{"id":286,"date":"2014-05-13T17:45:15","date_gmt":"2014-05-13T17:45:15","guid":{"rendered":"http:\/\/opentextbc.ca\/strategicmanagement\/?post_type=chapter&p=286"},"modified":"2019-07-02T23:14:18","modified_gmt":"2019-07-02T23:14:18","slug":"creating-organizational-control-systems","status":"publish","type":"chapter","link":"https:\/\/opentextbc.ca\/strategicmanagement\/chapter\/creating-organizational-control-systems\/","title":{"raw":"Creating Organizational Control Systems","rendered":"Creating Organizational Control Systems"},"content":{"raw":"
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Learning Objectives<\/p>\r\n\r\n<\/header>\r\n

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    \r\n \t
  1. Understand the three types of control systems.<\/li>\r\n \t
  2. Know the strengths and weaknesses of common management fads.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\nIn addition to creating an appropriate organizational structure, effectively executing strategy depends on the skillful use of organizational control systems. Executives create strategies to try to achieve their organization\u2019s vision, mission, and goals. [pb_glossary id=\"3076\"]Organizational control systems[\/pb_glossary]<\/strong>\u00a0<\/strong>allow executives to track how well the organization is performing, identify areas of concern, and then take action to address the concerns. Three basic types of control systems are available to executives: (1) output control, (2) behavioural control, and (3) clan control. Different organizations emphasize different types of control, but most organizations use a mix of all three types.\r\n

    Output Control<\/h1>\r\n[pb_glossary id=\"3077\"]Output control[\/pb_glossary]<\/strong>\u00a0<\/strong>focuses on measurable results within an organization. Examples from the business world include the number of hits a website receives per day, the number of microwave ovens an assembly line produces per week, and the number of vehicles a car salesperson sells per month (Figure 9.16 \"Output Controls\"<\/a>). In each of these cases, executives must decide what level of performance is acceptable, communicate expectations to the relevant employees, track whether performance meets expectations, and then make any needed changes. In an ironic example, a group of post office workers in Pensacola, Florida, were once disappointed to learn that their paychecks had been lost\u2014by the U.S. Postal Service! The corrective action was simple: they started receiving their pay via direct deposit rather than through the mail.\r\n\r\nMany times the stakes are much higher. In early 2011, Delta Air Lines was forced to face some facts as part of its use of output control. Data gathered by the federal government revealed that only 77.4 percent of Delta\u2019s flights had arrived on time during 2010. This performance led Delta to rank dead last among the major U.S. airlines and fifteenth out of eighteen total carriers (Yamanouchi, 2011).\u00a0In response, Delta took important corrective steps. In particular, the airline added to its ability to service airplanes and provided more customer service training for its employees. Because some delays are inevitable, Delta also announced plans to staff a Twitter account called Delta Assist around the clock to help passengers whose flights are delayed. These changes and others paid off. For the second quarter of 2011, Delta enjoyed a $198 million profit, despite having to absorb a $1 billion increase in its fuel costs due to rising prices (Yamanouchi, 2011).<\/a>\r\n\r\n[caption id=\"attachment_1668\" align=\"aligncenter\" width=\"400\"]\"Figure<\/a> Figure 9.16: Output Controls [Image description]<\/a>[\/caption]Output control also plays a big part in the university\u00a0experience. For example, test scores and grade point averages are good examples of output measures. If you perform badly on a test, you might take corrective action by studying harder or by studying in a group for the next test. At colleges and universities, students may be\u00a0put on academic probation when their\u00a0grades or grade\u00a0point average drops below a certain level. If their\u00a0performance does not improve, they\u00a0may be removed from their\u00a0major and even suspended from further studies. On the positive side, output measures can trigger rewards too. A very high grade point average can lead to placement on the dean\u2019s list and graduating with honors.\r\n\r\n[caption id=\"attachment_1669\" align=\"aligncenter\" width=\"400\"]\"UBC<\/a> Figure 9.17: UBC's Museum of Anthropology[\/caption]\r\n\r\nArthur Erickson, noted Canadian architect, graduated from University of British Columbia and was commissioned to design the Museum of Anthropology there,\u00a0which opened in 1976. It was inspired by the post-and-beam<\/a> architecture of northern Northwest Coast First Nations<\/a> people.\r\n

    Behavioural Control<\/h1>\r\nWhile output control focuses on results, [pb_glossary id=\"3078\"]behavioural control[\/pb_glossary]<\/strong>\u00a0focuses on controlling the actions that ultimately lead to results. In particular, various rules and procedures are used to standardize or to dictate behaviour (Figure 9.18 \"Behavioural Controls\"<\/a>). In most states, for example, signs are posted in restaurant bathrooms reminding employees that they must wash their hands before returning to work. The dress codes that are enforced within many organizations are another example of behavioural control. To try to prevent employee theft, many firms have a rule that requires checks to be signed by two people.\u00a0Some employers may prefer non-smoking employees, as cigarette breaks can take as much as 40 minutes out of a workday, plus higher absenteeism and associated health costs for smokers.<\/a>\r\n\r\n[caption id=\"attachment_1670\" align=\"aligncenter\" width=\"400\"]\"Figure<\/a> Figure 9.18: Behavioural Controls [Image description]<\/a>[\/caption]Output control also plays a significant role in the university\u00a0experience. An illustrative (although perhaps unpleasant) example is penalizing students for not attending class. Professors grade attendance to dictate students\u2019 behaviour; specifically, to force students to attend class. Meanwhile, if you were to suggest that a rule should be created to force professors to update their lectures at least once every five years, we would not disagree with you.\r\n\r\nOutside the classroom, behavioural control is a major factor within university and college athletic programs. The\u00a0Canadian Collegiate Athletic Association (CCAA) governs college athletics using a\u00a0set of rules, policies, and procedures.\u00a0CCAA members, all players, and coaches are expected to follow the standard guidelines and principles of\u00a0the CCAA Code of Ethics, and\u00a0failure to comply will result in disciplinary action.\u00a0Some degree of behavioural control is needed within virtually all organizations.\r\n\r\nCreating an effective reward structure is key to effectively managing behaviour because people tend to focus their efforts on the rewarded behaviours. Problems can arise when people are rewarded for behaviours that seem positive on the surface but that can actually undermine organizational goals under some circumstances. For example, restaurant servers are highly motivated to serve their tables quickly because doing so can increase their tips. But if a server devotes all his or her attention to providing fast service, other tasks that are vital to running a restaurant, such as communicating effectively with managers, host staff, chefs, and other servers, may suffer. Managers need to be aware of such trade-offs and strive to align rewards with behaviours. For example, wait staff who consistently behave as team players could be assigned to the most desirable and lucrative shifts, such as nights and weekends.\r\n\r\n[caption id=\"attachment_1673\" align=\"aligncenter\" width=\"400\"]\"Employees<\/a> Figure 9.19: Although some behavioural controls are intended for employees and not customers, following them is beneficial to everyone.[\/caption]\r\n

    Clan Control<\/h1>\r\nInstead of measuring results (as in outcome control) or dictating behaviour (as in behavioural control), [pb_glossary id=\"3080\"]clan control[\/pb_glossary]<\/strong>\u00a0is an informal type of control. Specifically, clan control relies on shared traditions, expectations, values, and norms to lead people to work toward the good of their organization (Figure 9.20 \"Clan Controls\"<\/a>). Clan control is often used heavily in settings where creativity is vital, such as many high-tech businesses. In these companies, output is tough to dictate, and many rules are not appropriate. The creativity of a research scientist would be likely to be stifled, for example, if he or she were given a quota of patents that\u00a0must be met each year (output control) or if a strict dress code were enforced (behavioural control).<\/a>\r\n\r\n[caption id=\"attachment_1674\" align=\"aligncenter\" width=\"400\"]\"Figure<\/a> <\/a>Figure 9.20: Clan Controls [Image description]<\/a>\u00a0<\/span>[\/caption]Google is a firm that relies on clan control to be successful. Employees are permitted to spend 20 percent of their work week on their own innovative projects. The company offers an \u2018\u2018ideas mailing list\u2019\u2019 for employees to submit new ideas and to comment on others\u2019 ideas. Google executives routinely make themselves available two to three times per week for employees to visit with them to present their ideas. These informal meetings have generated a number of innovations, including personalized home pages and Google News, which might otherwise have never been adopted.\r\n\r\n[caption id=\"attachment_1675\" align=\"aligncenter\" width=\"400\"]\"Google<\/a> Figure 9.21: As part of the team-building effort at Google, new employees are known as Noogles and are given a propeller hat to wear.[\/caption]\r\n\r\nSome executives look to clan control to improve the performance of struggling organizations. In 2014, Rogers Communications CEO Guy Laurence formally unveiled his plan\u00a0to revitalize growth at the country\u2019s largest communications firm. The strategy, dubbed \"Rogers 3.0,\" aimed to improve the customer experience and use the company\u2019s assets\u2014which include everything from magazines\u00a0to the Toronto Blue Jays\u2014together in a more effective way.\u00a0Laurence explained the issues he believed the company struggles with, and how his plan will address them.\u00a0The reorganization is aimed at focusing on better customer service by bringing together all of the elements of customer experience\u201410,400 staff\u2014into a single unit reporting to him. In plans to improve customer service to business and enterprise customers,\u00a0Rogers has\u00a0split out consumers from enterprise users, believing there\u2019s a growth story in enterprise. Finally, Laurence said that Rogers\u2019 stable of sports, broadcast, and publishing properties would differentiate the company from its telecom peers and commented, \u201cI believe content is the most important part of our mix\" (Castaldo, 2014).\r\n\r\nClan control is also important in many Canadian cities. Vancouver has the steam clock and Wreck Beach; Toronto has the CN Tower and the Blue Jays; Edmonton has the Oilers and West Edmonton Mall. These attractions are sources of pride to residents and desired places to visit for tourists;\u00a0they help people feel like they belong to something special.\r\n\r\nIt is worth noting that control systems, once embedded in an organization, become very difficult to change. Control systems emerged within an organization, not by accident, but in response to the firm's need to monitor employees' work to encourage high performance. Changing results metrics is an invitation for gaming the data with employees finding innovative ways to ensure that the data shows they are performing at the expected level, while behaviour and clan culture are notoriously difficult to change, often taking a decade or more to truly change. New senior executives often tweak control systems in an effort to improve performance. However, the time required to actually implement such changes often exceeds the executive's tenure with the firm\u2014thus the phrase, latest (management) fad<\/em>.\r\n

    Management Fads: Out of Control?<\/h1>\r\n
    Don\u2019t chase the latest management fads. The situation dictates which approach best accomplishes the team\u2019s mission.<\/em>\r\n\r\n- Colin Powell, <\/em>former U.S. Secretary of State<\/blockquote>\r\nThe emergence and disappearance of fads appears to be a predictable aspect of modern society. A fad arises when some element of popular culture becomes enthusiastically embraced by a group of people. Over the past few decades, for example, fashion fads have included leisure suits (1970s), \u201cMembers Only\u201d jackets (1980s), Doc Martens shoes (1990s), and Crocs (2000s). Ironically, the reason a fad arises is also usually the cause of its demise. The uniqueness (or even outrageousness) of a fashion, toy, or hairstyle creates \u201cbuzz\u201d and publicity but also ensures that its appeal is only temporary (Ketchen & Short, 2011).<\/a>\r\n\r\n[caption id=\"attachment_1677\" align=\"aligncenter\" width=\"400\"]\"Figure<\/a> Figure 9.22: Managing Management Fads [Image description]<\/a>[\/caption]Fads also seem to be a predictable aspect of the business world (Figure 9.22 \"Managing Management Fads\"<\/a>). As with cultural fads, many provocative business ideas go through a life cycle of creating buzz, captivating a group of enthusiastic adherents, and then giving way to the next fad. Bookstore shelves offer a seemingly endless supply of popular management books whose premises range from the intriguing to the absurd. Within the topic of leadership, for example, various books promise to reveal the \u201cleadership secrets\u201d of an eclectic array of famous individuals such as Jesus Christ, Hillary Clinton, Attila the Hun, and Santa Claus.\r\n\r\nBeyond the striking similarities between cultural and business fads, there are also important differences. Most cultural fads are harmless, and they rarely create any long-term problems for those that embrace them. In contrast, embracing business fads could lead executives to make bad decisions. As the quote from Colin Powell suggests, relying on sound business practices is much more likely to help executives to execute their organization\u2019s strategy than are generic words of wisdom from Old St. Nick.\r\n\r\nMany management fads have been closely tied to organizational control systems. For example, one of the best-known fads was an attempt to use output control to improve performance. [pb_glossary id=\"3081\"]Management by objectives (MBO)[\/pb_glossary]<\/strong>\u00a0is a process wherein managers and employees work together to create goals. These goals guide employees\u2019 behaviours and serve as the benchmarks for assessing their performance. Following the presentation of MBO in Peter Drucker\u2019s 1954 book The Practice of Management<\/em>, many executives embraced the process as a cure-all for organizational problems and challenges as if previous management had not been concerned with their objectives!\r\n\r\nLike many fads, however, MBO became a good idea run amok. Companies that attempted to create an objective for every aspect of employees\u2019 activities eventually discovered that this was unrealistic. The creation of explicit goals can conflict with activities involving tacit knowledge about the organization. Intangible notions such as \u201cproviding excellent customer service,\u201d \u201ctreating people right,\u201d and \u201cgoing the extra mile\u201d are central to many organizations\u2019 success, but these notions are difficult if not impossible to quantify. Thus, in some cases, getting employees to embrace certain values and other aspects of clan control is more effective than MBO.\r\n\r\nQuality circles were a second fad that built on the notion of behavioural control. Quality circles began in Japan in the 1960s and were first introduced in the United States in 1972. A [pb_glossary id=\"3082\"]quality circle[\/pb_glossary]<\/strong>\u00a0<\/strong>is a formal group of employees that meets regularly to brainstorm solutions to organizational problems. As the name \u201cquality circle\u201d suggests, identifying behaviours that would improve the quality of products and the operations management processes that create the products was the formal charge of many quality circles.\r\n\r\nWhile the quality circle fad depicted quality as the key driver of productivity, it quickly became apparent that this perspective was too narrow. Instead, quality is just one of four critical dimensions of the production process; speed, cost, and flexibility are also vital. Maximizing any one of these four dimensions often results in a product that simply cannot satisfy customers\u2019 needs. Many products with perfect quality, for example, would be created too slowly and at too great a cost to compete in the market effectively. Thus trade-offs among quality, speed, cost, and flexibility are inevitable.\r\n\r\nImproving clan control was the aim of [pb_glossary id=\"3083\"]sensitivity-training groups (or T-groups)[\/pb_glossary]<\/strong>\u00a0that were used in many organizations in the 1960s. This fad involved gatherings of approximately eight to fifteen people openly discussing their emotions, feelings, beliefs, and biases about workplace issues. In stark contrast to the rigid nature of MBO, the T-group involved free-flowing conversations led by a facilitator. These discussions were thought to lead individuals to greater understanding of themselves and others. The anticipated results were more enlightened workers and a greater spirit of teamwork.\r\n\r\nResearch on social psychology has found that groups are often far crueler than individuals. Unfortunately, this meant that the candid nature of T-group discussions could easily degenerate into accusations and humiliation. Eventually, the T-group fad gave way to recognition that creating potentially hurtful situations has no place within an organization. Hints of the softer side of T-groups can still be observed in modern team-building fads, however. Perhaps the best known is the \u201ctrust game,\u201d which claims to build trust between employees by having individuals fall backward and depend on their coworkers to catch them.\r\n\r\nImproving clan control was the basis for the fascination with [pb_glossary id=\"3084\"]organizational culture[\/pb_glossary]<\/strong>\u00a0that was all the rage in the 1980s. This fad was fueled by a best-selling 1982 book titled In Search of Excellence: Lessons from America\u2019s Best-Run Companies<\/em>. Authors Tom Peters and Robert Waterman studied companies that they viewed as stellar performers and distilled eight similarities that were shared across the companies. Most of the similarities, including staying \u201cclose to the customer\u201d and \u201cproductivity through people,\u201d arose from powerful corporate cultures. The book quickly became an international sensation; more than three million copies were sold in the first four years after its publication.\r\n\r\nSoon it became clear that organizational culture\u2019s importance was being exaggerated. Before long, both the popular press and academic research revealed that many of Peters and Waterman\u2019s \u201cexcellent\u201d companies quickly had fallen on hard times. Basic themes such as customer service and valuing one\u2019s company are quite useful, but these clan control elements often cannot take the place of holding employees accountable for their performance.\r\n\r\n[caption id=\"attachment_1678\" align=\"aligncenter\" width=\"400\"]\"Game<\/a> Figure 9.23: Spirited games of kickball can help build an organization\u2019s culture, but such events should not substitute for holding employees accountable for delivering results.[\/caption]\r\n\r\nThe history of fads allows us to make certain predictions about today\u2019s hot ideas, such as empowerment, \u201cgood to great,\u201d and viral marketing. Executives who distill and act on basic lessons from these fads are likely to enjoy performance improvements. Empowerment, for example, builds on important research findings regarding employees\u2014many workers have important insights to offer to their firms, and these workers become more engaged in their jobs when executives take their insights seriously. Relying too heavily on a fad, however, seldom turns out well.\r\n\r\nJust as executives in the 1980s could not treat In Search of Excellence<\/em> as a recipe for success, today\u2019s executives should avoid treating James Collins\u2019s 2001 best-selling book Good to Great: Why Some Companies Make the Leap\u2026and Others Don\u2019t<\/em> as a detailed blueprint for running their companies. Overall, executives should understand that management fads usually contain a core truth that can help organizations improve but that a balance of output, behavioural , and clan control is needed within most organizations. As legendary author Jack Kerouac noted, \u201cGreat things are not accomplished by those who yield to trends and fads and popular opinion.\u201d\r\n
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    Key Takeaways<\/p>\r\n\r\n<\/header>\r\n

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