Organisational control techniques

Financial controls
After the organization has strategies in place to reach its goals, funds are set aside for the necessary resources and labor. As money is spent, statements are updated to reflect how much was spent, how it was spent, and what it obtained. Managers use these financial statements, such as an income statement or balance sheet, to monitor the progress of programs and plans. Financial statements provide management with information to monitor financial resources and activities. The income statement shows the results of the organization's operations over a period of time, such as revenues, expenses, and profit or loss. The balance sheet shows what the organization is worth (assets) at a single point in time, and the extent to which those assets were financed through debt (liabilities) or owner's investment (equity).
Financial audits, or formal investigations, are regularly conducted to ensure that financial management practices follow generally accepted procedures, policies, laws, and ethical guidelines. Audits may be conducted internally or externally. Financial ratio analysis examines the relationship between specific figures on the financial statements and helps explain the significance of those figures:
• Liquidity ratios measure an organization's ability to generate cash.
• Profitability ratios measure an organization's ability to generate profits.
• Debt ratios measure an organization's ability to pay its debts.
• Activity ratios measure an organization's efficiency in operations and use of assets.
In addition, financial responsibility centers require managers to account for a unit's progress toward financial goals within the scope of their influences. A manager's goals and responsibilities may focus on unit profits, costs, revenues, or investments.
Budget controls
A budget depicts how much an organization expects to spend (expenses) and earn (revenues) over a time period. Amounts are categorized according to the type of business activity or account, such as telephone costs or sales of catalogs. Budgets not only help managers plan their finances, but also help them keep track of their overall spending.
A budget, in reality, is both a planning tool and a control mechanism. Budget development processes vary among organizations according to who does the budgeting and how the financial resources are allocated. Some budget development methods are as follows:
• Top-down budgeting. Managers prepare the budget and send it to subordinates.
• Bottom-up budgeting. Figures come from the lower levels and are adjusted and coordinated as they move up the hierarchy.
• Zero-based budgeting. Managers develop each new budget by justifying the projected allocation against its contribution to departmental or organizational goals.
• Flexible budgeting. Any budget exercise can incorporate flexible budgets, which set “meet or beat” standards that can be compared to expenditures.
Marketing controls
Marketing controls help monitor progress toward goals for customer satisfaction with products and services, prices, and delivery. The following are examples of controls used to evaluate an organization's marketing functions:
• Market research gathers data to assess customer needs—information critical to an organization's success. Ongoing market research reflects how well an organization is meeting customers' expectations and helps anticipate customer needs. It also helps identify competitors.
• Test marketing is small-scale product marketing to assess customer acceptance. Using surveys and focus groups, test marketing goes beyond identifying general requirements and looks at what (or who) actually influences buying decisions.
• Marketing statistics measure performance by compiling data and analyzing results. In most cases, competency with a computer spreadsheet program is all a manager needs. Managers look at marketing ratios, which measure profitability, activity, and market shares, as well as sales quotas, which measure progress toward sales goals and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization's marketing program is easier to recommend than to execute. Usually, only a crisis, such as increased competition or a sales drop, forces a company to take a closer look at its marketing program. However, more regular evaluations help minimize the number of marketing problems.
Human resource controls
Human resource controls help managers regulate the quality of newly hired personnel, as well as monitor current employees' developments and daily performances.
On a daily basis, managers can go a long way in helping to control workers' behaviors in organizations. They can help direct workers' performances toward goals by making sure that goals are clearly set and understood. Managers can also institute policies and procedures to help guide workers' actions. Finally, they can consider past experiences when developing future strategies, objectives, policies, and procedures.
Common control types include performance appraisals, disciplinary programs, observations, and training and development assessments. Because the quality of a firm's personnel, to a large degree, determines the firm's overall effectiveness, controlling this area is very crucial.
Computers and information controls
Almost all organizations have confidential and sensitive information that they don't want to become general knowledge. Controlling access to computer databases is the key to this area.
Increasingly, computers are being used to collect and store information for control purposes. Many organizations privately monitor each employee's computer usage to measure employee performance, among other things. Some people question the appropriateness of computer monitoring. Managers must carefully weigh the benefits against the costs—both human and financial—before investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as improved productivity and information management, organizations should remember the following limitations of the use of information technology:
• Performance limitations. Although management information systems have the potential to increase overall performance, replacing long-time organizational employees with information systems technology may result in the loss of expert knowledge that these individuals hold. Additionally, computerized information systems are expensive and difficult to develop. After the system has been purchased, coordinating it—possibly with existing equipment—may be more difficult than expected. Consequently, a company may cut corners or install the system carelessly to the detriment of the system's performance and utility. And like other sophisticated electronic equipment, information systems do not work all the time, resulting in costly downtime.
• Behavioral limitations. Information technology allows managers to access more information than ever before. But too much information can overwhelm employees, cause stress, and even slow decision making. Thus, managing the quality and amount of information available to avoid information overload is important.
• Health risks. Potentially serious health-related issues associated with the use of computers and other information technology have been raised in recent years. An example is carpal tunnel syndrome, a painful disorder in the hands and wrists caused by repetitive movements (such as those made on a keyboard).
Regardless of the control processes used, an effective system determines whether employees and various parts of an organization are on target in achieving organizational objectives

Productivity and Quality
After companies determine customer needs, they must concentrate on meeting those needs by yielding high quality products at an efficient rate. Companies can improve quality and productivity by securing the commitments of all three levels of management and employees as follows
• Top-level management: Implement sound management practices, use research and development effectively, adopt modern manufacturing techniques, and improve time management.
• Middle management: Plan and coordinate quality and productivity efforts.
• Low-level management: Work with employees to improve productivity through acceptance of change, commitment to quality, and continually improving all facets of their work.
Productivity is the relationship between a given amount of output and the amount of input needed to produce it. Profitability results when money is left over from sales after costs are paid. The expenditures made to ensure that the product or service meets quality specifications affect the final or overall cost of the products and/or services involved. Efficiency of costs will be an important consideration in all stages of the market system from manufacturing to consumption. Quality affects productivity. Both affect profitability. The drive for any one of the three must not interfere with the drive for the others. Efforts at improvement need to be coordinated and integrated. The real cost of quality is the cost of avoiding nonconformance and failure. Another cost is the cost of not having quality—of losing customers and wasting resources.
As long as companies continually interact with their customers and various partners, and develop learning relationships between all levels of management and employees, the levels of productivity and quality should remain high.

Total Quality Management (TQM)
Total Quality Management (TQM) is a philosophy that says that uniform commitment to quality in all areas of an organization promotes an organizational culture that meets consumers' perceptions of quality
The concept of TQM rests largely on five principles:
1. Produce quality work the first time.
2. Focus on the customer.
3. Have a strategic approach to improvement.
4. Improve continuously.
5. Encourage mutual respect and teamwork.
To be effective in improving quality, TQM must be supported at all levels of a firm, from the highest executive to the lowest-level hourly employee. TQM extends the definition of quality to all functional areas of the organization, including production, marketing, finance, and information systems. The process begins by listening to customers' wants and needs and then delivering goods and services that fulfill these desires. TQM even expands the definition of customer to include any person inside or outside the company to whom an employee passes his or her work. In a restaurant, for example, the cooks' customers are the waiters and waitresses. This notion encourages each member of the organization to stay focused on quality and remain fully aware of his or her contribution to it and responsibility for it.
The TQM philosophy focuses on teamwork, increasing customer satisfaction, and lowering costs. Organizations implement TQM by encouraging managers and employees to collaborate across functions and departments, as well as with customers and suppliers, to identify areas for improvement, no matter how small. Teams of workers are trained and empowered to make decisions that help their organization achieve high standards of quality. Organizations shift responsibility for quality control from specialized departments to all employees. Thus, total quality management means a shift from a bureaucratic to a decentralized approach to control.
An effective TQM program has numerous benefits. Financial benefits include lower costs, higher returns on sales and investment, and the ability to charge higher rather than competitive prices. Other benefits include improved access to global markets, higher customer retention levels, less time required to develop new innovations, and a reputation as a quality firm. Only a small number of companies use TQM because implementing an effective program involves much time, effort, money, and patience. However, firms with the necessary resources may gain major competitive advantages in their industries by implementing TQM.
Major Contributors to TQM
Total quality management is a much broader concept than just controlling the quality of the product itself. Total quality management is the coordination of efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement. TQM is a way of thinking about organizations and how people should relate and work in them. TQM is not merely a technique, but a philosophy anchored in the belief that long-term success depends on a uniform commitment to quality in all sectors of an organization
W. Edwards Deming
The concept of quality started in Japan when the country began to rebuild after World War II. Amidst the bomb rubble, Japan embraced the ideas of W. Edwards Deming, an American whose methods and theories are credited for Japan's postwar recovery. Ironically enough, Deming's ideas were initially scoffed at in the U.S. As a result, TQM took root in Japan 30 years earlier than in the United States. American companies took interest in Deming's ideas only when they began having trouble competing with the Japanese in the 1980s.
Deming's management system was philosophical, based on continuous improvement toward the perfect ideal. He believed that a commitment to quality requires transforming the entire organization. His philosophy is based on a system known as the Fourteen Points. These points express the actions an organization must take in order to achieve TQM:
1. Create constancy of purpose for improvement of product and service. Dr. Deming suggests a radical new definition of a company's role: A better way to make money is to stay in business and provide jobs through innovation, research, constant improvement, and maintenance.
2. Adopt a new philosophy. For the new economic age, companies need to change into “learning organizations.” Furthermore, we need a new belief in which mistakes and negativism are unacceptable.
3. Cease dependence on mass inspection. Eliminate the need for mass inspection by building quality into the product.
4. End awarding business on price. Instead, aim at minimum total cost, and move towards single suppliers.
5. Improve the system of production and service constantly. Improvement is not a one-time effort. Management is obligated to continually look for ways to reduce waste and improve quality.
6. Institute training. Too often, workers learn their jobs from other workers who have never been trained properly.
7. Institute leadership. Leading consists of helping people to do a better job and to learn by objective methods.
8. Drive out fear. Many employees are afraid to ask questions or to take a position—even when they do not understand what their job is or what is right or wrong. The economic losses from fear are appalling. To assure better quality and productivity, it is necessary that people feel secure.
9. Break down barriers between departments. Often, company departments or units compete with each other or have goals that conflict. They do not work as a team; therefore they cannot solve or foresee problems. Even worse, one department's goal may cause trouble for another.
10. Eliminate slogans, exhortations, and numerical targets for the workforce. These never help anybody do a good job. Let workers formulate their own slogans; then they will be committed to the contents.
11. Eliminate numerical quotas or work standards. Quotas take into account only numbers, not quality or methods. They are usually a guarantee of inefficiency and high cost.
12. Remove barriers that prevent workers from taking pride in their workmanship. Too often, misguided supervisors, faulty equipment, and defective materials stand in the way of good performance. These barriers must be removed.
13. Institute a vigorous program of education. Both management and the work force will have to be informed of new knowledge and techniques.
14. Take action to accomplish the transformation. It will require a special top management team with a plan of action to carry out the quality mission. Workers cannot do it on their own, nor can managers. A critical mass of people in the company must understand the Fourteen Points.
Deming emphasized surveying customers, consulting production-line workers to help solve quality problems, and teamwork. His system was readily accepted in Japan, where workers and management were used to uniformity and allegiance to institutions. Japanese companies learned to collect data for the statistical monitoring and measuring of customer satisfaction. The goals of these companies were to produce many of the same consumer goods—better and cheaper—that were produced in the U.S. These Japanese companies succeeded, much to the chagrin of companies in the U.S.
Deming saw businesses as bedrock institutions in a society—much like churches and schools. Companies attain long-term success only if business leaders make their employees' contributions matter. If organizations use their employees' ideas, they will improve efficiency and productivity.
Most of the applications of Deming's ideas occurred in the 1950s and 1960s in Japan. In the United States, the desperation needed for executives to finally try a “radical” plan such as Deming's came from economic rather than wartime defeats. Most notably, in the 1980s, Japanese car manufacturers pushed their market share toward 25 percent, sending fear throughout Detroit. The Ford Motor Co. called on Deming after NBC featured his successes in a documentary, “If Japan Can, Why Can't We?” Deming took Ford's invitation as notice that his home country was finally ready for his program. He continued teaching seminars until his death, at age 93, in 1993.
Deming's system made such an impression that he is known at the Father of TQM.
Following are some other significant quality experts and their works:
• Joseph M. Juran wrote The Quality Control Handbook. Recognized in Japan with the Order of Sacred Treasure. Followers: DuPont, Monsanto, Mobil.
• Armand V. Feigenbaum wrote Total Quality Control. Argued that quality should be company-wide, not confined to the quality control departments.
• Philip B. Crosby wrote Quality Is Free.
• Michael Hammer and James Champy wrote Reengineering the Corporation.
• James Champy wrote Reengineering Management.
• Peter Drucker wrote Post-Capitalist Society.
Although several individuals (mentioned above) contributed to the concept of TQM, the three mostly widely cited “masters” of quality are W. Edwards Deming (1900–1993), Joseph M. Juran, and Philip Crosby. Even though each has promoted the importance of quality emphasis, their ideas and backgrounds are not always consistent.
Joseph Juran
Joseph Juran started out professionally as an engineer in 1924. In 1951, his first Quality Control Handbook was published and led him to international prominence.
The Union of Japanese Scientists and Engineers (JUSE) invited Juran to Japan in the early 1950s. He arrived in 1954 and conducted seminars for top- and middle-level executives. His lectures had a strong managerial flavor and focused on planning, organizational issues, management's responsibility for quality, and the need to set goals and targets for improvement. He emphasized that quality control should be conducted as an integral part of management control.
Intrinsic to Juran's message is the belief that quality does not happen by accident; it must be planned. Juran sees quality planning as part of the quality trilogy of quality planning, quality control, and quality improvement. The key elements in implementing company-wide strategic quality planning are in turn seen as: identifying customers and their needs; establishing optimal quality goals; creating measurements of quality; planning processes capable of meeting quality goals under operating conditions; and producing continuing results in improved market share, premium prices, and a reduction of error rates in the office and factory.
Juran's formula for results is to establish specific goals to be reached, and then to establish plans for reaching those goals; assign clear responsibility for meeting the goals; and base the rewards on results achieved.
Juran believes that the majority of quality problems are the fault of poor management, not poor workmanship, and that long-term training to improve quality should start at the top with senior management.
Philip Crosby
Philip Crosby is another major contributor to the quality movement. In 1979, he left ITT (International Telephone and Telegraph) and wrote his book, Quality is Free, in which he argues that dollars spent on quality and the attention paid to it always return greater benefits than the costs expended on them. Whereas Deming and Juran emphasized the sacrifice required for a quality commitment, Crosby takes a less philosophical and more practical approach, asserting instead that high quality is relatively easy and inexpensive in the long run.
Crosby is the only American quality expert without a doctorate. He is responsible for the zero defects program, which emphasizes “doing it right the first time,” (DIRFT) with 100 percent acceptable output. Unlike Deming and Juran, Crosby argues that quality is always cost effective. Like Deming and Juran, Crosby does not place the blame on workers, but on management.
Crosby also developed a 14-point program, which is again more practical than philosophical. It provides managers with actual concepts that can help them manage productivity and quality. His program is built around four Absolutes of Quality Management:
1. Quality must be viewed as conformance to specifications. If a product meets design specifications, then it is a high-quality product.
2. Quality should be achieved through the prevention of defects rather than inspection after the production process is complete.
According to Crosby, the traditional quality control approach taken by American firms is not cost effective. Instead, production workers should be granted the authority and responsibility to ensure that quality goods or services are produced at every step of the process.
3. Managers need to demonstrate that a higher standard of performance can lead to perfection—to zero defects. Crosby believed that the company goal should be zero defects.
4. Quality should be measured by the price of nonconformity. Crosby contends that the costs associated with achieving quality should be part of a company's financial system.

The Implementation of TQM
The implementation of total quality management is similar to that of other decentralized control methods. In developing TQM, companies need to understand how consumers define quality in both the goods and services offered. If a company pays more attention to quality in its production process, fewer problems will occur later when the product is in the consumer's hands. One way to measure product performance and quality is through customer surveys, which can help managers identify design or manufacturing problems
According to quality consultant Armand V. Feigenbaum, the end user best defines quality, which means that quality is open to subjective interpretations. Consumer perceptions have to be changed if a company wants to change a product's quality image. Extended service programs and improved warranties can help accomplish this feat. As examples, Whirlpool Corporation promises that parts for all models will be available for 15 years, and Mercedes-Benz provides technical roadside assistance after service hours.
Another means of ensuring a commitment to quality “after the sale” is via a product or service guarantee. Wal-Mart is known for its no-hassles return policy for any product—with or without a receipt. Mail-order house L. L. Bean will replace a pair of hunting boots purchased ten years earlier with new boots. Saturn automobile retailers provide total refunds for vehicles within 30 days if the customer is not fully satisfied. However, many companies are not willing to incur the short-run costs associated with such guarantees.
Commitment throughout the organization
To be effective, the TQM philosophy must begin at the top. From the board of directors to the hourly line employees, TQM must be supported at all levels if the firm is to realize any real improvements in quality. In addition to commitment from the top, the organization must meet these requirements if TQM is to succeed:
• A change in corporate culture about the importance of quality
• Forging of internal team partnerships to achieve quality, process, and project improvements, and the creation of external partnerships with customers and suppliers
• Audits to assure quality techniques
• Removal of obstacles to successful implementation, such as lack of time or money in the short run
Typically, two to ten years are needed to reap the benefits of a successful TQM program.

World‐Class Quality: ISO 9000 Certification
With the highly competitive nature of the current business world, customers can dictate who, what, when, where, why, and how much regarding market commodities and services. In other words, quality has never counted more. As a result, management and organizations must heed these calls and specifically cater to the ever-changing expectations of their international clientele
Globally, customers expect quality whether they are buying a consumer product or receiving a service. As a result, many countries have adopted the quality standards set by the International Standards Organization (ISO) in Geneva, Switzerland.
Businesses that want to compete as world-class companies are increasingly expected to have ISO 9000 Certification at various levels. To gain certification in this family of quality standards, businesses must undergo a rigorous assessment by outside auditors to determine whether they meet ISO requirements. Increasingly, the ISO stamp of approval is viewed as a necessity in international business; the ISO certification provides customers with an assurance that a set of solid quality standards and processes are in place.
The commitment to total quality operations is now a way of life in world-class firms. In the United States, the Malcolm Baldridge National Quality Awards were established to benchmark excellence in quality achievements. The following list of award criteria indicates the full extent of the day-to-day commitment that is essential to gaining competitive advantage through a commitment to total quality:
• Top executives incorporate quality values into day-to-day management.
• The organization works with suppliers to improve the quality of their goods and/or services.
• The organization trains workers in quality techniques and implements systems that ensure high-quality products.
• The organization's products are as good as or better than those of its competitors.
• The organization meets customers' needs and wants and gets customer satisfaction ratings equal to or better than those of competitors.
• The organization's quality system yields concrete results such as increased market share and lower product cycle times.