Management MCO101 – Unit 6 – Executing and Controlling

Information is a name for the content of what is exchanged with the outer world as we adjust to it, and make our adjustment felt upon it. The process of receiving and of using information is the process of our adjusting to the contingencies of the outer environment, and of our living effectively within that environment. The needs and the complexity of modern life make greater demands on this process of information than ever before. . . . To live effectively is to live with adequate information. Thus, communication and control belong to the essence of man’s inner life, even as they belong to his life in society. [Wiener, 1954, pp. 17-18]

We live in an information ‘age’or ‘society’ or a knowledge ‘age’ ‘society’. As such we have what Peter Druker realised in the 1950s and that is; knowledge workers – managers have always been knowledge workers – why? What are the factors that give rise to the public and private nature of knowledge. You know the answer, do you share or keep it to yourself?

Factors that give rise to the public and private nature of knowledge include changing institutional arrangements, organisational conditions, incentive systems, socio-cultural attitudes, cognitive flexibility, and specific types of knowledge. How do those factors shape new understandings of knowledge itself, and hinder or foster knowledge creation, use, and dissemination?

There are different kinds of knowledge that people possess.

Explict
Explicit knowledge is knowledge that has been or can be articulated, codified, and stored in certain media. Explicit (from Latin explicare, “to unfold” and thus also make visible) can mean very specific, clear, or detailed. KNowledge of this sort can be readily transmitted to others. The most common forms of explicit knowledge are manuals, documents and procedures. Knowledge also can be audio-visual. Works of art and product design can be seen as other forms of explicit knowledge where human skills, motives and knowledge are externalized. It is associated with conscious, analytical and rationale thinking processes.

Tacit
By definition, tacit knowledge is knowledge that people carry in their minds and is, therefore, difficult to access. Often, people are not aware of the knowledge they possess or how it can be valuable to others. Tacit knowledge is considered more valuable because it provides context for people, places, ideas, and experiences. Effective transfer of tacit knowledge generally requires extensive personal contact and trust. The concept of tacit knowing comes from scientist and philosopher Michael Polanyi. One of Polanyi’s famous aphorisms is: “We know more than we can tell.” Tacit knowledge consists often of habits and culture that we do not recognize in ourselves.

Some methods of generating knowledge, such as empirical methods such as experimentation and othertrial and error approaches, or learning from experience and tinkering tend to create highly situational knowledge. Knowledge generated through experience is called knowledge “a posteriori”, meaning afterwards. The pure existence of a term like “a posteriori” means this also has a counterpart. In this case that is knowledge “a priori“, meaning before. The knowledge prior to any experience means that there are certain “assumptions” that one takes for granted.

Common-sense and Heuristics

Is ‘common sense’ common to all? Do we ever actually sense things or work out things or even see things in precisely the same way? A convention is a set of agreed, stipulated or generally accepted standards, norms, social norms, or criteria, often taking the form of a custom. Certain types of rules or customs may become law and regulatory legislation may be introduced to formalise or enforce the convention (e.g. laws which determine which side of the road vehicles must be driven). In a social context, a convention may retain the character of an “unwritten” law of custom (e.g. the manner in which people greet each other, such as by shaking each other’s hands).

Heuristics are “rules of thumb“, educated guesses, intuitive judgments or simply common sense. In more precise terms, heuristics stand for strategies using readily accessible, though loosely applicable, information to control problem-solving in human beings and machines

DIKW model of information heirarchy

DIKW model of information heirarchy

DIKW is the proposed structuring of data, information, knowledge and wisdom in an information hierarchy where each layer adds certain attributes over and above the previous one – for instance Data is the most basic level; Information adds context; Knowledge adds how to use it; and Wisdom adds when to use it.

As such, DIKW is a model that can be useful to understanding analysis and the importance and limits of conceptual works. The term DIKW is applied in the fields of information science and knowledge management. The DIKW model assumes the following chain of action:

Data has commonly been seen as simple facts that can be structured to become information. Information, in turn, becomes knowledge when it is interpreted, put into context, or when meaning is added to it. There are several variations of this widely adopted theme. The common idea is that data is something less than information, and information is less than knowledge. Moreover, it is assumed that we first need to have data before information can be created, and only when we have information, can knowledge emerge.

Data are assumed to be simple isolated facts. When such facts are put into a context and combined within a structure, information emerges. When information is given meaning by interpreting it, information becomes knowledge. At this point, facts exist within a mental structure that consciousness can process; for example, to predict future consequences, or to make inferences. As the human mind uses this knowledge to choose between alternatives, behavior becomes intelligent. Finally, when values and commitment guide intelligent behavior, behavior may be said to be based on wisdom.

References:
Ackoff, Russell L. (1989). “From Data to Wisdom”. Journal of Applied Systems Analysis 16: 3–9.

Control

Do human beings have ‘free will‘ – that is the ability to choose as they see fit, move as they see fit, and think as they see fit? OIr are there always limits and controls? Or are they merely predetermined choices of what we can do, think and choose? ‘Free Will’ has two relatively distinct properties. The first is the idea that what one does is in some sense “free”, that is “not determined by something else”. The second is the idea that one can oneself control what one does. How much control can you exert over your staff and facilities and to what extent do you let them self-manage? In contrast to giving general instructions on smaller tasks while supervising larger concerns, the micromanager monitors and assesses every step, and avoids delegation of decisions.

Determinism is the philosophical doctrine that every event, act, and decision is the inevitable consequence of antecedents – any thing that precedes another thing, especially the cause of the second thing – such as physical, psychological, or environmental conditions, that are independent of human will.
The truth is that we can have control within limitations, and we can have freedom within limitations. However, some things, objects, devices, choices even are determined more by economics, than technology, socially more than psychological, environmentalmore than cultural, biological and so on. All preference one position to suggest the predominant influence on a given situation.

Determinism has been expressed in the Buddhist doctrine of Dependent Origination, which states that every phenomenon is conditioned by, and depends on, the phenomena that it is not. A common teaching story, called Indra’s Net, illustrates this point using a metaphor. A vast auditorium is decorated with mirrors and/or prisms hanging on strings of different lengths from an immense number of points on the ceiling. One flash of light is sufficient to light the entire display since light bounces and bends from hanging bauble to hanging bauble. Each bauble lights each and every other bauble. So, too, each of us is “lit” by each and every other entity in the Universe. In Buddhism, this teaching is used to demonstrate that to ascribe special value to any one thing is to ignore the interdependence of all things. Volitions of all sentient creatures determine the seeming reality in which we perceive ourself as living, rather than a mechanical universe determining the volitions which humans imagine themselves to be forming.

In the story of the Indra’s Net, the light that streams back and forth throughout the display is the analogy of karma. (Note that in popular Western usage, the word “karma” often refers to the concept of past good or bad actions resulting in like consequences.) In the Eastern context “Karma” refers to an action, or, more specifically, to an intentional action, and the Buddhist theory holds that every karma (every intentional action) will bear karmic fruit (produce an effect somewhere down the line). Volitional acts drive the universe. The consequences of this view often confound our ordinary expectations.

A shifting flow of probabilities for futures lies at the heart of theories associated with the Yi Jing (or I Ching, the Book of Changes). Probabilities take the center of the stage away from things and people. A kind of “divine” volition sets the fundamental rules for the working out of probabilities in the universe, and human volitions are always a factor in the ways that humans can deal with the real world situations one encounters. If one’s situation in life is surfing on a tsunami, one still has some range of choices even in that situation. One person might give up, and another person might choose to struggle and perhaps to survive. The Yi Jing mentality is much closer to the mentality of quantum physics than to that of classical physics, and also finds parallelism in voluntarist or Existentialist ideas of taking one’s life as one’s project.

A white paper on micromanagement can be found here.

Control is one of the managerial functions already discussed as part of Henri Fayol’s four basic management functions (the others are planning, organizing, staffing and directing). It is an important function because it helps to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in desired manner. Planning and control are often referred to as Siamese twins of management.

Management control is a systematic effort to set performance standards with planning objectives, to design information feedback systems, to compare actual performance with these predetermined standards, to determine whether there are any deviations and to measure their significance, and to take any action required to assure that all corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives.

Controlling is directly related to planning.

The controlling process ensures that plans are being implemented properly – that is it moves from the design and planning phase to the building and construction phase. In the functions of management cycle – planning, organizing, directing, and controlling – planning moves forward into all the other functions, and controlling reaches back. Controlling is the final link in the functional chain of management activities and brings the functions of management cycle full circle. How is this design which has been built working? What needs changed or altered to improve the design? In which way is it strong and weak?

monitoring-and-controling

monitoring-and-controling


Planning, as we have seen in the previous sessions can make rigid steps, goals and objectives. And where expectations are not met, achieved or realised, then a sense of being lost or a sense of failure may appear. However, planning, as an exercise in combating exigency, that is, things that could or may happen and not concordant with achieving our goals and targets, requires close monitoring of internal and external environments for clues on how we can get ‘back on target’.

This is especially true when external conditions can be said to be dynamic and frequently changing or are very complex (i.e. there are many factors to deal with at once).

When we were young many of us learned to play with a ball. While it seems a simple act, following the path and trajectory of a moving ball, responding to a ball kicked along the ground or thrown in the air is a very complex task that demands a lot of hand-eye coordination. This controlling of a our various muscles, is done by mental abilities some of which are conscious – i.e. attending to the ball opposed to other possible stimuli, and others unconscious, that is we do not have to think it through in any rational way. The reaction becomes instinctive and a reflex. The monitoring, feedback and reaction link together in a causal way to achieve the goal of catching the ball.

Cybernetics is the interdisciplinary study of the structure of complex systems, especially communication processes, control mechanisms and feedback principles. The term cybernetics stems from the Greek Κυβερνήτης (kybernētēs, steersman, governor, pilot, or rudder — the same root as government). Cybernetics is a broad field of study, but the essential goal of cybernetics is to understand and define the functions and processes of systems that have goals, and that participate in circular, causal chains that move from action to sensing to comparison with desired goal to action. Cybernetics is closely related to control theory and systems theory.

complex adaptaive systems

complex adaptaive systems

It is useful to consider the person, the team, the company or even the entire economy or country as a system with inputs and outputs. We do this often in management theories, many of our block diagrams treat people, companies and even regions – their structures and processes – as systemic phenomena.

Feedback control is the basic mechanism by which systems, whether mechanical, electrical, or biological, or psychologcial, emotional or economic to maintain a balance in their qualities or quantities, their equilibrium (note: remember punctuated equilibrium?) or homeostasis.

In the higher life forms, the conditions under which life can continue are quite narrow. A change in body temperature of half a degree is generally a sign of illness. The homeostasis of the body is maintained through the use of feedback control [Wiener 1948].

A primary contribution of Charles Darwin during the last century was the theory that feedback over long time periods is responsible for the evolution of species. In 1931 Volterra explained the balance between two populations of fish in a closed pond using the theory of feedback.

Management can implement controls before an activity commences (feed-forward), while the activity is going on (concurrent), or after (feedback) the activity has been completed.

Feed-forward is a term describing a kind of system which reacts to changes in its environment, usually to maintain some desired state of the system. A system which exhibits feed-forward behavior responds to a measured disturbance in a pre-defined way — in contrast with a feedback system. Feedforward control focuses on the regulation of inputs (human, material, and financial resources that flow into the organization) to ensure that they meet the standards necessary for the transformation process.

Feedforward controls are desirable because they allow management to prevent problems rather than having to cure them later. Unfortunately, these control require timely and accurate information that is often difficult to develop. Feedforward control also is sometimes called preliminary control, precontrol, preventive control, or steering control.

However, some authors use term “steering control” as separate types of control. This types of controls are designed to detect deviation some standard or goal to allow correction to be made before a particular sequence of actions is completed.

Concurrent control
is where several systems – separated in some way – are controlled at the same time. Concurrent control takes place while an activity is in progress. It involves the regulation of ongoing activities that are part of transformation process to ensure that they conform to organizational standards. Concurrent control is designed to ensure that employee work activities produce the correct results.

Since concurrent control involves regulating ongoing tasks, it requires a through understanding of the specific tasks involved and their relationship to the desired and product.

Concurrent control sometimes is called screening or yes-no control, because it often involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on products or services.

Control methods

Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms to influence employee behavior and assess performance. Bureaucratic control can be used when behavior can be controlled with market or price mechanisms.

Control is the process through which standards for performance of people and processes are set, communicated, and applied. Effective control systems use mechanisms to monitor activities and take corrective action, if necessary. The supervisor observes what happens and compares that with what was supposed to happen. He or she must correct below-standard conditions and bring results up to expectations. Effective control systems allow supervisors to know how well implementation is going. Control facilitates delegating activities to employees. Since supervisors are ultimately held accountable for their employees’ performance, timely feedback on employee activity is necessary.

Control Process

The control process is a continuous flow between measuring, comparing and action. There are four steps in the control process: establishing performance standards, measuring actual performance, comparing measured performance against established standards, and taking corrective action.

Step 1. Establish Performance Standards.
Standards are created when objectives are set during the planning process. A standard is any guideline established as the basis for measurement. It is a precise, explicit statement of expected results from a product, service, machine, individual, or organizational unit. It is usually expressed numerically and is set for quality, quantity, and time. Tolerance is permissible deviation from the standard. What is expected? How much deviation can be tolerated?

· Time controls relate to deadlines and time constraints. Material controls relate to inventory and material-yield controls. Equipment controls are built into the machinery, imposed on the operator to protect the equipment or the process. Cost controls help ensure cost standards are met. Employee performance controls focus on actions and behaviors of individuals and groups of employees. Examples include absences, tardiness, accidents, quality and quantity of work. Budgets control cost or expense related standards. They identify quantity of materials used and units to be produced.

· Financial controls facilitate achieving the organization’s profit motive. One method of financial controls is budgets. Budgets allocate resources to important activities and provide supervisors with quantitative standards against which to compare resource consumption. They become control tools by pointing out deviations between the standard and actual consumption.

· Operations control methods assess how efficiently and effectively an organization’s transformation processes create goods and services. Methods of transformation controls include Total Quality Management (TQM) statistical process control and the inventory management control. Statistical process control is the use of statistical methods and procedures to determine whether production operations are being performed correctly, to detect any deviations, and to find and eliminate their causes. A control chart displays the results of measurements over time and provides a visual means of determining whether a specific process is staying within predefined limits. As long as the process variables fall within the acceptable range, the system is in control. Measurements outside the limits are unacceptable or out of control. Improvements in quality eliminate common causes of variation by adjusting the system or redesigning the system.

· Inventory is a large cost for many organizations. The appropriate amount to order and how often to order impact the firm’s bottom line. The economic order quantity model (EOQ) is a mathematical model for deriving the optimal purchase quantity. The EOQ model seeks to minimize total carrying and ordering costs by balancing purchase costs, ordering costs, carrying costs and stockout costs. In order to compute the economic order quantity, the supervisor needs the following information: forecasted demand during a period, cost of placing the order, that value of the purchase price, and the carrying cost for maintaining the total inventory.

· The just-in-time (JIT) system is the delivery of finished goods just in time to be sold, subassemblies just in time to be assembled into finished goods, parts just in time to go into subassemblies, and purchased materials just in time to be transformed into parts. Communication, coordination, and cooperation are required from supervisors and employees to deliver the smallest possible quantities at the latest possible date at all stages of the transformation process in order to minimize inventory costs.

Step 2. Measure Actual Performance. Supervisors collect data to measure actual performance to determine variation from standard. Written data might include time cards, production tallies, inspection reports, and sales tickets. Personal observation, statistical reports, oral reports and written reports can be used to measure performance. Management by walking around, or observation of employees working, provides unfiltered information, extensive coverage, and the ability to read between the lines. While providing insight, this method might be misinterpreted by employees as mistrust. Oral reports allow for fast and extensive feedback.

Computers give supervisors direct access to real time, unaltered data, and information. On line systems enable supervisors to identify problems as they occur. Database programs allow supervisors to query, spend less time gathering facts, and be less dependent on other people. Supervisors have access to information at their fingertips. Employees can supply progress reports through the use of networks and electronic mail. Statistical reports are easy to visualize and effective at demonstrating relationships. Written reports provide comprehensive feedback that can be easily filed and referenced. Computers are important tools for measuring performance. In fact, many operating processes depend on automatic or computer-driven control systems. Impersonal measurements can count, time, and record employee performance.

Step 3. Compare Measured Performance Against Established Standards.
Comparing results with standards determines variation. Some variation can be expected in all activities and the range of variation – the acceptable variance – has to be established. Management by exception lets operations continue as long as they fall within the prescribed control limits. Deviations or differences that exceed this range would alert the supervisor to a problem.

Step 4. Take Corrective Action.
The supervisor must find the cause of deviation from standard. Then, he or she takes action to remove or minimize the cause. If the source of variation in work performance is from a deficit in activity, then a supervisor can take immediate corrective action and get performance back on track. Also, the supervisors can opt to take basic corrective action, which would determine how and why performance has deviated and correct the source of the deviation. Immediate corrective action is more efficient, however basic corrective action is the more effective.

An example of the control process is a thermostat.

therm.gif (15761 bytes)

Standard:
The room thermostat is set at 68 degrees.
Measurement: The temperature is measured.
Corrective Action: If the room is too cold, the heat comes on. If the room is too hot, the heat goes off.

Types of Control

Controls are most effective when they are applied at key places. Supervisors can implement controls before the process begins (feedforward), during the process (concurrent), or after it ceases (feedback).

Feedforward controls focus on operations before they begin. Their goal is to prevent anticipated problems. An example of feedforward control is scheduled maintenance on automobiles and machinery. Regular maintenance feeds forward to prevent problems. Other examples include safety systems, training programs, and budgets.

Concurrent controls apply to processes as they are happening. Concurrent controls enacted while work is being performed include any type of steering or guiding mechanism such as direct supervision, automated systems (such as computers programmed to inform the user when they have issued the wrong command), and organizational quality programs.

Feedback controls focus on the results of operations. They guide future planning, inputs, and process designs. Examples of feedback controls include timely (weekly, monthly, quarterly, annual) reports so that almost instantaneous adjustments can be made.

Characteristics of Effective Controls

Control systems must be designed properly to be effective. When control standards are inflexible or unrealistic, employees cannot focus on the organization’s goals. Control systems must prevent, not cause, the problems they were designed to detect.

Performance variance can also be the result of an unrealistic standard. The natural response for employees whose performance falls short is to blame the standard or the supervisor. If the standard is appropriate, then it is up to the supervisor to stand his or her ground and take the necessary corrective action.

An example of effective controls is the dashboard on a car. There are many things that can go wrong with a car. Only the most critical items to the car’s operation are the focus on the dashboard (oil level, engine heat, fuel gauge, etc.). Variations in these items are most likely to inflict the most damage to the car. The critical items on the dashboard are easily understood and used by drivers. They point out a problem and specify a solution. They are accurate and timely. They call the driver’s attention to variations in time to prevent serious damage. Yet, there is not so much information on the dashboard that the driver is overwhelmed.

Questions
Carrying costs include the money tied up in inventory, storage, insurance, taxes etc.

Concurrent controls apply to processes as they are happening.

Control is the process through which standards for performance of people and processes are set, communicated, and applied.

Feedback controls focus on the results of operations.

Feedforward controls focus on operations before they begin.

Management by exception lets operations continue as long as they fall within the prescribed control limits.

Management by walking around is observing employees working.

Ordering costs include the paperwork, follow up, inspection upon arrival, and other processing costs.

Purchase costs are the purchase price plus delivery charges minus discounts.

A standard is any guideline established as the basis for measurement.

Stockout costs are loss of income from the product not being available, the cost of reestablishing goodwill, and additional expenses incurred to expedite shipping.

Tolerance is permissible deviation from the standard.

Types of control
Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms to influence employee behavior and assess performance. Bureaucratic control can be used when behavior can be controlled with market or price mechanisms.

Normative control can be described as a system of control that “works internally by engendering people with subjective attributes and dispositions, which are compatible with the maintenance of certain types of work organisation” (Fleming & Stablein, 1999:3). Since the early period of capitalist mode of production, corporate managers have been searching for effective techniques to control their workplace activities. Over the past two centuries, corporate control strategy had been changing according to economic conditions, technology, culture, and business nature.

Concertive Control

Participative, decentralized, more democratic systems have become popular. People will work via cultural norms rather than bureaucratic rules. Workers develop the means for their own control.

They are generally are groups of 10-15 workers who take on the responsibilities of their former supervisors. They are cross-trained to perform each others tasks. They set their own work s

The authors ethnographic study was a company of 150 people making telecommunications equipment and circuit boards. After some struggling the CEO decided to move to a self-managing team concept. With one test group a success, he initiated it with the whole company.

A self-managing team or autonomous work group is allocated an overall task and given discretion over how the work is done. It provides for intrinsic motivation by giving people autonomy and the means to control their work, which will include feedback information.

Self-Directed (or Self-Managing) Teams are teams that have been structured to manage and coordinate their own activities and make many of the day-to-day decisions that would have traditionally been made by a supervisor or manager. They usually have responsibility for a complete piece of work (such as engine assembly) and they work quite closely and interdependently.

Self-control
A self-management team is a permanent group of employees who together are responsible for the total process where products or services are made and delivered to internal or external clients.

What is it you will control?

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

Forces managers to set goals and measure performance in each of the four areas. Minimises the chances of sub-optimisation – performance improves in one area, but at the expense of others

Balanced Score Card Elements (BSC institute - click photo to enter site)

Balanced Score Card Elements (BSC institute - click photo to enter site)

Financial Perspective

Cash flow analysis – Predicts how changes in a business will affect its ability to take in more cash than it pays out

Balance sheets – Provide a snapshot of a company’s financial position at a particular time

Income statements – Show what has happened to an organization’s income, expenses, and net profit over a period of time

Financial ratios – Used to track liquidity, efficiency, and profitability over time compared to other businesses in its industry

Financial and management accounts: the basics

Analytical accounting tools

Analysing financial accounts enables you to compare the company’s performance against previous years and with its competitors.

Ratios enable you to quickly see the relative value of one thing against another, eg two items on the balance sheet.

Ratio analysis can also be applied to non-financial data. For ease of reference, ratios are often split into the following areas of common control.

Liquidity ratios These ratios are used to measure solvency and short-term survival prospects.
Capital structure ratios These ratios measure the adequacy of owners’ funding in relation to long-term debt.
Activity and efficiency ratios These ratios measure the operating efficiency of the business in non-financial terms.
Profitability ratios These ratios measure overall profitability and how well the business is using its assets and covering overhead costs.

Read a guide to key accounting ratios from the Lloyds TSB website – Opens in a new window. See our guide on balance sheets: the basics.

From a commercial standpoint, Economic Value Added (EVA™) is the most successful performance metric used by companies and their consultants. Although much of its popularity is a result of able marketing and deployment by Stern Stewart, owner of the trademark, the metric is justified by financial theory and consistent with valuation principles, which are important to any investor’s analysis of a company.

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