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 16 545 546 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 16 547 548 PART 6 Controlling Angelo Kinicki Brian K. Williams SIS SEVENTH EDITION management A PRACTICAL INTRODUCTION Mc Graw Hill Education
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