Chapter 16 MGT 250
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Date Created: 04/22/16
Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness Vocasbulary: Audits: a formal verification of an organization’s financial accounts of an organization’s financial and operational systems Balance Sheet: summarizes an organization’s overall financial worth – that is, assets and liabilities – at a specific point in time Balanced Scorecard: gives top managers a fast but comprehensive view of the organization via four indicators – customer satisfaction, internal processes, innovation and improvement activities, and financial measures Budget: a formal financial projection Bureaucratic Control: an approach to organizational control that is characterized by use of rules, regulations, and formal authority to guide performance Continuous Improvement: ongoing small, incremental improvements in all parts of an organization Control Process Steps: establish standards, measure performance, compare performance to standards, and take corrective action, if necessary Control Standard: performance standard or standard, the desired performance level for a given goal Controlling: monitoring performance, comparing it with goals, and taking corrective action as needed Decentralized Control: an approach to organizational control that is characterized by informal and organic structural arrangements Deming Management: proposed ideas for making organizations more responsive, more democratic, and less wasteful Enterprise Resource Planning: software systems, information systems for integrating virtually all aspects of a business External Audit: a formal verification of an organization’s financial accounts and statements by outside experts Financial Statement: a summary of some aspect of an organization’s financial status Fixed Budget: allocates resources on the basis of a single estimate of costs Income Statement: summarizes an organization’s financial results – revenues, and expenses – over a specified period of time Incremental Budgeting: allocated increased or decreased funds to a department by using the last budget period as a reference point; only incremental changes in the budget request are reviewed Internal Audit: verification of an organization’s financial accounts and statements by the organization’s own professional staff ISO 9000 Series: qualitycontrol procedures companies must install – from purchasing to manufacturing to inventory to shipping – that can be audited by independent qualitycontrol experts or registrars ISO 14000 Series: extends the concept, identifying standards for environmental performance Lean Six Sigma: focuses on problem solving and performance improvement – speed with excellence – of a welldefined project Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness Management by Exception: a control principle that states that managers should be informed of a situation only if data show a significant deviation from standards Operational Control: monitoring performance to ensure that operational plans – daytoday goals – are being implemented and taking corrective action as needed PDCA Cycle: a plantodocheckact cycle using observed data for continuous improvement of operations RATER Scale: enables customers to rate the quality of a service along five dimensions – reliability, assurance, tangibles, empathy, and responsiveness – each on a sale from 1 (very poor) to 10 (very good) Ratio Analysis: the practice of evaluating financial ratios Reduced Cycle Time: reduction in steps in a work process Six Sigma: a rigorous statistical analysis process that reduces defects in manufacturing and servicerelated processes Specialpurpose Team: meets to solve a special or onetime problem Statistical Process Control: a statistical technique that uses periodic random samples from production runs to see if quality is being maintained within a standard range of acceptability Strategic Control: monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed Strategy Map: a visual representation of the four perspectives of the balanced scorecard that enables managers to communicate their goals so that everyone in the company can understand how their jobs are linked to the overall objectives of the organization Supply Chain: the sequence of suppliers that contribute to creating and delivering a product, from raw materials to production to final buyers Tacti cal Control: monitoring performance to ensure that tactical plans – those at the divisional or departmental level – are being implemented and taking correction action as needed Total Quality Management: a comprehensive approach – led by top management and supported throughout the organization – dedicated to continuous quality improvement, training, and customer satisfaction Two Core Principles of TQM: people orientation – everyone involved with the organization should focus on delivering value to customers and improvement orientation – everyone should work on continuously improving the work processes Variable Budget: allows the allocation of resources to vary in proportion with various levels of activity Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness EDWARDS DEMMING 16.1 Control: When Managers Monitor Performance Control is making something happen the way it was planned to happen Controlling is the fourth management function Planning is setting goals and deciding how to achieve them Organizing is arranging tasks, people, and other resources to accomplish the work Leading is motivating people to work hard to achieve the organization’s goals Controlling is concerned with seeing that the right things happen at the right time in the right way Why is Control Needed? 1. To adapt to change & uncertainty 2. To discover irregularities & errors 3. To reduce costs, increase productivity, or add value 4. To detect opportunities 5. To deal with complexity 6. To decentralize decision making & facilitate teamwork Steps in the Control Process 1. Establish standards: what is the outcome we want? 2. Measure performance: what is the actual outcome we got? 3. Compare performance to standards: how do the desired & actual outcomes differ? 4. Take corrective action, if necessary: what changes should we make to obtain desirable outcomes? Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness 16.2 Levels & Areas of Control Levels of Control: Strategic, Tactical, & Operational 1. Strategic control by top managers 2. Tactical control by middle managers 3. Operational control by firstline managers Six Areas of Control 1. Physical area a. Buildings, equipment, and tangible products 2. Human resources area a. Monitor employees i. Personality tests, drug testing for hiring, performance tests during training, performance evals, etc. 3. Informational area a. Production schedules, sales forecasts, environmental impact statements, analysis of competition 4. Financial area a. Are bills being paid on time? How much money is owed by the customers/suppliers? 5. Structural area a. How the organization is arranged from a hierarchical or structural standpoint i. Bureaucratic control ii. Decentralized control 6. Cultural area 16.3 The Balanced Scorecard, Strategy Maps, & Measurement Management The Balanced Scorecard: A Dashboardlike View of the Organization The Balanced Scorecard: Four “Perspectives” 1. Financial perspective: how do we look to shareholders? 2. Customer perspective: how do customers see us? 3. Internal business perspective: what must we excel at? 4. Innovation & learning perspective: can we continue to improve & create value Strategy Map: Visual Representation of a Balanced Scorecard Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness Measurement Management: “Forget Magic” Why Measurement Firms Succeed: For Mechanisms of Success Top executives agree on strategy Communication is clear There is better focus and alignments The organizational culture emphasizes teamwork and allows risk taking Four Barriers to Effective Measurements Objectives are fuzzy Managers put too much trust in informal feedback systems Employees resist new measurement systems Companies focus too much on measuring activities instead of results 16.4 Some Financial Tools for Control Budgets: Formal Financial Projections Incremental Budgeting Fixed versus Variable Budgets Fixed budgets – where resources are allocated on a single estimate of costs Variable budgets – where resources are varied in proportion with various levels of activity Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness Financial Statements: Summarizing the Organization’s Financial Status The Balance Sheet: Picture of Organization’s Financial Worth for a Specific Point in Time The Income Statement: Picture of the Organization’s Financial Results for a Specified Period of time Ration Analysis: Indicators of an Organization’s Financial Health Audits: External versus Internal External audits – financial appraisals by outside financial experts Internal audits – financial appraisals by inside financial experts 16.5 Total Quality Management Deming Management: The Contributions of W. Edwards Deming to Improved Quality Deming’s principles included 1. Quality should be aimed at the needs to the consumer 2. Companies should aim at improving the system, not blaming workers 3. Improved quality leads to increased market share, increased company prospects & increased employment 4. Quality can be improved on the basis of hard data, using the PDCA cycle Core TQM Principles: Deliver Customer Value & Strive for Continuous Improvement The four components to TQM are 1. Make continuous improvement a priority 2. Get every employee involved Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness 3. Listen to and learn from customers and employees 4. Use accurate standards to identify and eliminate problems Two core principles of TQM 1. People orientation – focusing everyone on delivering customer value Delivering customer value is most important People will focus on quality if given empowerment TQM requires training, teamwork, and crossfunctional efforts 2. Improvement orientation – focusing everyone on continuously improving work processes It’s less expensive to do it right the first time It’s better to do small improvements all the time Accurate standards must be followed to eliminate small variations There must be strong commitment from top management Applying TQM Services Customer Satisfaction: A Matter of Perception? The RATER Scale Reliability – ability to perform the desired service dependably, accurately, and consistently Assurance – employees’ knowledge, courtesy, and ability to convey trust and confidence Tangibles – physical facilities, equipment, appearance of personnel Empathy – provision of caring, individualized attention to customers Responsiveness – willingness to provide prompt service to help customers Some TQM Techniques Outsourcing: Let Outsiders Handle It Reduced Cycle Time: Increasing the Speed of Work Processes ISO 9000 & ISO 14000: Meeting Standards of Independent Auditors Statistical Process Control: Taking Periodic Random Samples Six Sigma & Lean Six Sigma: DataDriven Ways to Eliminate Defects 16.6 Managing Control Effectively The Keys to Successful Control Systems 1. They are strategic & results oriented 2. They are timely, accurate & objective a. Be timely – meaning when needed b. Be accurate – meaning correct c. Be objective – meaning impartial 3. There are realistic, positive, & understandable & encourage selfcontrol a. Be realistic b. Be positive c. Be understandable Chapter 16 : Control Systems & Quality Management Techniques for Enhancing Organizational Effectiveness d. Encourage selfcontrol 4. They are flexible Barriers to Control Success 1. Too much control 2. Too little employee participation 3. Overemphasis on means instead of ends 4. Overemphasis on paperwork 5. Overemphasis on one instead of multiple approaches 16.7 Managing for Productivity What is Productivity? Productivity = outputs/inputs OR = goods + services / labor + capital + materials + energy The Increasing Productivity Is Important The U.S. Productivity Track Record The Role of Information Technology
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