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PART 6—Controlling
chapter 16
Control Systems &
Quality Management
Techniques for Enhancing Organizational
Effectiveness
F
I
Major Questions You Should BeN Able to Answer
D
L
E
16.5 Some Financial Tools for
16.1 Managing for Productivity
Y Control
Major Question: How do managers
, Major Question: Financial
influence productivity?
16.2 Control: When Managers
Monitor Performance
Major Question: Why is control such
an important managerial function?
16.3 Levels & Areas of Control
Major Question: How do successful
companies implement controls?
16.4 The Balanced Scorecard,
Strategy Maps, & Measurement
Management
Major Question: How can three
techniques—balanced scorecard,
strategy maps, and measurement
management—help me establish
standards and measure performance?
S
A
R
A
5
3
1
9
B
U
performance is important to most
organizations. What are the financial
tools I need to know about?
16.6 Total Quality Management
Major Question: How do top
companies improve the quality of
their products or services?
16.7 Managing Control
Effectively
Major Question: What are the keys
to successful control, and what are
the barriers to control success?
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the manager’s toolbox
Encourage Employee Involvement & Innovation
Improving Productivity: Going
Beyond Control Techniques to
Get the Best Results
How, as a manager, can you increase productivity—get better
results with what you have to work with?
In this chapter we discuss control techniques for achieving
better results. What are other ways for improving productivity?
Following are some suggestions:1
Companies improve productivity by funding research and
development (R&D) departments. As a manager, you can
encourage your employees, who are closest to the work
process, to come up with suggestions for improving their
own operations. And, of course, you can give workers a
bigger say, provide flextime, and reward people for
learning new skills and taking on more responsibility.
Encourage Employee Diversity
F By hiring people who are diverse in gender, age, race, and
Establish Base Points, Set Goals, & Measure Results
ethnicity, you’re more likely to have a workforce with different
To be able to tell whether your work unit is becoming more I
experience, outlooks, values, and skills. By melding their differproductive, you need to establish systems of measurement.You
N
ences, a team can achieve results that exceed the previous
can start by establishing the base point, such as the number of
standards.
customers served per day, quantity of products produced per D
hour, and the like.You can then set goals to establish new levels
that you wish to attain, and institute systems of measurement L
Redesign the Work Process
with which to ascertain progress. Finally, you can measure the E
Some managers think productivity can be enhanced through
results and modify the goals or work processes as necessary.
cutting, but this is not always the case. Sometimes the
Y cost
work process can be redesigned to eliminate inessential
Use New Technology
, steps.
Clearly, this is a favorite way to enhance productivity. With a
computerized database, you can store and manipulate information better than you can using a box of file cards. Still, computerization is not a panacea; information technology also offers S
plenty of opportunities for simply wasting time.
A
Improve Match Between Employees & Jobs
R
You can take steps to ensure the best fit between employees
A
and their jobs: improve employee selection, training, job redesign, and incentives.
forecast
5
3
1
9
B
What’s
U
For Discussion Some observers think the pressure
on managers to perform will be even more intense than
before, because the world is undergoing a transformation
on the scale of the industrial revolution 200 years ago as
we move further into an information-based economy.2
In what ways do you think you’ll have to become a
champion of adaptation?
Ahead in This Chapter
This final chapter explores the final management function—control. Controlling is monitoring performance, comparing it with goals, and taking corrective action as needed. We
discuss managing for productivity, explaining why it’s important. We then discuss controlling, identify six reasons it’s needed, explain the steps in the control process, and
describe three types of control managers use. Next we discuss levels and areas of control. In the fifth section, we discuss financial tools for control—budgets, financial statements, ratio analysis, and audits. We then discuss total quality management (TQM),
identifying its core philosophies and showing some TQM techniques. We conclude by
describing the four keys to successful control and five barriers to successful control.
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16.1 MANAGING FOR PRODUCTIVITY
?
major
question
How do managers influence productivity?
THE BIG PICTURE
The purpose of a manager is to 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.
figure 16.1
MANAGING FOR
PRODUCTIVITY
& RESULTS
In Chapter 1, we pointed out that as a manager in the 21st century you will operate in a
F will need to deal with seven challenges—managing
complex environment in which you
for (1) competitive advantage, (2)
I diversity, (3) globalization, (4) information technology, (5) ethical standards, (6) sustainability, and (7) your own happiness and life goals.
Within this dynamic world, N
you will draw on the practical and theoretical knowledge described in this book to make
D decisions about the four management functions of
planning, organizing, leading, and controlling.
L reporting to you to achieve productivity and realThe purpose is to get the people
ize results.
E
This process is diagrammed below, pulling together the main topics of this book.
Y
(See Figure 16.1.)
,
Competitive
advantage
Diversity
…must
operate in
Globalization
You as a
manager...
Information
technology
a complex
environment
and…
Ethical
standards
S
A
R
A
…make
5
decisions
about
3
1
the four
9
management B
functions…
U
Planning
Organizing
Leading
... to achieve
productivity
and realize
results.
Controlling
Sustainability
Your happiness
& goals
What Is Productivity?
Productivity can be applied at any level, whether for you as an individual, for the work
unit you’re managing, or for the organization you work for. Productivity is defined by
the formula of outputs divided by inputs for a specified period of time. Outputs are all
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the goods and services produced. Inputs are not only labor but also capital, materials,
and energy. That is,
productivity
outputs
inputs
or
goods services
labor capital materials energy
What does this mean to you as a manager? It means that you can increase overall
productivity by making substitutions or increasing the efficiency of any one element:
labor, capital, materials, energy. For instance, you can increase the efficiency of labor
by substituting capital in the form of equipment or machinery, as in employing a backhoe instead of laborers with shovels to dig a hole.3 Or you can increase the efficiency
of materials inputs by expanding their uses, as when lumber mills discovered they
could sell not only boards but also sawdust and wood chips for use in gardens. Or you
can increase the efficiency of energy by putting solar panels on a factory roof so the
organization won’t have to buy so much electrical power from utility companies.
F
Why Increasing Productivity Is Important
I
”Productivity growth is the elixir that makes an economy flourish,” says one business
N because it can churn out
article.4 “Our society is wealthy,” says another, “precisely
products like automobiles, flush toilets, and Google search
D algorithms at relatively low
cost.”5 That is, the more goods and services that are produced and made easily availL Increasing the gross domesable to us and for export, the higher our standard of living.
tic product—the total dollar value of all the goods andE
services produced in the United
States—depends on raising productivity, as well as on a growing workforce.
Y
The U.S. Productivity Track Record During the 1960s, productivity in the United
,
States averaged a hefty 2.9% a year, then sank to a disappointing 1.5% right up until 1995.
Because the decline in productivity no longer allowed the improvement in wages and living standards that had benefited so many Americans in the 1960s, millions of people took
S
second jobs or worked longer hours to keep from falling behind. From 1995 to 2000,
A history, the productivity rate
however, during the longest economic boom in American
jumped to 2.5% annually, as the total output of goods R
and services rose faster than the
total hours needed to produce them. From the business cycle peak in the first quarter of
2001 to the end of 2007, productivity grew at an annualA
rate of 2.7%.6 Then came the recession year 2008, when it fell to 2%. Then, from the fourth quarter of 2008 to the fourth
quarter of 2009, productivity rose 5.4%—“a turnaround unprecedented in modern his5 in 2010.7 From the first quartory,” says Newsweek—and it also rose an impressive 4.1%
ter of 2011 to the first quarter of 2012, however, the rate
3 was only 0.5%, as companies
began to approach the limit of how much they could squeeze from the workforce.8
1
The Role of Information Technology Most econo9
mists seem to think the recent productivity growth is the result
B
of organizations’ huge investment in information technology—
computers, the Internet, other telecommunications advances,
U
and computer-guided production line improvements.9 From
1995 to 2001, for example, labor productivity in services grew
at a 2.6% rate (outpacing the 2.3% for goods-producing sectors), the result, economists think, of information technology.10
(Since 2001, productivity has continued to advance in the service sectors in relation to the goods-producing sectors.)11 In
particular, many companies have implemented enterprise resource planning (ERP) software systems, information systems for integrating virtually all aspects of a business,
helping managers stay on top of the latest developments.
Maintaining productivity depends on control. Let’s look
at this. ●
Control Systems & Quality Management
✽
CHAPTER 16
Competing internationally
for productivity. This oil
tanker represents the
continual competition
among companies and
among nations to achieve
productivity—“a matter
of survival” for the United
States, some leaders
believe. Is our nation doing
everything it could to be
more productive? What
about taking measures to
reduce dependence on
foreign oil?
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16.2 CONTROL: WHEN MANAGERS MONITOR
PERFORMANCE
?
major
question
Why is control such an important managerial function?
THE BIG PICTURE
Controlling is monitoring performance, comparing it with goals, and taking corrective
action. This section describes six reasons why control is needed and four steps in the
control process.
Control is making something happen the way it was planned to happen. Controlling is
defined as monitoring performance,
comparing it with goals, and taking correcF
tive action as needed. Controlling is the fourth management function, along with
I and its purpose is plain: to make sure that perforplanning, organizing, and leading,
mance meets objectives.
N
figure 16.2
■
CONTROLLING FOR
PRODUCTIVITY
■
What you as a manager
do to get things done,
with controlling shown in
relation to the three other
management functions.
(These are not lockstep;
all four functions happen
concurrently.)
■
Planning
You set goals
& decide
how to
achieve
them.
Dand deciding how to achieve them.
Planning is setting goals
L tasks, people, and other resources to accomplish
Organizing is arranging
the work.
E
Leading is motivating people to work hard to achieve the organization’s goals.
Y
Controlling is concerned with seeing that the right things happen at the right
time in the right way. ,
■
All these functions affect one another and in turn affect an organization’s producS
tivity. (See Figure 16.2.)
Organizing
You arrange
tasks,
people,
& other
resources to
accomplish
the work.
A
R
Leading
You motivate
A
people to
work hard
to achieve
5
the organization’s goals.
3
Controlling
You monitor
performance,
compare it
with goals,
& take
corrective
action as
needed.
For
productivity
1
9
B
Why Is Control Needed?
U
Lack of control mechanisms can lead to problems for both managers and companies. For example, the CEO of Yahoo, Scott Thompson, is discovered to have falsified
his résumé by claiming to have a computer science degree—and 11 days later he is
out, bringing turmoil to an already troubled company.12 The senior banker of J. P.
Morgan Chase, Ina Drew, contracts Lyme disease and is frequently out of the office
when traders begin taking more and more risky bets, culminating in a loss of at least
$3 billion and public demands for greater bank regulation.13 California-based Pacific
Gas & Electric Co. accidentally overpressurizes pipelines on its gas system more than
120 times since its 2010 San Bruno explosion that killed eight people, raising risks of
another disaster.14 Could greater control have helped avoid or reduce the consequences
of these situations? Of course.
There are six reasons why control is needed.
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1. To Adapt to Change & Uncertainty Markets shift. Consumer tastes change.
New competitors appear. Technologies are reborn. New materials are invented. Government regulations are altered. All organizations must deal with these kinds of environmental changes and uncertainties. Control systems can help managers anticipate,
monitor, and react to these changes.15
Example: As is certainly apparent by now, the issue of climate change or global
warming has created a lot of change and uncertainty for many industries. The restaurant industry in particular is feeling the pressure to become “greener,” since restaurants
are the retail world’s largest energy user, with a restaurant using five times more energy per square foot than any other type of commercial building, according to Pacific
Gas & Electric’s Food Service Technology Center.16 Nearly 80% that commercial food
service spends annually for energy use is lost in inefficient food cooking, holding, and
storage. In addition, a typical restaurant generates 100,000 pounds of garbage per location per year. Thus, restaurants are being asked to reduce their “carbon footprints”
by instituting tighter controls on energy use.17
F
2. To Discover Irregularities & Errors Small problems
can mushroom into big
I
ones. Cost overruns, manufacturing defects, employee turnover, bookkeeping errors,
N tolerable in the short run. But
and customer dissatisfaction are all matters that may be
in the long run, they can bring about even the downfallDof an organization.
Example: You might not even miss a dollar a month looted from your credit card
L
account. But an Internet hacker who does this with thousands
of customers can undermine the confidence of consumers using their credit cards
E to charge online purchases
at Amazon.com, Priceline.com, and other web retailers. Thus, a computer program
Y
that monitors Internet charge accounts for small, unexplained deductions can be a
,
valuable control strategy.
3. To Reduce Costs, Increase Productivity, or Add Value Control systems
S and increase product delivery
can reduce labor costs, eliminate waste, increase output,
cycles. In addition, controls can help add value to a product
A so that customers will be
more inclined to choose it over rival products.
R will again in this chapter), the
Example: As we have discussed early in the book (and
use of quality controls among Japanese car manufacturers
Aresulted in cars being produced
that were perceived as being better built than American cars. Another example: 3M Co.’s
system for creating plastic picture-hanging hooks used to be split among four states and
take 100 days; after reworking the system to get rid of5“hairballs,” as the former CEO
called them, now all production takes place at one hub and takes a third as much time.18
3
4. To Detect Opportunities Hot-selling products.
1 Competitive prices on materials. Changing population trends. New overseas markets. Controls can help alert man9
agers to opportunities that might have otherwise gone unnoticed.
B may result in a rush of cusExample: A markdown on certain grocery-store items
tomer demand for those products, signaling store management that similar items might
U
also sell faster if they were reduced in price.
5. To Deal with Complexity Does the right hand know what the left hand is doing?
When a company becomes larger or when it merges with another company, it may find it
has several product lines, materials-purchasing policies, customer bases, even workers
from different cultures. Controls help managers coordinate these various elements.
Example: In recent years, Macy’s Inc. has twice had to deal with complexity. In 2006,
it pulled together several chains with different names—Marshall Field’s, Robinsons-May,
Kaufmann’s, and other local stores—into one chain with one name, Macy’s, and a muchpromoted national strategy. But after losing money in 2007, CEO Terry Lundgren began
altering course from a one-size-fits-all nationwide approach to a strategy that tailors the
merchandise in local stores to cater to local tastes.19
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6. To Decentralize Decision Making & Facilitate Teamwork Controls allow top management to decentralize decision making at lower levels within the organization and to encourage employees to work together in teams.
Example: At General Motors, former chairman Alfred Sloan set the level of return
on investment he expected his divisions to achieve, enabling him to push decisionmaking authority down to lower levels while still maintaining authority over the
sprawling GM organization.20 Later GM used controls to facilitate the team approach
in its joint venture with Toyota at its California plant.
The six reasons are summarized below. (See Figure 16.3.)
figure 16.3
SIX REASONS WHY
CONTROL IS NEEDED
4. …detect
opportunities
1. …adapt to
change &
uncertainty
2. …discover
irregularities
& errors
3. …reduce costs,
increase
productivity,
or add value
F
I
N
D
L
E
Y
,
5. …deal with
complexity
Control
helps an
organization…
6. …decentralize
decision making
& facilitate
teamwork
Steps in the Control Process
figure 16.4
STEPS IN THE CONTROL
PROCESS
Control systems may be altered S
to fit specific situations, but generally they follow the
same steps. The four control process
A steps are (1) establish standards; (2) measure
performance; (3) compare performance to standards; and (4) take corrective acR
tion, if necessary. (See Figure 16.4.)
A
Step 1.
Establish
standards.
Step 2.
Measure
performance.
Step 3.
5Compare
performance
3to standards.
1
9
B
U
Step 4.
Take
corrective
action, if
necessary.
If yes, take
corrective
action;
perhaps
revise
standards.
If no,
continue
work
progress &
recognize
success.
Let’s consider these four steps.
1. Establish Standards: “What Is the Outcome We Want?” A control
standard, or performance standard or simply standard, is the desired performance
level for a given goal. Standards may be narrow or broad, and they can be set for almost anything, although they are best measured when they can be made quantifiable.
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Nonprofit institutions might have standards for level of charitable contributions,
number of students retained, or degree of legal compliance. For-profit organizations
might have standards of financial performance, employee hiring, manufacturing defects, percentage increase in market share, percentage reduction in costs, number of
customer complaints, and return on investment. More subjective standards, such as
level of employee morale, can also be set, although they may have to be expressed more
quantifiably as reduced absenteeism and sick days and increased job applications.
One technique for establishing standards is to use the balanced scorecard, as we
explain later in this chapter.
2. Measure Performance: “What Is the Actual Outcome We Got?” The
second step in the control process is to measure performance, such as by number of
products sold, units produced, or cost per item sold. For example, Hyundai has a quality goal signified by GQ 3-3-5-5. The goal represents the company’s desire, expressed
in 2010, to finish in the top three in quality ratings provided by J. D. Power’s dependability survey within three years, and to be among the
F top five quality automakers
within five years.21 (In 2012, the Hyundai Genesis was named the most dependable
I
midsize premium car by J. D. Power.)22
Performance measures are usually obtained from
Nthree sources: (1) written reports, including computerized printouts; (2) oral reports, as in a salesperson’s weekly
D
recitation of accomplishments to the sales manager; and (3) personal observation, as
L what employees are doing.
when a manager takes a stroll of the factory floor to see
As we’ve hinted, measurement techniques can vary for
E different industries, as for manufacturing industries versus service industries. We discuss this further later in the chapter.
Y
3. Compare Performance to Standards: “How Do the Desired & Actual
Outcomes Differ?” The third step in the control ,process is to compare measured
performance against the standards established. Most managers are delighted with performance that exceeds standards, which becomes an occasion for handing out bonuses,
S
promotions, and perhaps offices with a view. For performance that is below standards,
they need to ask: Is the deviation from performance significant?
The greater the differA
ence between desired and actual performance, the greater the need for action.
R
How much deviation is acceptable? That depends on the range of variation built in
A for instance, there is supto the standards in step 1. In voting for political candidates,
posed to be no range of variation; as the expression goes, “every vote counts” (although the 2000 U.S. presidential election was an eye-opener for many people in this
5 error is considered an acceptregard). In political polling, however, a range of 3%–4%
able range of variation. In machining parts for the spacecraft
Orion (NASA’s sched3
uled 2015 successor to the space shuttle), the range of variation may be a good deal
1
less tolerant than when machining parts for a power lawnmower.
The range of variation is often incorporated in computer
systems into a principle
9
called management by exception. Management by exception is a control principle
that states that managers should be informed of aBsituation only if data show a
significant deviation from standards.
U
4. Take Corrective Action, If Necessary: “What Changes Should We
Make to Obtain Desirable Outcomes?” There are three possibilities here:
(1) Make no changes. (2) Recognize and reinforce positive performance. (3) Take action to correct negative performance.
When performance meets or exceeds the standards set, managers should give rewards, ranging from giving a verbal “Job well done” to more substantial payoffs such
as raises, bonuses, and promotions to reinforce good behavior.
When performance falls significantly short of the standard, managers should carefully examine the reasons why and take the appropriate action. Sometimes it may turn
out the standards themselves were unrealistic, owing to changing conditions, in which
case the standards need to be altered. Sometimes it may become apparent that employees
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haven’t been given the resources for achieving the standards. And sometimes the employees may need more attention from management as a way of signaling that they
have been insufficient in fulfilling their part of the job bargain. ●
EXAMPLE
Steps in the Control Process: What’s Expected of UPS Drivers?
UPS, which employs 99,000 U.S. drivers, has established
Integrad, an 11,500-square-foot training center 10 miles
outside Washington, D.C. There trainees practice UPSprescribed “340 Methods” shown to save seconds and
improve safety. Graduates of the training, who are generally former package sorters, are eligible to do a job that
pays an average of $74,000 annually.23 (Because about
30% of driver candidates flunk training based on books
and lectures, UPS now uses videogames, a contraption
that simulates walking on ice, and an obstacle course
around an artificial village.)
Establishing Standards. UPS establishes certain standards for its drivers that set projections for the number
of miles driven, deliveries, and pickups. For instance, drivers are taught to walk at a “brisk pace” of 2.5 paces per
second, except under icy or other unsafe conditions.
However, because conditions vary depending on whether
routes are urban, suburban, or rural, standards vary for
different routes.24
Measuring Performance. Every day, UPS managers
look at a computer printout showing the miles, deliveries,
and pickups a driver attained during his or her shift the
previous day. In general, drivers are expected to make five
deliveries in 19 minutes.
Comparing Performance to Standards. UPS managers compare the printout of a driver’s performance (miles
driven and number of pickups and deliveries) with the standards that were set for his or her particular route. For inF
stance, the printout will show whether drivers took longer
I the 15.5 seconds allowed to park a truck and retrieve
than
one package from the cargo. A range of variation may be
N
allowed to take into account such matters as winter or
D driving or traffic conditions that slow productivity.
summer
L
Taking Corrective Action. When a UPS driver fails
toEperform according to the standards set for him or her,
aY
supervisor then rides along and gives suggestions for
improvement. If drivers are unable to improve, they are
,
warned,
then suspended, and then dismissed.
YOUR CALL
S
The UPS controls were devised by industrial engineers
based
A on experience. Do you think the same kinds of
controls could be established for, say, filling out tax forms
R
for H&R Block?
A
5
3
1
9
B
U
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Small business. How important is it for small
businesses to implement all four steps of the control
process? Do you think that employees in small
companies—such as a bicycle shop, restaurant,
or landscaping firm—typically have more or less
independence from managerial control than those
in large companies do?
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16.3 LEVELS & AREAS OF CONTROL
?
major
question
How do successful companies implement controls?
THE BIG PICTURE
This section describes three levels of control—strategic, tactical, and operational—
and six areas of control: physical, human, informational, financial, structural (bureaucratic and decentralized), and cultural.
How are you going to apply the steps of control to your own management area? Let’s look
at this in three ways: First, you need to consider the level of management at which you
operate—top, middle, or first level. Second, you need to consider the areas that you draw
on for resources—physical, human, information, and/or
F financial. Finally, you need to
consider the style or control philosophy—bureaucratic, market, or clan, as we will explain.
I
Levels of Control: Strategic, Tactical,
N & Operational
There are three levels of control, which correspond toDthe three principal managerial
levels: strategic planning by top managers, tactical planning by middle managers, and
L
operational planning by first-line (supervisory) managers.
E
1. Strategic Control by Top Managers Strategic control is monitoring perforY
mance to ensure that strategic plans are being implemented
and taking corrective
action as needed. Strategic control is mainly performed by
top
managers,
those at the CEO
,
and VP levels, who have an organization-wide perspective. For example, Ford Motor Company CEO Alan Mulally and his senior managers meet every Thursday to review performance across the company’s global operations. They specifically
review the performance
S
of its suppliers because these companies have a significant effect on Ford’s profitability
and quality. They ultimately determine which suppliers toAkeep and which ones to let go. 25
R control is monitoring perfor2. Tactical Control by Middle Managers Tactical
mance to ensure that tactical plans—those at the divisional
or departmental level—
A
are being implemented and taking corrective action as needed. Tactical control is
done mainly by middle managers, those with such titles as “division head,” “plant manager,” and “branch sales manager.” Reporting is done on5a weekly or monthly basis.
3
3. Operational Control by First-Level Managers
Operational control is
monitoring performance to ensure that operational
plans—day-to-day
goals—
1
are being implemented and taking corrective action as needed. Operational control
9 such as “department head,”
is done mainly by first-level managers, those with titles
“team leader,” or “supervisor.” Reporting is done on aB
daily basis.
U with lower-level managers
Considerable interaction occurs among the three levels,
providing information upward and upper-level managers checking on some of the
more critical aspects of plan implementation below them.
Six Areas of Control
The six areas of organizational control are physical, human, informational, financial,
structural, and cultural.
1. Physical Area The physical area includes buildings, equipment, and tangible
products. Examples: There are equipment controls to monitor the use of computers,
cars, and other machinery. There are inventory-management controls to keep track of
how many products are in stock, how many will be needed, and what their delivery
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dates are from suppliers. There are quality controls to make sure that products are being built according to certain acceptable standards.
2. Human Resources Area The controls used to monitor employees include
personality tests and drug testing for hiring, performance tests during training, performance evaluations to measure work productivity, and employee surveys to assess job
satisfaction and leadership.
3. Informational Area Production schedules. Sales forecasts. Environmental impact statements. Analyses of competition. Public relations briefings. All these are controls on an organization’s various information resources.
4. Financial Area Are bills being paid on time? How much money is owed by
customers? How much money is owed to suppliers? Is there enough cash on hand to
meet payroll obligations? What are the debt-repayment schedules? What is the advertising budget? Clearly, the organization’s financial controls are important because they
can affect the preceding three areas.
F
5. Structural Area How is the
I organization arranged from a hierarchical or structural standpoint?26 Two examples are bureaucratic control and decentralized control.
N
■
Bureaucratic control. Bureaucratic control is an approach to organizational
D by use of rules, regulations, and formal aucontrol that is characterized
thority to guide performance.
This form of control attempts to elicit employee
L
compliance, using strict rules, a rigid hierarchy, well-defined job descriptions,
E
and administrative mechanisms
such as budgets, performance appraisals, and
compensation schemes (external
rewards to get results). The foremost example
Y
of use of bureaucratic control is perhaps the traditional military organization.
, works well in organizations in which the tasks are
Bureaucratic control
explicit and certain. While rigid, it can be an effective means of ensuring that
performance standards are being met. However, it may not be effective if peoS
ple are looking for ways to stay out of trouble by simply following the rules,
or if they try to beat theAsystem by manipulating performance reports, or if
they try to actively resist bureaucratic constraints.
R
Decentralized control. Decentralized control is an approach to organizaA
tional control that is characterized
by informal and organic structural
arrangements, the opposite of bureaucratic control. This form of control
aims to get increased employee commitment, using the corporate culture,
5 taking responsibility for their performance. Decengroup norms, and workers
tralized control is found3in companies with a relatively flat organization.
■
Bureaucratic control. In
businesses such as large
railroads, tasks are explicit
and certain, and employees
are expected to perform them
the same way each time.
However, a small railroad,
such as one line serving
tourists, need not be
bureaucratic.
520
6. Cultural Area The cultural
1 area is an informal method of control. It influences
the work process and levels of performance through the set of norms that develop as a
9
result of the values and beliefs that constitute an organization’s culture. If an organization’s culture values innovationBand collaboration, then employees are likely to be
evaluated on the basis of how much
U they engage in collaborative activities and enhance
or create new products.
Example: Earlier (Chapter 12), we mentioned that
Google, the search-engine company, which appeared as
No. 1 on Fortune’s 2012 list of “100 Best Companies to
Work For,” is a good example of an organization that promotes, measures, and rewards employee motivation. For instance, in a program called Innovation Time Off, engineers
are encouraged to spend 20% of their workweek on pet projects, which has led to such new products as Gmail and
Google News. Google’s tremendous revenue growth over
the last decade is clearly driven by a set of cultural values,
norms, and internal processes that reinforce creativity.27 ●
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16.4 THE BALANCED SCORECARD, STRATEGY MAPS, &
MEASUREMENT MANAGEMENT
How can three techniques—balanced scorecard, strategy
maps, and measurement management—help me establish
standards and measure performance?
?
major
question
THE BIG PICTURE
To establish standards, managers often use the balanced scorecard, which provides
four indicators for progress. A visual representation of the balanced scorecard is the
strategy map. Measurement management techniques help managers make evidencebased judgments about performance.
F
I
Wouldn’t you, as a top manager, like to have displayedNin easy-to-read graphics all the
information on sales, orders, and the like assembled from data pulled in real time from
corporate software? The technology exists and it hasDa name: a dashboard, like the
instrument panel in a car.
L
“The dashboard puts me and more and more of our executives in real-time touch
E at Verizon Communications.
with the business,” says Ivan Seidenberg, former CEO
“The more eyes that see the results we’re obtaining every
Y day, the higher the quality of
the decisions we can make.”28
,
Throughout this book we have stressed the importance of evidence-based
management—the use of real-world data rather than fads and hunches in making
management decisions. When properly done, the dashboard
is an example of the
S
important tools that make this kind of management possible. Others are the balanced scorecard, strategy maps, and measurementAmanagement, techniques that
even new managers will find useful.
R
A
The Balanced Scorecard: A Dashboard-like View
of the Organization
5
Robert Kaplan is a professor of accounting at the Harvard
Business School. David
3
Norton is founder and president of Renaissance Strategy Group, a Massachusetts con1
sulting firm. Kaplan and Norton developed what they call the balanced scorecard,
which gives top managers a fast but comprehensive
9 view of the organization via
four indicators: (1) customer satisfaction, (2) internal processes, (3) innovation
B
and improvement activities, and (4) financial measures.
“Think of the balanced scorecard as the dials andUindicators in an airplane cockpit,” write Kaplan and Norton. For a pilot, “reliance on one instrument can be fatal.
Similarly, the complexity of managing an organization today requires that managers
be able to view performance in several areas simultaneously.”29 It is not enough, say
Kaplan and Norton, to simply measure financial performance, such as sales figures
and return on investment. Operational matters, such as customer satisfaction, are
equally important.30
The Balanced Scorecard: Four “Perspectives” The balanced scorecard
establishes (a) goals and (b) performance measures according to four “perspectives”
or areas—financial, customer, internal business, and innovation and learning. (See
Figure 16.5, next page.)
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1. Financial Perspective
“How do we look to
shareholders?”
Goals
Measures
2. Customer Perspective
3. Internal Business
Perspective
“How do customers see us?”
“At what must we excel?”
Goals
F
I
N
D
L
4. Innovation &E
Learning
Perspective
Y
“Can we continue to improve
,
and create value?”
Measures
Goals
figure 16.5
Goals
Measures
Measures
S
A
R
A
THE BALANCED SCORECARD: FOUR PERSPECTIVES
Source: Reprinted by permission of Harvard Business Review. Exhibit from “The Balanced Scorecard—Measures That Drive
Performance,” by R. S. Kaplan and D. P. Norton, February 1992. Copyright © 1992 by the Harvard Business School Publishing
Corporation; all rights reserved.
5
3
1
1. Financial Perspective: “How Do We Look to Shareholders?” Typical
9
financial goals have to do with profitability, growth, and shareholder values. Financial measures such as quarterly B
sales have been criticized as being shortsighted and
not reflecting contemporary value-creating
activities. Moreover, critics say that tradiU
tional financial measures don’t improve customer satisfaction, quality, or employee
motivation.
However, making improvements in just the other three operational “perspectives”
we will discuss won’t necessarily translate into financial success. Kaplan and Norton
mention the case of an electronics company that made considerable improvements in
manufacturing capabilities that did not result in increased profitability.
The hard truth is that “if improved [operational] performance fails to be reflected
in the bottom line, executives should reexamine the basic assumptions of their strategy
and mission,” say Kaplan and Norton. “Not all long-term strategies are profitable strategies. . . . A failure to convert improved operational performance, as measured in the
scorecard, into improved financial performance should send executives back to their
drawing boards to rethink the company’s strategy or its implementation plans.”31
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2. Customer Perspective: “How Do Customers See Us?” Many organizations make taking care of the customer a high priority. The balanced scorecard translates the mission of customer service into specific measures of concerns that really
matter to customers—time between placing an order and taking delivery, quality in
terms of defect level, satisfaction with products and service, and cost.
Quiznos is a good example. The company uses a speed-dining approach to develop new products and test out different pricing strategies. The company invites
groups of 25 people to a location in which they move from station to station and try
out new menu options. This technique has reduced the time from test kitchen to market
to six months, as opposed to the one year needed by a key competitor.32
3. Internal Business Perspective: “What Must We Excel At?” This part translates what the company must do internally to meet its customers’ expectations. These
are business processes such as quality, employee skills, and productivity.33
Top management’s judgment about key internal processes must be linked to meaF to process customer orders,
sures of employee actions at the lower levels, such as time
get materials from suppliers, produce products, and deliver
them to customers. ComI
puter information systems can help, for example, in identifying late deliveries, tracing
N earlier, can aid this technothe problem to a particular plant. (ERP systems, mentioned
logical boost.)
D
L Continue to Improve &
4. Innovation & Learning Perspective: “Can We
Create Value?” Learning and growth of employees
E is the foundation for innovation and creativity. Thus, the organization must create a culture that encourages rankY
and-file employees to make suggestions and question the status quo and it must
, needed to do their jobs. The
provide employees with the environment and resources
company can use employee surveys and analysis of training data to measure the degree
of learning and growth.
S
A
Strategy Map: Visual Representation
R
of a Balanced Scorecard
A
Since they devised the balanced scorecard, Kaplan and Norton have come up with an
improvement called the strategy map.34 A strategy map is a visual representation of
the four perspectives of the balanced scorecard that
5 enables managers to communicate their goals so that everyone in the company can understand how their
3
jobs are linked to the overall objectives of the organization.
As Kaplan and Norton
state, “Strategy maps show the cause-and-effect links by
which
specific
improvements
1
create desired outcomes,” such as objectives for revenue growth, targeted customer
9 and so on.
markets, the role of excellence and innovation in products,
An example of a strategy map for a company such
Bas Target is shown on the next
page, with the goal of creating long-term value for the firm by increasing productivity
U.) Measures and standards can
growth and revenue growth. (See Figure 16.6, next page
be developed in each of the four operational areas—financial goals, customer goals,
internal goals, and learning and growth goals—for the strategy.
Measurement Management: “Forget Magic”
“You simply can’t manage anything you can’t measure,” said Richard Quinn, then–
vice president of quality at the Sears Merchandising Group.35
Is this really true? Concepts such as the balanced scorecard seem like good
ideas, but how well do they actually work? John Lingle and William Schiemann,
principals in a New Jersey consulting firm specializing in strategic assessment, decided to find out.36
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Long-Term Value
Financial
Goals
Customer
Goals
Internal
Goals
Learning
& Growth
Goals
Productivity
Growth
• Reducing expenses
• Increasing efficiency
Operational
Excellence
• Competitive pricing
• Product quality
• Speedy delivery
Innovation
• New products/
services
• New market
segments
Revenue Growth
• New markets
• New products
• Increasing value to
existing customers
• New customers
Customer
F Intimacy
• Exceptional service
I solutions
• Effective
N
D
L
E
Increased
Y
Customer Value
• Deepened ,
relationship
with existing
customers S
Operational
Improvements
• Lower cost
• Higher quality
• Greater speed
A
R
A
Improved Competence/
Skills of Workforce
Effective Information/
Technology Systems
Product
Leadership
• Product functionality
• Product features
• Product performance
Good Corporate
Citizenship
• Effective
relationships
with employees,
suppliers,
regulators, others
Supportive Values
& Practices
5
3
figure 16.6
1
THE STRATEGY MAP
9
This example might be used for a retail chain such as Target or Walmart.
Source: From T.S. Bateman and S.A. Snell, Management:
B Leading & Collaborating in a Competitive World 7E, 2007, p. 124. Reprinted
with permission of The McGraw-Hill Companies, Inc.
U
In a survey of 203 executives in companies of varying size they identified the
organizations as being of two types: measurement-managed and non-measurementmanaged. The measurement-managed companies were those in which senior management reportedly agreed on measurable criteria for determining strategic success,
and management updated and reviewed semiannual performance measures in three or
more of six primary performance areas. The six areas were financial performance,
operating efficiency, customer satisfaction, employee performance, innovation/change,
and community/environment.
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The results: “A higher percentage of measurement-managed companies were
identified as industry leaders,” concluded Lingle and Schiemann, “as being financially
in the top third of their industry, and as successfully managing their change effort.”
(The last indicator suggests that measurement-managed companies tend to anticipate
the future and are likely to remain in a leadership position in a rapidly changing environment.) “Forget magic,” they say. “Industry leaders we surveyed simply have a
greater handle on the world around them.”
Why Measurement-Managed Firms Succeed: Four Mechanisms of
Success Why do measurement-managed companies outperform those that are
less disciplined? The study’s data point to four mechanisms that contribute to these
companies’ success:37
■
■
■
■
Top executives agree on strategy. Most top executives in measurementmanaged companies agreed on business strategy, whereas most of those in
F disagreement. Translating
non-measurement-managed companies reported
strategy into measurable objectives helps make
I them specific.
Communication is clear. The clear message in turn is translated into good
N
communication, which was characteristic of managed-measurement
organizations and not of non-measurement-managed ones.
D
There is better focus and alignments. Measurement-managed
companies
L
reported more frequently that unit (division or department) performance meaE and that individual perforsures were linked to strategic company measures
mance measures were linked to unit measures.
Y
The organizational culture emphasizes teamwork
and allows risk taking.
,
Managers in measurement-managed companies more frequently reported
strong teamwork and cooperation among the management team and more
willingness to take risks.
S
Afour most frequent barriers to
Four Barriers to Effective Measurement The
effective measurement, according to Lingle and Schiemann,
R are as follows:
■
■
■
■
A often precise in the financial
Objectives are fuzzy. Company objectives are
and operational areas but not in areas of customer satisfaction, employee performance, and rate of change. Managers need to work at making “soft” objec5
tives measurable.
Managers put too much trust in informal feedback
systems. Managers tend
3
to overrate feedback mechanisms such as customer complaints or sales-force
1
criticisms about products. But these mechanisms aren’t necessarily accurate.
9 Employees want to see how
Employees resist new measurement systems.
well measures work before they are willingB
to tie their financial futures to
them. Measurement-managed companies tend to involve the workforce in deU
veloping measures.
Companies focus too much on measuring activities instead of results. Too
much concern with measurement that is not tied to fine-tuning the organization or spurring it on to achieve results is wasted effort.
Are There Areas That Can’t Be Measured? It’s clear that some areas are easier
to measure than others—manufacturing, for example, as opposed to services. We can
understand how it is easier to measure the output of, say, a worker in a steel mill than that
of a bellhop in a hotel or a professor in a classroom. Nevertheless, human resource professionals are trying to have a greater focus on employee productivity “metrics.”38 In establishing quantifiable goals for “hard to measure” jobs, managers should seek input from
the employees involved, who are usually more familiar with the details of the jobs.39 ●
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16.5 SOME FINANCIAL TOOLS FOR CONTROL
?
major
question
Financial performance is important to most organizations.
What are the financial tools I need to know about?
THE BIG PICTURE
Financial controls are especially important.These include budgets, financial statements,
ratio analysis, and audits.
Do you check your credit card statement line by line when it comes in? Or do you just
look at the bottom-line amount owed and write a check?
Just as you should monitor your personal finances to ensure your survival and
avoid catastrophe, so managers need to do likewise with an organization’s finances.
F
Whether your organization is for-profit
or nonprofit, you need to be sure that revenues
are covering costs.
I
There are a great many kinds of financial controls, but here let us look at the folN ratio analysis, and audits. (Necessarily this is
lowing: budgets, financial statements,
merely an overview of this topic.D
Financial controls are covered in detail in other business courses.)
L
E
Budgets: Formal Financial
Projections
Y
A budget is a formal financial projection. It states an organization’s planned activities for a given period of time in, quantitative terms, such as dollars, hours, or number
of products. Budgets are prepared not only for the organization as a whole but also for
the divisions and departments within it. The point of a budget is to provide a yardstick
S performance and make comparisons (as with
against which managers can measure
other departments or previous years).
A
R
Incremental Budgeting Managers
can take essentially two budget-planning
approaches. One of them, zero-based
budgeting (ZBB), which forces each departA
ment to start from zero in projecting funding needs, is no longer favored. The other
approach, the traditional form of a budget, which is mainly used now, is incremental budgeting.
5
Incremental budgeting allocates increased or decreased funds to a department
3
by using the last budget period as a reference point; only incremental changes in
1
9
B
U
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Passing fancy. The truck fleet
represents a huge part of a
beer distributor’s capital
expenditures budget. What
types of data would be needed
to justify expansion of this
delivery system?
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the budget request are reviewed. One difficulty is that incremental budgets tend to
lock departments into stable spending arrangements; they are not flexible in meeting
environmental demands. Another difficulty is that a department may engage in many
activities—some more important than others—but it’s not easy to sort out how well
managers performed at the various activities. Thus, the department activities and the
yearly budget increases take on lives of their own.
Fixed Versus Variable Budgets There are numerous kinds of budgets, and some
examples are listed below. (See Table 16.1.) In general, however, budgets may be categorized as two types: fixed and variable.
table 16.1
EXAMPLES OF TYPES OF BUDGETS
Type of Budget
Cash or cashflow budget
Capital expenditures budget
Sales or revenue budget
Expense budget
Financial budget
Operating budget
F
I
Forecasts all sourcesNof cash income and cash
expenditures for daily, weekly, or monthly period
D
Anticipates investments
L in major assets such as land,
buildings, and major equipment
E
Projects future sales,
Yoften by month, sales area, or
product
,
Description
Projects expenses (costs) for given activity for given
period
S
Projects organization’s
A source of cash and how it
plans to spend it in the forthcoming period
R
Projects what an organization
will create in goods or
A
services, what financial resources are needed, and
what income is expected
5
Nonmonetary budget
■
■
Deals with units other than dollars, such as hours of
3 footage
labor or office square
1
9
Fixed budgets—where resources are allocated
B on a single estimate of
costs. Also known as a static budget, a fixed budget allocates resources on
U is, there is only one set of
the basis of a single estimate of costs. That
expenses; the budget does not allow for adjustment over time. For example,
you might have a budget of $50,000 for buying equipment in a given
year—no matter how much you may need equipment exceeding that
amount.
Variable budgets—where resources are varied in proportion with various
levels of activity. Also known as a flexible budget, a variable budget allows
the allocation of resources to vary in proportion with various levels of
activity. That is, the budget can be adjusted over time to accommodate pertinent changes in the environment. For example, you might have a budget that
allows you to hire temporary workers or lease temporary equipment if production exceeds certain levels.
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Financial Statements: Summarizing
the Organization’s Financial Status
A financial statement is a summary of some aspect of an organization’s financial
status. The information contained in such a statement is essential in helping managers
maintain financial control over the organization.
There are two basic types of financial statements: the balance sheet and the income statement.
The Balance Sheet: Picture of an Organization’s Financial Worth for a
Specific Point in Time A balance sheet summarizes an organization’s overall
financial worth—that is, assets and liabilities—at a specific point in time.
Assets are the resources that an organization controls; they consist of current assets and fixed assets. Current assets are cash and other assets that are readily convertible to cash within 1 year’s time.FExamples are inventory, sales for which payment has
not been received (accounts receivable),
and U.S. Treasury bills or money market muI
tual funds. Fixed assets are property, buildings, equipment, and the like that have a
Nare usually harder to convert to cash. Liabilities are
useful life that exceeds 1 year but
claims, or debts, by suppliers, lenders,
D and other nonowners of the organization against
a company’s assets.
L
E
The Income Statement: Picture of an Organization’s Financial Results
Y
The balance sheet depicts the organization’s
for a Specified Period of Time
overall financial worth at a specific
point
in time. By contrast, the income statement
,
summarizes an organization’s financial results—revenues and expenses—over a
specified period of time, such as a quarter or a year.
Revenues are assets resultingSfrom the sale of goods and services. Expenses are the
costs required to produce those goods and services. The difference between revenues
and expenses, called the bottom A
line, represents the profits or losses incurred over the
specified period of time.
R
A
Ratio Analysis: Indicators of an Organization’s
5
Financial Health
3 important indicator of an organization’s financial
The bottom line may be the most
health, but it isn’t the only one.1Managers often use ratio analysis—the practice of
evaluating financial ratios—to determine an organization’s financial health.
9
Among the types of financial ratios are those used to calculate liquidity, debt
Band return. Liquidity ratios indicate how easily an
management, asset management,
organization’s assets can be converted
into cash (made liquid). Debt management
U
ratios indicate the degree to which an organization can meet its long-term financial
obligations.
Asset management ratios indicate how effectively an organization is managing its
assets, such as whether it has obsolete or excess inventory on hand. Return ratios—
often called return on investment (ROI) or return on assets (ROA)—indicate how
effective management is in generating a return, or profits, on its assets.
Audits: External Versus Internal
When you think of auditors, do you think of grim-faced accountants looking through a
company’s books to catch embezzlers and other cheats? That’s one function of auditing,
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F
I
N
D
L
Accountants at the Academy Awards? No, these are the 2012 Oscar winners.
E Meryl Streep was voted Best
Actress for her role as prime minister Margaret Thatcher in The Iron Lady, and Jean Dujardin was voted Best
Actor for his role in The Artist. But every year since 1929 the secret ballots
Y for Oscar nominees voted on by
members of the Academy of Motion Picture Arts and Sciences have been tabulated by accountants from the
, this event very seriously; secrecy is
firm now known as PricewaterhouseCoopers. The accounting firm takes
tight, and there is no loose gossip around the office watercooler. Two accountants tally the votes, stuff the
winners’ names in the envelopes—the ones that will be handed to award presenters during the Academy
Awards—and then memorize the winners’ names, just in case the envelopes don’t make it to the show.
Accounting is an important business because investors depend on independent auditors to verify that a
company’s finances are what they are purported to be.
S
A
R
A
but besides verifying the accuracy and fairness of financial statements it also is intended
to be a tool for management decision making. Audits5are formal verifications of an
organization’s financial and operational systems. 3
Audits are of two types—external and internal.
1
9
External Audits—Financial Appraisals by Outside Financial Experts An
B
external audit is a formal verification of an organization’s
financial accounts and
statements by outside experts. The auditors are certified
public
accountants (CPAs)
U
who work for an accounting firm (such as PricewaterhouseCoopers) that is independent of the organization being audited. Their task is to verify that the organization, in
preparing its financial statements and in determining its assets and liabilities, followed
generally accepted accounting principles.
Internal Audits—Financial Appraisals by Inside Financial Experts An
internal audit is a verification of an organization’s financial accounts and statements by the organization’s own professional staff. Their jobs are the same as those
of outside experts—to verify the accuracy of the organization’s records and operating
activities. Internal audits also help uncover inefficiencies and thus help managers evaluate the performance of their control systems. ●
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16.6 TOTAL QUALITY MANAGEMENT
?
major
question
How do top companies improve the quality of their
products or services?
THE BIG PICTURE
Total quality management (TQM) is dedicated to continuous quality improvement,
training, and customer satisfaction. Two core principles are people orientation and
improvement orientation. Some techniques for improving quality are employee involvement, benchmarking, outsourcing, reduced cycle time, and statistical process
control.
F
I
N a luxury chain of 77 hotels worldwide in 25 counThe Ritz-Carlton Hotel Co., LLC,
tries that is an independently operated
division of Marriott International, puts a preD
mium on doing things right. First-year managers and employees receive 250–310
hours of training. The presidentLmeets each employee at a new hotel to ensure he or
she understands the Ritz-CarltonEstandards for service. The chain has also developed a
database that records the preferences of more than 1 million customers, so that each
Y40
hotel can anticipate guests’ needs.
Because of this diligence, the
, Ritz-Carlton has twice been the recipient (in 1992
and in 1999) of the Malcolm Baldrige National Quality Award. This award was created
by Congress in 1987 to be the most prestigious recognition of quality—the total ability
of a product or service to meet customer
needs—in the United States. It is given annuS
ally to U.S. organizations in manufacturing, service, small business, health care, eduA the award actually means something is shown by a
cation, and nonprofit fields.41 (That
study that found that hospitals that
Rreceived the honor significantly outperformed other
hospitals on nearly every count.)42
A
The Baldrige award is an outgrowth of the realization among U.S. managers in
the early 1980s that three-fourths of Americans were telling survey takers that the
label “Made in America” no longer represented excellence—that they considered
5
products made overseas, especially in Japan, to be equal or superior in quality to
U.S.-made products. As we saw3in Chapter 2, much of the impetus for quality improvements in Japanese products
1 came from American consultants W. Edwards
Deming and Joseph M. Juran. As we mentioned, two strategies for ensuring quality
are quality control, the strategy9for minimizing errors by managing each stage of
production, and quality assurance,
B focusing on the performance of workers and
urging them to strive for “zero defects.”
U
Deming Management: The Contributions
of W. Edwards Deming to Improved Quality
Previously, Frederick Taylor’s scientific management philosophy, designed to maximize worker productivity, had been widely instituted. But by the 1950s, scientific
management had led to organizations that were rigid and unresponsive to both employees and customers. W. Edwards Deming’s challenge, known as Deming management, proposed ideas for making organizations more responsive, more
democratic, and less wasteful. These included the following principles:
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1. Quality Should Be Aimed at the Needs of the Consumer “The consumer is the most important part of the production line,” Deming wrote.43 Thus, the
efforts of individual workers in providing the product or service should be directed
toward meeting the needs and expectations of the ultimate user.
2. Companies Should Aim at Improving the System, Not Blaming
Workers Deming suggested that U.S. managers were more concerned with blaming problems on individual workers rather than on the organization’s structure, culture,
technology, work rules, and management—that is, “the system.” By treating employees well, listening to their views and suggestions, Deming felt, managers could bring
about improvements in products and services.
3. Improved Quality Leads to Increased Market Share, Increased
F When companies work to
Company Prospects, & Increased Employment
improve the quality of goods and services, they produce
less waste, fewer delays,
I
and are more efficient. Lower prices and superior quality lead to greater market
N
share, which in turn leads to improved business prospects
and consequently increased employment.
D
L
4. Quality Can Be Improved on the Basis of Hard
E Data, Using the PDCA
Cycle Deming suggested that quality could be improved by acting on the basis of
Y
hard data. The process for doing this came to be known as the PDCA cycle, a plan-do, improvement of operations.
check-act cycle using observed data for continuous
(See Figure 16.7.)
figure 16.7
THE PDCA CYCLE: PLAN-DO-CHECK-ACT
S
A
R
A
The four steps continuously follow each other, resulting in continuous
improvement.
5
1 PLAN desired and
important changes,
based on observed
data. Make pilot
test, if necessary.
2 DO implement the
3
change or make a
small-scale
test.
1
4 ACT on lessons
learned, after study
of results. Determine
if predictions can be
made as basis for
new methods.
3 CHECK or observe
what happened after
the change or during
the test.
9
B
U
Source: From W. Edwards Deming, Out of the Crisis. Copyright © 2000 Massachusetts Institute
of Technology, by permission of MIT Press.
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Continuous improvement. In the 1980s, building
contractor Fred Carl found restaurant-style
commercial stoves impractical for his own home
kitchen, so he designed his own. He then opened
a manufacturing plant in Greenwood, Mississippi,
under the name Viking Range Corporation. From
Toyota, Viking borrowed Japanese manufacturing
techniques grouped under the word kaizen,
which translates into continuous improvement.
Production is set up so that if there is a problem
everyone on the line is instantly aware of it, and
the problem is solved right on the plant floor—so
that customers are continuously supplied with
elegant yet dependable stoves like the one
shown here.
F
I
N
D
L Deliver Customer Value
Core TQM Principles:
& Strive for Continuous
Improvement
E
Y is defined as a comprehensive approach—led by
Total quality management (TQM)
top management and supported
, throughout the organization—dedicated to continuous quality improvement, training, and customer satisfaction.
In Chapter 2 we said there are four components to TQM:
S
1.
2.
3.
4.
Make continuous improvement a priority.
A
Get every employee involved.
Listen to and learn fromRcustomers and employees.
Use accurate standards to
A identify and eliminate problems.
These may be summarized as two core principles of TQM—namely, (1) people
orientation—everyone involved5with the organization should focus on delivering
value to customers—and (2) improvement orientation—everyone should work on
3 processes.44 Let’s look at these further.
continuously improving the work
1
1. People Orientation—Focusing Everyone on Delivering Customer
Value Organizations adopting9TQM value people as their most important resource—
both those who create a product B
or service and those who receive it. Thus, not only are
employees given more decision-making power, so are suppliers and customers.
U under the following assumptions.
This people orientation operates
■
Delivering customer value is most important. The purpose of TQM is to
focus people, resources, and work processes to deliver products or services
that create value for customers.
People will focus on quality if given empowerment. TQM assumes that
employees (and often suppliers and customers) will concentrate on making
quality improvements if given the decision-making power to do so. The reasoning here is that the people actually involved with the product or service are
in the best position to detect opportunities for quality improvements.
TQM requires training, teamwork, and cross-functional efforts. Employees and suppliers need to be well trained, and they must work in teams.
■
■
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Teamwork is considered important because many quality problems are
spread across functional areas. For example, if cellphone design specialists
conferred with marketing specialists (as well as customers and suppliers),
they would find the real challenge of using a cellphone for older people is
pushing 11 tiny buttons to call a phone number.
Teams may be self-managed teams, as described in Chapter 13, with
groups of workers given administrative oversight of activities such as planning, scheduling, monitoring, and staffing for their task domains. Sometimes,
however, an organization needs a special-purpose team to meet to solve a
special or onetime problem. The team then disbands after the problem is
solved. These teams are often cross-functional, drawing on members from
different departments. American medicine, for instance, is moving toward a
team-based approach for certain applications, involving multiple doctors as
well as nurse practitioners and physician assistants.45
F
2. Improvement Orientation—Focusing Everyone
on Continuously
Improving Work Processes Americans seem Ito like big schemes, grand designs, and crash programs. Although these approaches certainly have their place, the
lesson of the quality movement from overseas is thatNthe way to success is through
continuous small improvements. Continuous improvement
is defined as ongoing
D
small, incremental improvements in all parts of an organization—all products,
L
services, functional areas, and work processes.46
This improvement orientation has the following assumptions.
E
■
■
■
■
Y TQM assumes that it’s better
It’s less expensive to do it right the first time.
to do things right the first time than to do costly
, reworking. To be sure, there
are many costs involved in creating quality products and services—training,
equipment, and tools, for example. But they are less than the costs of dealing
with poor quality—those stemming from lost
S customers, junked materials,
time spent reworking, and frequent inspection, for example.47
A
It’s better to do small improvements all the time. This is the assumption
R matter, that no improvethat continuous improvement must be an everyday
ment is too small, that there must be an ongoing
A effort to make things better a
little bit at a time all the time.
Accurate standards must be followed to eliminate small variations. TQM
5
emphasizes the collection of accurate data throughout
every stage of the work
process. It also stresses the use of accurate standards
(such
as benchmarking,
3
as we discuss) to evaluate progress and eliminate small variations, which are
1
the source of many quality defects.
There must be strong commitment from top
9 management. Employees and
suppliers won’t focus on making small incremental improvements unless
B
managers go beyond lip service to support high-quality work, as do the top
managers at Ritz-Carlton, Amazon.com, and Ace
U Hardware.
EXAMPLE
Chrysler Does a Makeover: Initiating a New Quality Strategy
When in 2009 Italian carmaker Fiat SpA took control of
the Chrysler Group, the third of the Big Three U.S. auto
companies, it gave quality control chief Doug Betts far-
reaching authority. “Betts can shut the whole company
down and nobody is going to overrule him, including me,”
CEO Sergio Marchionne is reported to have said.48
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Looking for One-Millimeter Defects. Chrysler is
working hard to achieve what Ford and General Motors
(following trailblazers Toyota and Honda) have already
been doing—namely, raise quality and leave behind a reputation for lousy craftsmanship.49 This covers everything
from safety to interior materials to how parts fit together.
For instance, in 2011, the company spent $50,000 modifying a part involving a barely noticeable (one-millimeter)
projection on a taillight of a Chrysler 300 prototype,
enough to “catch a rag if someone was hand-washing” the
car, Betts said.
Assembly plants are being outfitted with special clean
zones, where workers use devices (called Meisterbock
gauges) that laser-scan the surface of a vehicle for defects
as small as a few millimeters, which trigger adjustments at
the plant or with suppliers.
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Moving Up. In 2008, when Chrysler was controlled by
private-equity firm Cerberus Capital Management LP, the
company’s reputation was so bad that a review of the nowdiscontinued Sebring called it “almost certainly the worst
car in the entire world.” Three years later, Consumer Reports
gave Chrysler’s brands the highest reliability ratings in
years, moving them from the bottom to the middle of the
list.50 Still, there have been setbacks, with Chrysler recalling
late model Dodge Charger and Chrysler 300 sedans because of stability control and brake-system problems.
YOUR CALL
It’s
Feasy for a company to lose its reputation. How long
do you think it takes to get it back? Is Chrysler there yet,
inIyour opinion?
N
D
L
Applying TQM to Services
E
Manufacturing industries provide
Y tangible products (think jars of baby food), service industries provide intangible products (think child care services). Manufactured products can be stored , (such as dental floss in a warehouse); services
generally need to be consumed immediately (such as dental hygiene services). Services tend to involve a good deal of people effort (although there is some automation, as with bank automatedSteller machines). Finally, services are generally
provided at locations and times
Aconvenient for customers; that is, customers are
much more involved in the delivery of services than they are in the delivery of
R
manufactured products.
A
Customer Satisfaction: A Matter of Perception? Perhaps you’re beginning to see how judging the quality of services is a different animal from judging
the quality of manufactured goods,
5 because it comes down to meeting the customer’s satisfaction, which may be a matter of perception. (After all, some hotel guests,
3
restaurant diners, and supermarket patrons, for example, are more easily satisfied
1
than others.)
9
The RATER Scale How, then, can we measure the quality of a delivered serB
vice? For one, we can use the RATER
scale, which enables customers to rate the
quality of a service along five U
dimensions—reliability, assurance, tangibles, empathy, and responsiveness (abbreviated RATER)—each on a scale from 1 (for
very poor) to 10 (for very good).51 The meanings of the RATER dimensions are as
follows:
■
Reliability—ability to perform the desired service dependably, accurately, and
consistently.
Assurance—employees’ knowledge, courtesy, and ability to convey trust and
confidence.
Tangibles—physical facilities, equipment, appearance of personnel.
Empathy—provision of caring, individualized attention to customers.
Responsiveness—willingness to provide prompt service and help customers.
■
■
■
■
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PRACTICAL ACTION
What Makes a Service Company Successful? Four Core Elements
With services now employing more than 75% of American workers, universities are bringing more research
attention to what is being called “services science.”
This is a field that uses management, technology, mathematics, and engineering expertise to improve the performance of service businesses, such as retailing and
health care.52
Harvard Business School scholar Frances X. Frei has
determined that a successful service business must make
the right decisions about four core elements and balance
them effectively:53
F
I
N
Which service attributes, as informed by the needs of
D
customers, does the company target for excellence and
L
which does it target for inferior performance? Does a
E
bank, for example, offer more convenient hours and
friendlier tellers (excellence) but pay less attractive interY
est rates (inferior performance)?
,
The Offering: Which Features Are Given
Top-Quality Treatment?
The Funding Mechanism: Who Pays
for the Service?
S
How should the company fund its services? Should it
have the customer pay for them? This can be done in A
a
palatable way, as when Starbucks funds its stuffed-chair
R
ambience by charging more for coffee. Or it can be done
A
by making savings in service features, as when Progressive Casualty Insurance cuts down on frauds and lawsuits
by deploying its own representatives to the scene of an
5
auto accident.
Or should the company cover the cost of excellence
3
with operational savings, as by spending now to save later
1
or having the customer do the work? Call centers usually
9
charge for customer support, but Intuit offers free support and has product-development people, as well as
B
customer-service people, field calls so that subsequent
U
developments in Intuit software are informed by direct
knowledge of customer problems. Other companies, such
as gas stations, save money by having customers pump
their own gas.
The Employee Management System:
How Are Workers Trained & Motivated?
Service companies need to think about what makes their
employees able to achieve excellence and what makes
them reasonably motivated to achieve excellence. For
instance, bank customers may expect employees to meet
a lot of complex needs, but the employees aren’t able
to meet these needs because they haven’t been trained.
Or they aren’t motivated to achieve excellence because
the bank hasn’t figured out how to screen in its hiring, as
in hiring people for attitude first and training them later
versus paying more to attract highly motivated people.
The Customer Management System:
How Are Customers “Trained”?
Like employees, customers in a service business must also
be “trained” as well, as the airlines have done with checkin. At Zipcar, the popular car-sharing service, the company
keeps its costs low by depending on customers to clean,
refuel, and return cars in time for the next user. In training
customers, service companies need to determine which
customers they’re focusing on, what behaviors they want,
and which techniques will most effectively influence customer behavior.
YOUR CALL
Pick a services company you’re familiar with, such as
Domino’s Pizza, Starbucks, or the college bookstore. In
integrating the four core features just discussed, a service
company needs to determine the following: Are the decisions it makes in one area supported by those it makes in
the other areas? Does the service model create longterm value for customers, employees, and shareholders?
Is the company trying to be all things to all people or
specific things to specific people? How do you think the
company you picked rates?
Some TQM Tools & Techniques
Several tools and techniques are available for improving quality. Here we describe
benchmarking, outsourcing, reduced cycle time, ISO 9000 and ISO 14000, statistical
process control, and Six Sigma.
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Benchmarking: Learning from the Best Performers We discussed benchmarking briefly in Chapter 10. As we stated there, benchmarking is a process by which
a company compares its performance with the best practices of high-performing organizations. For example, at Xerox Corp., generally thought to be the first American
company to use benchmarking, it is defined as, in one description, “the continuous
process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders.”54
EXAMPLE
Do Social Media Ads Work? The Need for Benchmarking
F
Benchmarking is a search for “best practices” that can
advertising works is incredibly difficult to do,” says a
be applied to one’s own business. Southwest Airlines,
I Today report, citing an analyst at media research
USA
for instance, studied auto-racing pit crews to learn how
firm
N BIA/Kelsey. “The big problem Facebook and many
to reduce the turnaround time of its aircraft at each
social-media sites have . . . is that they don’t have consisscheduled stop. Toyota managers got the idea for justD clear-cut metrics that prove advertising on their
tent,
in-time inventory deliveries by looking at how U.S. susites
L works.”56 Even by traditional measures, such as
permarkets replenish their shelves. AutoNation, a
how many people click on an ad, Facebook doesn’t look
conglomeration of car dealers, tested what combinaE
particularly effective: 57% of Facebook users in one poll
tion of factors made for more effective newspaper ads
Y they never click on the site’s ads.57 (Other research
said
by using multivariable testing, a statistical technique
disagrees.)
,
originated during World War II to better shoot down
German bombers.
YOUR CALL
The Trouble with Facebook. Sometimes, however,
benchmarking is difficult. In May 2012, General Motors
made headlines when it announced that it would no
longer run paid ads on Facebook because they had little
impact on car buyers. 55 “Proving that social-media
S you think that GM abandoned Facebook too soon,
Do
that
A social-media marketing and metrics are still maturing? (Ford, by contrast, increased its expenditures on soRmedia, including Later, in July 2012, Facebook and GM
cial
began
A discussions about possibly re-engaging.)
5
3
1
Outsourcing: Let Outsiders Handle It Outsourcing (discussed in detail in
9
Chapter 4) is the subcontracting of services and operations to an outside vendor.
B subcontractor vendor can do the job better or
Usually this is done because the
cheaper. Or, stated another way,
U when the services and operations are done inhouse, they are not done as efficiently or are keeping personnel from doing more
important things.
For example, despite its former (2004–2009) well-known advertising campaign,
“An American Revolution,” Chevrolet outsources the engine for its Chevrolet Equinox
to China, where it found it could get high-quality engines built at less cost.58 And when
IBM and other companies outsource components inexpensively for new integrated
software systems, says one researcher, offshore programmers make information technology affordable to small and medium-size businesses and others who haven’t yet
joined the productivity boom.59
Outsourcing is also being done by many state and local governments, which,
under the banner known as privatization, have subcontracted traditional government
services such as fire protection, correctional services, and medical services.
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Reduced Cycle Time: Increasing the Speed of Work Processes Another
TQM technique is the emphasis on increasing the speed with which an organization’s
operations and processes can be performed. This is known as reduced cycle time, or
reduction in steps in a work process, such as fewer authorization steps required to
grant a contract to a supplier. The point is to improve the organization’s performance
by eliminating wasteful motions, barriers between departments, unnecessary procedural steps, and the like.
ISO 9000 & ISO 14000: Meeting Standards of Independent Auditors If
you’re a sales representative for Du Pont, the American chemical company, how will
your overseas clients know that your products have the quality they are expecting? If
you’re a purchasing agent for an Ohio-based tire company, how can you tell if the synthetic rubber you’re buying overseas is adequate?
At one time, buyers and sellers simply had to rely on a supplier’s past reputation
F
or personal assurances. In 1979, the International Organization
for Standardization
(ISO), based in Geneva, Switzerland, created a set ofIquality standards known as the
9000 series—“a kind of Good Housekeeping seal of approval for global business,” in
N
one description.60 There are two such standards:
■
■
D
L quality-control procedures
ISO 9000. The ISO 9000 series consists of
companies must install—from purchasing
Eto manufacturing to inventory to shipping—that can be audited by independent quality-control
Y flaws in manufacturing and
experts, or “registrars.” The goal is to reduce
improve productivity. Companies must document
the procedures and train
,
their employees to use them. For instance, DocBase Direct is a web-delivered
document and forms-management system that helps companies comply
with key ISO management standards, such S
as traceable changes and easy
reporting.
A by more than 100 counThe ISO 9000 designation is now recognized
tries around the world, and a quarter of theR
corporations around the globe
insist that suppliers have ISO 9000 certification. “You close some expenA Ekeler, general manager of
sive doors if you’re not certified,” says Bill
Overland Products, a Nebraska tool-and-die-stamping firm.61 In addition,
because the ISO process forced him to analyze his company from the top
5
down, Ekeler found ways to streamline manufacturing processes that improved his bottom line.
3
ISO 14000. The ISO 14000 series extends 1
the concept, identifying standards for environmental performance. ISO 14000 dictates standards for
9
documenting a company’s management of pollution,
efficient use of raw materials, and reduction of the firm’s impact on B
the environment.
U
Statistical Process Control: Taking Periodic Random Samples As the
pages of this book were being printed, every now and then a press person would pull a
few pages out of the press run and inspect them (under a bright light) to see that the
consistency of the color and quality of the ink were holding up. This is an ongoing
human visual check for quality control.
All kinds of products require periodic inspection during their manufacture: hamburger meat, breakfast cereal, flashlight batteries, wine, and so on. The tool often used
for this is statistical process control, a statistical technique that uses periodic random samples from production runs to see if quality is being maintained within a
standard range of acceptability. If quality is not acceptable, production is stopped to
allow corrective measures.
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Statistical process control is the technique that McDonald’s uses, for example, to
make sure that the quality of its burgers is always the same, no matter where in the
world they are served. Companies such as Intel and Motorola use statistical process
control to ensure the reliability and quality of their products.
Six Sigma & Lean Six Sigma: Data-Driven Ways to Eliminate Defects
“The biggest problem with the management technique known as Six Sigma is this: It
sounds too good to be true,” says a Fortune writer. “How would your company like a
20% increase in profit margins within one year, followed by profitability over the
long-term that is ten times what you’re seeing now? How about a 4% (or greater) annual gain in market share?”62
What is this name, Six Sigma (which is probably Greek to you), and is it a path
to management paradise? The name comes from sigma, the Greek letter that statisticians use to define a standard deviation. The higher the sigma, the fewer the deviations from the norm—that is,
F the fewer the defects. Developed by Motorola in
1985, Six Sigma has since been embraced by General Electric, Allied Signal,
I
American Express, and other companies.
There are two variations, Six Sigma and
lean Six Sigma.
N
D
■
Six Sigma. Six Sigma is a rigorous statistical analysis process that reduces
L and service-related processes. By testing thoudefects in manufacturing
sands of variables and eliminating
guesswork, a company using the technique
E
attempts to improve quality and reduce waste to the point where errors nearly
Y product design to manufacturing to billing, the atvanish. In everything from
tainment of Six Sigma means
there are no more than 3.4 defects per million
,
products or procedures.
“Six Sigma gets people away from thinking that 96% is good, to thinking that 40,000 failuresSper million is bad,” says a vice president of consulting firm A. T. Kearney.63 Six Sigma means being 99.9997% perfect. By
contrast, Three Sigma A
or Four Sigma means settling for 99% perfect—the
equivalent of no electricity
R for 7 hours each month, two short or long landings per day at each major airport, or 5,000 incorrect surgical operations
A
per week.64
Six Sigma may also be thought of as a philosophy—to reduce variation in
your company’s business and make customer-focused, data-driven decisions.
5
The method preaches the use of Define, Measure, Analyze, Improve, and
3 leaders may be awarded a Six Sigma “black belt”
Control (DMAIC). Team
for applying DMAIC. 1
Lean Six Sigma. More recently, companies are using an approach known
9 focuses on problem solving and performance
as lean Six Sigma, which
improvement—speed B
with excellence—of a well-defined project.65
Xerox Corp., for example, has focused on getting new products to cusU
tomers faster, which has meant taking steps out of the design process without loss of quality. A high-end, $200,000 machine that can print 100 pages
a minute traditionally has taken three to five cycles of design; removing just
one of those cycles can shave up to a year off time to market.66 The grocery
chain Albertsons Inc. announced in 2004 that it was going to launch Six
Sigma training to reduce customer dissatisfaction and waste to the lowest
level possible.67
■
Six Sigma and lean Six Sigma may not be perfect, since they cannot compensate
for human error or control events outside a company. Still, they let managers approach
problems with the assumption that there’s a data-oriented, tangible way to approach
problem solving.68 ●
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16.7 MANAGING CONTROL EFFECTIVELY
What are the keys to successful control, and what are the
barriers to control success?
THE BIG PICTURE
?
major
question
This section describes four keys to successful control and five barriers to successful
control.
How do you as a manager make a control system successful, and how do you identify
and deal with barriers to control? We consider these topics next.69
F
I
The Keys to Successful Control Systems
N
Successful control systems have a number of common
D characteristics: (1) They are
strategic and results oriented. (2) They are timely, accurate, and objective. (3) They
L
are realistic, positive, and understandable and they encourage
self-control. (4) They
70
are flexible.
E
Y
,
1. They Are Strategic & Results Oriented Control
systems support strategic plans and are concentrated on significant activities that will make a real difference to the organization. Thus, when managers are developing strategic plans for
Sthey should pay attention to
achieving strategic goals, that is the point at which
developing control standards that will measure how
A well the plans are being
achieved.
R
Example: Global warming is now shifting the climate
on a continental scale,
changing the life cycle of animals and plants, scientists
say,
and surveys show
A
more Americans feel guilty for not living greener.71 A growing number of companies are discovering that embracing environmental safe practices is paying off in
savings of hundreds of millions of dollars, as we saw
5 with Subaru of Indiana in
Chapter 3.72
3
1
9
B
U
Doing good. Created by
Microsoft founder Bill Gates
and his wife, the Bill & Melinda
Gates Foundation of Seattle is
the largest private foundation in
the world. It aims to reduce
poverty and enhance health
care throughout the world and
to expand educational
opportunities in the United
States. The way it seeks to
apply business techniques to
giving makes it a leader in
global philanthropy.
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2. They Are Timely, Accurate, & Objective
information of any kind—should . . .
■
Good control systems—like good
Be timely—meaning when needed. The information should not necessarily
be delivered quickly, but it should be delivered at an appropriate or specific
time, such as every week or every month. And it certainly should be often
enough to allow employees and managers to take corrective action for any
deviations.
Be accurate—meaning correct. Accuracy is paramount, if decision mistakes
are to be avoided. Inaccurate sales figures may lead managers to mistakenly
cut or increase sales promotion budgets. Inaccurate production costs may lead
to faulty pricing of a product.
Be objective—meaning impartial. Objectivity means control systems are impartial and fair. Although information can be inaccurate for all kinds of reasons
(faulty communication, F
unknown data, and so on), information that is not objective is inaccurate for a special reason: It is biased or prejudiced. Control
I
systems need to be considered
unbiased for everyone involved so that they will
be respected for their fundamental
purpose—enhancing performance.
N
■
■
D & Understandable & Encourage Self3. They Are Realistic, Positive,
Control Control systems have
Lto focus on working for the people who will have to
live with them. Thus, they operate best when they are made acceptable to the organizaE them. Thus, they should . . .
tion’s members who are guided by
Y
■
Be realistic. They should incorporate realistic expectations. If employees feel
performance results are, too difficult, they are apt to ignore or sabotage the
performance system.
Be positive. They should
S emphasize development and improvement. They
should avoid emphasizing punishment and reprimand.
A should fit the people involved, be kept as simple as
Be understandable. They
possible, and present data
R in understandable terms. They should avoid complicated computer printouts and statistics.
A
Encourage self-control. They should encourage good communication and
mutual participation. They should not be the basis for creating distrust between employees and managers.
5
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■
■
3 systems must leave room for individual judgment,
4. They Are Flexible Control
so that they can be modified when
1 necessary to meet new requirements.
9
Barriers to Control Success
B
Among the several barriers to a successful
control system are the following:73
U
1. Too Much Control Some organizations, particularly bureaucratic ones, try to
exert too much control. They may try to regulate employee behavior in everything
from dress code to timing of coffee breaks. Allowing employees too little discretion
for analysis and interpretation may lead to employee frustration—particularly among
professionals, such as college professors and medical doctors. Their frustration may
lead them to ignore or try to sabotage the control process.
2. Too Little Employee Participation As highlighted by W. Edwards Deming,
discussed elsewhere in the book (Chapter 2), employee participation can enhance productivity. Involving employees in both the planning and execution of control systems
can bring legitimacy to the process and heighten employee morale.
540
PART 6
✽
Controlling
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3. Overemphasis on Means Instead of Ends We said that control activities
should be strategic and results oriented. They are not ends in themselves but the
means to eliminating problems. Too much emphasis on accountability for weekly
production quotas, for example, can lead production supervisors to push their
workers and equipment too hard, resulting in absenteeism and machine breakdowns. Or it can lead to game playing—“beating the system”—as managers and
employees manipulate data to seem to fulfill short-run goals instead of the organization’s strategic plan.
4. Overemphasis on Paperwork A specific kind of misdirection of effort is
management emphasis on getting reports done, to the exclusion of other performance
activity. Reports are not the be-all and end-all. Undue emphasis on reports can lead to
too much focus on quantification of results and even to falsification of data.
Example: A research laboratory decided to use the number of patents the lab obtained as a measure of its effectiveness. The result was an increase in patents filed but
F 74
a decrease in the number of successful research projects.
I
5. Overemphasis on One Instead of Multiple Approaches One control
N and information systems, an
may not be enough. By having multiple control activities
organization can have multiple performance indicators,
D thereby increasing accuracy
and objectivity.
L casinos is to prevent emExample: An obvious strategic goal for gambling
ployee theft of the cash flowing through their hands.
E Thus, casinos control card
dealers by three means. First, they require prospective hires to have a dealer’s liY
cense before they are hired. Second, they put them under constant scrutiny, using
,
direct supervision by on-site pit bosses as well as observation
by closed-circuit TV
cameras and through overhead one-way mirrors. Third, they require detailed reports at the end of each shift so that transfer of cash and cash equivalents (such as
S
gambling chips) can be audited.75 ●
A
R
A
Temptation. Because legal gambling is a
heavy cash business, casinos need to
institute special controls against employee
theft. One of them is the “eye in the sky”
over card and craps tables.
5
3
1
9
B
U
Control Systems & Quality Management
✽
CHAPTER 16
541
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EPILOGUE: THE KEYS TO YOUR MANAGERIAL SUCCESS
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