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MANAGING ORGANIZATIONS

Session 10: Control Systems in Organizations

PGP 2010-12 Section B

Term 1:June-September 2010

Sourav Mukherji Associate Professor of Organization & Strategy

Indian Institute of Management Bangalore, India

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POST MID TERM REVIEW:

RECAPITULATING WHAT WE SET OUT TO DO2

DEPENDENCY ONENVIRONMENT

STRATEGY 

IMPACT OFTECHNOLOGY 

STRUCTURE & PROCESSES

1. Centralization

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CULTUREPOWER POLITICS

SIZE ANDGROWTH

.

3. Specialization4. Coordination5. Control systems6. Learning7. Decision Making8. Change management

Remaining sessions will be focusedon some critical organizationalprocesses and their relationshipswith structure

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CONTROLS ARE FUNDAMENTAL TO ORGANIZATION DESIGN3

Organizations are means to achieve “principal’s” (one or a few individuals) goal throughthe efforts of many “agents” . For agents, the organizational objective might be meansto other objectives, not all of which would be aligned to the organizational objective.

PRINCIPAL

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Organizational control systems try to achieve organizational objectives despitepartial convergence between the goals of the principal and the agents

 AGENT

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CONTROL SYSTEMS OPERATE AT ALL LEVELS IN THE SOCIETY

What are the control systems deployed within the class at IIM

Bangalore ? What are the control systems deployed at the

hostel? How are they different ? Why ?

What are the control systems that are deployed over faculty

members at IIMB?

What are the control systems a mother would deploy if she

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Will the systems change over a period of time ? Why? What are the control systems that society imposes on

individuals? Why are they necessary?

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THERE ARE TWO WAYS TO DEAL WITH THE P-A PROBLEM5

1. Live with the goal divergence andtry to achieve objectives despitegoal-incongruence

PRINCIPAL

2. Increase goal-congruence

PRINCIPAL

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• Direct supervision• Rules and regulations• Financial incentives and penalties

related to rule adherence orperformance targets

• Recruitment, socialization• Inspiration, motivation• Peer pressure, mentoring

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DEVISING CONTROL SYSTEMS FOR A GROWING ORGANIZATION

VFM pharmaceuticals is an entrepreneurial organization that has

seen high growth in the first two years since inception. It has now

decided to get more process oriented and abandon its earlier

generalist structure. The senior management has divided the

organization into three divisions – sales, product development andsupport services (comprising finance and accounting, human

resource management and administration).

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different divisions?Should these systems be uniform or should they be different?

What are the characteristics on which these would depend?

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HighBehaviour 

TASK 

PROGRAMMABILITY

• Process• Hierarchy

Behaviour /

Output

Output control is closeto market based control

Needs little or nogoal congruence

Risky for agents under 

TASK CHARACTERISTICS DETERMINE

APPROPRIATENESS OF CONTROL SYSTEMS

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Low High

Low

Clan Output

OUTPUT MEASURABILITY

• Recruitment

• Socialization

 

or absence of information

Clan or cultural control ismost difficult toimplement but can bethe most effective

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ORGANIZATIONS SEEK BALANCE BETWEEN

EMPOWERMENT AND CONTROL8

Organizationalobjective

Risks to beavoided

Core values

BoundarySystems

Belief System

Culture

control

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Criticalperformancevariable

Strategicuncertainties

DiagnosticControlSystems

InteractiveControlSystems

Output & Process control

Direct supervision

Increasing uncertainty

Source: Control in an Age of Empowerment,R Simons, Harvard Business Review, 1995

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No single measure can provide a clear performance target

Financial Perspective • Cash flow

• Sales growth• Market share• ROE / ROCE

Internal Business •

Innovation & Learning •

How do we look to shareholders ?

What must we excel at ?

EVALUATING ORGANIZATIONS: THE BALANCED SCORECARD

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Customer Perspective • Service levels

• Customer satisfaction• Repeat customers• Reference customers

• Target vs. actual• New product launch• Exploiting opportunity

 

• Improvement onexisting products

• New product sales

How do customers see us ?

Can we continue to

improve & create value?

Source: The Balanced Scorecard: Measures that Drive Performance,R S Kaplan & D P Norton Harvard Business Review, 1992