending on the day of the
week, how fast they must be delivered, and whether
there are special customer requests. Over the next
Legal/Ethical Challenge
WHO's decision about using experimental drugs to
treat the Ebola outbreak. 85
What is your view about the application of untested
drugs on humans?
SOLVING THE CHALLENGE
Should Companies Be Allowed to Administer
Untested Drugs on People with Ebola?
The Ebola outbreak in West Africa has killed over
1,000 people as of August 2014. The current out-
break started in Guinea in December 2013 and has
spread to Liberia, Sierra Leone, and Nigeria and is
expe to spread to other boring countries.
The World Health Organization (WHO) “declared
the outbreak a public health emergency of interna-
tional concern and called for an international re-
sponse,” says one report.
Normally, drugs are not given to people until they
have passed rigorous testing and verification. In this
case, the WHO decided to allow the use of experimen-
tal drugs that have not been tested on humans. Marie
Paule Kieny, assistant director-general of WHO, said
that “we find ourselves facing a dilemma. Far too
many lives are being lost right now.” She feels that it
is okay in the current situation to use drugs that have
shown some promise with animal research but have
not been examined on humans. Others are questioning
84
1. I think it is okay in very limited cases, and the Ebola
outbreak is one of them. I also believe that patients
need to be informed that they are being treated with
untested drugs and that there are risks. People can
make their own informed decisions.
2. I do not think it's a good idea because creates a
slippery slope of deciding when it is appropriate to
use experimental drugs on people. Who makes the
call?
3. I don't like the idea because it would motivate manu-
facturers to produce products before completing the
proper amount of experimental testing.
4. Invent other options.
Control Systems & Quality Management
CHAPTER 16
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PART 6
Controlling
Angelo Kinicki
Brian K. Williams
SIS
SEVENTH EDITION
management
A PRACTICAL INTRODUCTION
Mc
Graw
Hill
Education
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