Marketing Manager Course - Chapter 16
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Chapter
16
Management Control
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After reading this chapter, you should be able to:
Understand the importance of control systems.
Distinguish between system- and person-based
control systems.
Distinguish between process- and outcome-based
control systems.
Evaluate various control approaches.
Understand why measurement is necessary for
control.
Develop measures that support effective control
systems.
Develop and implement a balanced scorecard.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Importance of Control
Control is the process of comparing performance to
standards and taking corrective action.
It ensures that:
standards are met
errors are limited
quality is acceptable
products are safe
the company is performing at the highest possible level
Control is closely associated with planning.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Categorization of
Control Approaches
Control approaches can be categorized
according to two factors - type and focus:
Type - divided into formal and informal approaches
Formal control systems consist of written rules
Informal control systems rely on unwritten expectations
Focus – directed at the outcome or the process
Outcome approach focuses on the results of a business process
Process approach focuses on how the work is performed
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Control Approaches Model
Marketing Control
Outcomes
Subjective Control
Financial Controls
Focus
Operations Management
Bureaucratic Control
Process
Clan Control
Balanced Scorecard
Informal Formal
Type
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Informal and Outcome-Focused Control
Characterized by subjective control - an informal
approach based on global assessment of outcomes
Subjective control:
does not typically utilize explicit standards
does not specify how deviations from an acceptable level
should be handled
is common in smaller businesses and service settings
is the “no news is good news” approach
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Formal and Process-Focused Control:
Bureaucratic Control
Bureaucratic control is a formal control approach
that operates in a cycle and is characterized by
written guidelines and controls.
Involves:
the application of standards to assess performance
the application of corrective actions to regulate performance
and bring it back to the level of the standards.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Bureaucratic Control Process
1. Establishing 2. Performance
Standards Measurement
3. Identifying 4. Corrective
Gaps Action
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Bureaucratic Control Process
(continued)
Establishing Standards
Standards should be participative rather than simply
implemented from the top down so that employees
understand and are committed to them.
Standards come from:
goals
statistical analysis
benchmarking
Performance Measurement
Use of objective data, which is free from error or bias
Use of subjective data, which involves human judgement
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Bureaucratic Control Process
(continued)
Identifying Gaps
Compare standards with performance measures
Upper and lower control limits establish:
acceptable variations
normal variations
unacceptable variations
Corrective Action
What should management do?
Nothing
Take action
Change standards
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Types of Bureaucratic Control
Feedforward Control
Concurrent Control
Feedback Control
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Types of Bureaucratic Control (cont.)
Feedforward control
Designed to prevent problems before they occur
Concurrent control
Takes place as the work process is being carried out
Feedback control
Occurs after a process has been completed
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Balanced Scorecard
A balanced scorecard is a technique designed to
control and improve:
customer service
learning and growth
finance
internal business processes
Links strategy to action
Is more broad than bureaucratic control
Focus on:
priorities
the work process
how things are done
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
A General Balance Scorecard Format
Objectives Measures Targets Initiatives
Financial -
what we need to
do to succeed
financially
Customer -
what we need to
do to excel at
customer service
Internal Business
Processes - what
we need to do to
have world class
processes
Learning and
Growth - how to
change and increase
our potential and
effectiveness
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Formal and Outcome-Focused
Control
The regulation of performance by applying the
standards or guidelines to the outcomes of a
process through:
Market control - the use of indicators of market values as
standards for regulating performance
Financial controls - the use of various monetary measures to
regulate performance
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Types of Financial Controls
Budgetary Control Financial Statements
Activity-Based
Financial Ratios
Costing
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Types of Financial Controls (cont.)
Budgetary control - used to specify amounts
to be expended for various activities or
events
Can help managers control and predict costs
Financial Statements - tools that are used to
assess and control the financial health of an
organization
Balance sheets
Profit and loss (income) statements
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Types of Financial Controls (cont.)
Financial Ratios - provide an overall check of
performance
Liquidity ratios - an organization’s ability to pay short-term debt
Leverage ratios - the amount of funds available in an organization
from shareholders and creditors
Profitability ratios - indicate the amount of financial return from an
investment
Activity-Based Costing - associates costs with tasks
calculated for:
receiving and processing sales orders
expediting supplies and production
distribution
resolving errors and problems
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Informal and Process-Focused
Control
Emphasizes an implicit sense and common
understanding of how things should be done
Does not rely on explicit guidelines and
standards
Assumes that people have an internal set of
standards that will guide how they perform
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
