Introduction to Organizational Control

1. The Meaning of Control

It seemed like a perfect  fit. In the chaotic aftermath of 2005’s Hurricane Katrina, the Ameri- can Red Cross needed private-sector help to respond to the hundreds of thousands of people seeking emergency aid. Spherion Corp., a staffing company  based in Fort Lauderdale, Florida, had the expertise to hire and train temporary workers fast, and the company had a good track record working with the Red Cross. Yet Red Cross officials soon noticed that an unusually large number  of Katrina victim money orders, authorized  by employees at the Spherion-staffed  call center, were being cashed near the call center itself—in Bakersfield, California. A federal investigation  found that some call-center  employees were issuing money orders to fake hurricane victims and cashing them for themselves. Fortunately,  the fraud was discovered quickly, but the weak control  systems that allowed the scam to occur got both the Red Cross and Spherion into a public relations and political  mess.1

A lack of effective control can seriously damage an organization’s health, hurt its reputa- tion, and threaten its future. Consider Enron, which was held up as a model  of modern management in the late 1990s but came crashing down a couple of years later.2 Numerous factors contributed to Enron’s shocking collapse, including  unethical managers and an ar- rogant, free-wheeling culture. But it ultimately  comes down to a lack of control. No one was keeping track to make sure managers stayed within acceptable ethical and financial boundaries. Although former chairman and CEO Kenneth Lay claimed he didn’t know the financial  shenanigans were going on at the company, a Houston  jury disagreed and found him guilty, along with former CEO Jeffrey Skilling, of conspiracy and fraud.3  Some still believe that Lay—who  died of a heart attack less than six weeks after the verdict—was telling the truth. However, at a  minimum, he and other top leaders neglected  their responsibilities by failing to set up and maintain  adequate controls on the giant corpora-tion. Since Enron, numerous organizations have established more clear-cut standards for ethical conduct and more stringent  control  systems regarding financial  activities.

Organizational control refers to the systematic process of regulating organizational activities to make them consistent with the expectations established in plans, targets, and standards of performance. In a classic article on the control function, Douglas S. Sherwin summarizes  the concept  as follows: “The essence of control is action which adjusts opera- tions to predetermined standards, and its basis is information in the hands of managers.”4

Thus, effectively controlling an organization  requires information about performance standards and actual performance,  as well as actions taken to correct any deviations from the standards.

To effectively control an organization, managers need to decide what information is es- sential, how they will obtain that information (and share it with employees), and how they can and should respond to it. Having  the correct data is essential. Managers decide which standards, measurements, and metrics are needed to effectively monitor and control the organization  and set up systems for obtaining that information. For example, an important metric for a pro football or basketball team might be the number of season tickets,  which reduces the organization’s dependence on more labor-intensive  box-office  sales.5

2. Organizational Control Focus

Control can focus on events before, during,  or after a process. For example, a local automo- bile dealer can focus on activities before, during, or after  sales of new cars. Careful inspec- tion of new cars and cautious selection of sales employees are ways to ensure high quality or profitable sales even before  those sales take place. Monitoring how salespeople act with customers is considered control during the sales task. Counting the number of new cars sold during the month  or telephoning  buyers about their satisfaction with sales transactions constitutes control after sales have occurred. These three types of control  are formally called feedforward, concurrent, and feedback, and are illustrated  in Exhibit 15.1.

2.1. FEEDFORWARD   CONTROL

Control that attempts to identify and prevent  deviations  before  they occur is called feedforward control. Sometimes called preliminary or preventive control, it focuses on human,  material,  and financial  resources that flow into the organization. Its purpose is to ensure that input quality is high enough to prevent problems when the organization per- forms its tasks. Tamara Mellon understands the importance of saying “no” at the right times, to avoid wasting  company  resources, as shown  next.

Feedforward controls are evident in the selection and hiring of new employees. Organi- zations attempt to improve the likelihood that employees will perform up to standards by identifying the necessary skills,  using tests and other  screening devices to hire people who have those skills, and providing  necessary training to upgrade important  skills. The prob- lems at Spherion and the Red Cross, referred to earlier, resulted primarily from weak feed- forward  controls.  Severe time pressure and a sincere desire to get aid to the storm victims as quickly  as possible caused Spherion  to put new people in the call center before it com- pleted all of its usual background checks and other tests. Numerous nursing homes and as- sisted living centers have come under fire in recent years due to lax feedforward controls, such as failing to ensure that workers have the appropriate skills or providing them with the training  needed to adequately care for residents. Brookside Gables, an assisted living center in the Panhandle region of Florida, eventually closed after a resident  died because caregiv- ers didn’t have basic skills in first aid and emergency procedures.6

Another type of feedforward  control is forecasting  trends in the environment  and managing  risk. In  tough economic  times, for example,  consulting  companies  such as A. T. Kearney stay in close touch with clients to monitor how much business and money will be coming in. The fashion company Liz Claiborne  gathers information about consumer fads to determine what supplies to purchase and inventory  to stock. Banks typically require extensive documentation  before approving major loans to identify  and manage risks.7

2.2. CONCURRENT   CONTROL

Control that monitors ongoing employee activities to ensure they are consistent with per- formance standards is called concurrent control. Concurrent  control assesses current work activities,  relies on performance  standards, and includes rules and regulations for guiding  employee tasks and behaviors.

Many manufacturing operations include devices that measure whether  the items being produced meet quality standards. Employees monitor the measurements; if they  see that standards are not met in some area, they make a correction  themselves or signal the appro- priate person that a problem  is occurring.  Technology  advancements are adding to the possibilities for concurrent control in services  as well. For example, retail stores such as Beall’s, Sunglass Hut, and Saks use cash-register-management  software to monitor ca- shiers’ activities in real time and help prevent employee theft. Trucking companies  such as Schneider National  and Covenant  use computers to track the position of their trucks and monitor  the status of deliveries.8  This chapter’s Spotlight  feature describes the widespread practice of monitoring employees’ e-mail  and Web use as a means of concurrent control.

Other  concurrent  controls involve the ways in which organizations influence employees. An organization’s  cultural  norms and values influence  employee behavior, as do the norms of an employee’s  peers or work group. Concurrent control also includes self-control, through which individuals impose concurrent controls on their own behavior  because of personal values and attitudes. Use of both feedforward and concurrent methods is used by Tokyopop, as shown  next.

2.3. FEEDBACK   CONTROL

Sometimes  called postaction or output control, feedback control focuses on the organiza- tion’s outputs—in particular, the quality of an end product or service. An example of feed- back control in a manufacturing department is an intensive final inspection of a refrigerator at an assembly plant. In Kentucky, school administrators conduct feedback control by eval- uating each school’s performance  every other year.

They review reports of students’  test scores as well as the school’s dropout and atten- dance rates. The state rewards schools with rising  scores and brings  in consultants to work with schools whose scores have fallen.9  Performance evaluation is also a type of feedback control.  Managers evaluate employees’ work output  to see whether people are meeting pre- viously established standards of performance.

Besides producing high-quality  products and services and meeting  other goals, busi- nesses need to earn a profit, and even nonprofit organizations need to operate efficiently  to carry out their missions. Therefore,  many feedback controls focus on financial measure- ments. Budgeting, for example, is a form of feedback control  because managers monitor whether they have operated within their budget targets and make adjustments accordingly. Most organizations  also have outside audits of their financial records. The U.S. govern- ment set up a special office to investigate the reconstruction effort in Iraq, which includes auditing  how funds are being spent.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.