Management Case Studies

Leo’s Four-Plex Theater, Wong’s Pharmacy&Private Fitness, Inc.

Subjects Section

1: The Control Function of Management

Chapter 1: Management and Control -Management and control oThe process by which management: Ensures that employees in the organisation carry out the organizational objectives and strategies & Encourages, enables, or, sometimes “forces” employees to act in the organization’s best interest.

• Management control includes all the devices/mechanisms managers use to ensure that the behaviour of employees is consistent with the organization’s objectives and strategies. We want that the daily life leads to the result that we desire
• Purpose/Function: Get done what management wants to get done & Influence behaviour in desirable ways
• Benefit: Increased probability that the organization’s objectives will be achieved  Management and its components:
• Objective setting = Vision
• Strategy formulation = How do we do it (Formulating)
• Management Control = Implementing the plans
• Objective settings:
• Financial vs.

  non financial

• Quantified, explicit vs. implicit
• Economic, social, environmental, societal
• Strategy formulation: An organization must select any of innumerable ways of seeking to attain its objectives
• Strategies define how the organizations should use their ressources to meet their objectives
• Hence, strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors

Management control

Are our employees likely to behave appropriately? (To answer this, 3 under questions)

1. Do our employees understand what we expect of them?
2. Will they work consistently hard and try to do what is expected of them?
3. Are they capable of doing a good job?

Causes of management control problems oManagement control is about encouraging PEOPLE to take desirable actions:

• It guards against the possibilities that employees will do something the organization does not want them to do, or, fail to do something they should do. oHence, Management control has a BEHAVIORIAL ORIENTATION oIf all personnel could always be relied on to do what is best for the organization, there would be no need for a management control system oBasic control issues
• Do they understand what we expect of them? LACK OF DIRECTION)
• LACK OF DIRECTION: oEmployees do not know what the organization wants from them.

  oWhen this lack of direction occurs, the likelihood of the desired behaviours occurring is obviously small oCOMMUNICATION + REINFORCEMENT

• Will they work consistently hard and try to do what is expected of them?
• LACK OF MOTIVATION: oWhen employees “choose” not to perform as their organization would have them perform o

Reasons

• Lack of congruence
• Self-interested behaviour
• E.g. , take long lunches, overspend on things that makes life more pleasant, use of sick leave when not sick…
• More extreme examples of motivational problems
• Are they capable of doing what is expected of them? (
• PERSONAL LIMITATIONS: oSometimes peoples are unable to do a good job because of certain personal limitations they have.

Examples

• Lack of requisite knowledge, training, experience
• Employees are promoted above their level of competence
• Some jobs are not designed properly
• TRAINING; JOB ASSIGNMENT ; JOB DESIGN Characteristics of good management control oManagement controls do not always involve a simple cybernetic system like a thermostat
• Detector -; Measure performance
• Assessor -; Compare with pre-set standard
• Effector -; Take corrective action
• Many controls do not focus on measured performance oE. g.

  , Direct supervision, employee hiring standards, codes of conduct

• Many controls are proactive rather than reactive oI. e. , They are designed to prevent control problems before the organization suffers any adverse effects on performance
• Proactive: Trying to direct the company by being ahead Reactive: Looking at what happened and then going back to fix it
• The controls together create the control system -Control problem avoidance

Management control systems

• Action Controls
• Results Control
• Personnel Control

Control problem avoidance

• Activity elimination
• E. g. , subcontracts, licensing agreements, divestment
• Automation
• Computers/Robots eliminate the human problems of inaccuracy, inconsistency and lack of motivation
• Only applicable to relatively easy decision situations
• Automation can be very costly
• Centralization
• Superiors reserve for themselves the most critical decisions

Control alternatives Depending on Overview:

Chapter 2: Results Control:

Results controls oInvolves rewarding individuals for generating good results

• Results accountability oIt influences ACTIONS because it causes employees to be concerned about the consequences of the actions they take
• However, employees’ actions are NOT CONSTRAINED
• On the contrary, employees are EMPOWERED to take whatever actions they believe will best produce the desired results
• When giving these results – the individuals have different targets to reach

Elements Defining the performance dimensions:

• WHAT YOU MEASURE IS WHAT YOU GET
• If not congruent with the organization’s objectives, the controls will actually encourage employees to do wrong things!

Measuring performance on these dimensions:

Objective:

• Financial -; Market-based
• Financial -; Accounting-based
• Non-financial
• Subjective -; (e. g.

  , managerial characteristics (“Being a team player”)

Setting performance targets

• Motivational effects
• Providing rewards
• Monetary or non-monetary oIf the measures are not concurred with the strategy the direction of the company will be wrong -Conditions

Results control works best only when ALL of the following three conditions are present

• Superiors/managers must know what results are desired in the areas being controlled
• The individuals whose behaviours are being controlled must have significant influence on the results in the desired performance dimensions
• Superiors/managers must be able to measure the results effectively

Ability to influence resultsThe person whose behaviours are controlled must be able to affect the results in a material way in a given time span

• Controllability principle
• Results controls are useful only to the extent that they provide information about the desirability of the actions that were taken
• If the results are totally uncontrollable, the controls tell us nothing about actions that were taken
• Good actions will necessarily produce good results •Bad actions may similarly be obscured

Ability to measure results effectively The effectiveness of results measures must be judged by their:

• Ability to evoke the desired behaviours Results measures should be:
• Precise
• Objective
• Timely
• Understandable

Pros and cons of results contro

Summary Leo’s Four

Plex Theater Leo Antonelli bought the theatre a year ago and has hired his nephew, Bill Reilly to manage it. Because the theatre wasn’t profitable, Leo has hired Park Cockerill, an accounting professor to study the situation. Park found 4 main control problems at the theatre.

Q;A Leo’s Four

Plex Theater Problem Solution Less cash than tickets sold. Group reward + Intraorganizational transfer Not cash for all refreshments sold.

Group reward+ Intraorganizational transferTickets of wrong color/date in the stub boxes. Group reward+ Intraorganizational transfer Manager gives away too much free entrance tickets. Proper tone at the top Friends to ticket collectors go in for free. Codes of conduct

Problems

• Cash problems
• Stealing – giving away
• Free theather tickets – the check point What are the control system lacking
• Good on the day sold ticket – if they cannot prove the cashier wrong as they don’t know who it is – they need to implement a number for each cashier which will be stated on the ticket
• Lack of control and discipline – mix. Solution Dismissal Billy – warning
• Code of conduct – enforced
• Make cashier numbers on the tickets so you can track down the indiscipline

1.

Control systems at different levels

• Management i. Bill – motivation – or dismissal
• On the floor staff i. Action control

Cashier problem

• Motivation – tickets
• Employee number – to keep track of the individuals record Giving away free tickets – the nephew
• Dismissal
• Result controls
• Change the rules for free passes Cashiers don’t ring the sales in
• Dismissal
• Cameras
• Code of conduct
• A solutions could be hiring people from another town – so they don’t give xx away to the friends Free let-ins
• Check point – a reader for tickets

Summary Wong’s Pharmacy

Thomas Wong was the owner/manager of Wong’s Pharmacy, a small, single location drugstore. Sales and profits were declining in the last few years, and the problem was getting worse. The performance problems seemed to have begun approximately at the time when a large drugstore chain opened a branch two blocks away.

Q;A Wong’s Pharmacy

What are the problems and what are Thomas Wong’s options? -Would you characterize the Wong Pharmacy problems as control problems?

Problem

• New competitor Options
• Differentiate oniche
• Sell Not a control problem but a strategic one

Summary Private Fitness, Inc.

Rosemary, a former fitness instructor and model, used her entire life savings and a bank loan, to start Private Fitness, Inc. The fitness instructors working in the centre was paid on commission between 20-50% of revenue, depending on the experience and whether the instructor had brought clients to the centre. Rosemary hired her long-time friend, Kate, as manager of the business. Kate’s tasks included marketing, facility up-keep, scheduling of appointments and record keeping.When Rosemary figures out that Kate is stealing money from the business, she realizes that she has two problems:

1. She had to decide what to do with Kate
2. She did not want to step in and assume the managerial role herself, because she had significant family responsibilities to which she wanted to be able to continue to attend.

But how could she ensure that her business received all the revenues to which it was entitled without being on-site at all times herself?

Q&A Private Fitness, Inc

Describe a solution to Rosemary Worth’s control problem that uses: oAction Controls oResults Controls oPersonnel ControlsWhat should Rosemary do?

Solutions

• Result control oGroup commission scheme
• Action control oDismissal oDegrading oDifferent payment systems would prevent problems like this in the future.

Separation of duties

• Hire a supervisor Automate the access recording
• People control oJob design oHire the right people

Action, Personnel, and Cultural Controls

Action Controls

Ensure that employees perform (or do not perform) certain actions known to be beneficial (or harmful) to the organisation

PREVENT/DETECTION

Most action controls are aimed at preventing undesirable behaviours

Effectiveness of action controls

They are usable and effective only when managers:

• Know what actions are desirable
• Difficult in high complex and uncertain task environments
• Have the ability to make sure that the desirable actions occur
• E. g. , Effectiveness of organizational procedures !?

Behavioral constraints

Physical

• Locks, passwords, and limited access oAdministrative
• Restriction of decision-making authority
• Separation of duties

Preaction reviews

Scrutiny of action plans, investment proposals, budgets

• Review and approval

Action accountability

Holding employees accountable for the actions they take oIt requires:

• Defining what actions are acceptable
• Communicating these definitions to employees E. g. , work rules, policies and procedures, codes of conduct
• Observing or otherwise tracking what happens
• Direct observation/supervision
• Periodic tracking
• Evidence of actions taken
• Rewarding good actions, or punishing actions that deviate

Redundancy

Assigning more people to a task than necessary

• E. g.

  , Backup people/computing facilities

Pros and cons of action controls

Personnel/cultural controls

People controls ensure that employees:

• Will control their own behaviours
• Personnel control Self-monitoring
• Will control each others’ behaviours
• Cultural controls
• Mutual monitoring

People controls are part of virtually every management control system and becoming more important in “flatter and leaner organizations with empowered employees”

Personnel controls

Personnel controls build on employees’ natural tendencies to control themselves, because most people:

• Have a conscience that leads them to do what is right
• Find self-satisfaction when they do a good job and see their organization succeed

Labels

• Self-control
• Intrinsic motivation Ethics and morality
• Trust and atmosphere
• Loyalty -Implementing personnel controls

Generally, it is about:

• “Finding the right people, giving them a good work environment and the necessary resources oSelection and placement
• Give employees a greater sense of professionalism
• Create interest in the job by helping employees to understand their job better oJob design and provision of necessary resources
• So that motivated and qualified employees have a high probability of success

Cultural controls

Cultural controls or mutual-monitoring tap into social pressure and group norms and values

Cultural controls are effective because members of a group have EMOTIONAL TIES to one another oCultures a built on shared:

• Traditions
• Norms
• Beliefs
• Ideologies
• Attitudes
• Ways of behaving

Five ways to shape culture

Codes of conduct

• Codes of ethics, corporate credos, mission statements, etc.
• Formal written documents with board statements of corporate values, commitments to stakeholders, and the ways in which top management would like the firm to function
• Fundamental guiding principles of the company Group-based rewards
• E. g. , bonus, profit-sharing, employee ownership of company stock
• CULTURAL CONTROLS rather than RESULTS CONTROLS because the link between individual performance and reward is weak oIntra-organizational transfers
• Improve the socialization of individuals in an organization and inhibit the formation of incompatible goals and perspectives
• Improve identification with the organization a whole as opposed to subunit identification

Physical and social arrangements

• E. g. , office plans, interior decor, dress codes and vocabulary, etc.

  Tone at the top

• Top management statements must be consistent with the culture they are trying to create, and importantly, their behaviours should be consistent with their statements

Start with people controls

People controls

• Must always be relied on to a certain extent
• Have relatively few harmful side-effects
• Involve relatively low out-of-pocket costs oHowever, it is rare that people controls will be sufficient. In most cases, it is necessary to supplement them with
• Action controls
• Results controls

Maybe you just shouldn’t put all your trust in people !?