Control

• Process of monitoring
activities to ensure that
what is being accomplished
matches plans and corrects
significant deviations
Purpose of Controls

• Measuring Performance

• Comparing to Standards

• Taking Corrective Action

 Approaches to Control

• Market
• Bureaucratic
• Clan
 The Control Process
Standard Yes
Compare Do Nothing
Attained?
Performance
to Standard No

Objectives Variance Yes

Do Nothing
Acceptable?

Measure No
Standard Performance
Standard Yes Identify
Acceptable? Causes

No
Correct
Revise
Performance
Standard
 Three Types of Control

Input Processes Output

Feedback Concurrent Feedback

Control Control Control

Anticipates Corrects problems Corrects problems

problems as they happen after they occur
 Qualities Of An Effective Control
System
Corrective Accuracy
Action
Multiple Timeliness
Criteria
EFFECTIVE
Emphasis on CONTROL
Economy
Exceptions SYSTEM

Strategic
Placement Flexibility

Reasonable
Understandability
Criteria
Organization Design

• Developments in or changes to the structure of an

organization
• The objective of organizational design (OD) is to
provide, maintain, and develop organizational
structures that work toward the achievement of
corporate goals.
• OD helps create a workable structure of tasks and
positions that create the physical organization and
jobs.
Principles of Organisation Design
Division Of Labour
Departmentalisation
Specialisation
Unity of Command
Line of Command
One Superior
Authority & Responsibility
Line & Staff Authority
Authority & Power
Spans of Control
Levels of Control
Centralisation & Decentralisation
 Organization Structure
• The framework for dividing, assigning and coordinating
work.
• Organizational structure is ultimately driven by strategy; in
the near term however, strategy is shaped by
organizational structure, because structure provides a
constraint to action.
• Structure is relatively immobile in the short run; in the
longer term, it can (and does) change.
• What’s the purpose of structure? Global Integration and
Local Responsiveness.
• Every business seeks efficiency and effective structures to
organize tasks. In the global environment, structures take
on differing forms in order to effectively answer cultural
demands and respond to global environments.
Key Elements of Organisation
Structure
•Work Specialisation
•Chain of Command
•Span of Control
•Authority & Responsibility
•Centralisation Vs Decentralisation
•Departmentalisation
 Work Specialization

• Job is broken down into a number of steps

• Each step is completed by a separate
individual
• Makes efficient use of the diversity of skills
that workers have
 The Chain of Command
Chief Executive
Officer

Executive Executive
President
Vice President Vice President

The Chain of Command

Vice Vice Vice Vice Vice
President President President President President

Region Region Region Region Region

1 2 3 4 5

District District District District District District District

A B C D E F G
 Span of Control
• Number of employees that an
manager can manage effectively
• Increased over the last several
years
• Contingency variables impact
number
 Authority vs. Responsibility
• Rights inherent in • Obligation to
managerial perform
position to give • Goes hand-in-
orders and expect hand with
them to be authority
followed
• Related to one’s
position--not the
characteristics of
person
 The Concept of Authority

Chief Executive
Officer

Research and Human

Finance Accounting Marketing Production
Development Resources
 Line Authority
• Level of authority that entitles
manager to direct the work of an
employee
• Contributes directly to the
achievement of organizational
objectives
 The Degree of Centralization
Lower Higher

Decentralization
Top Management Control

Employee Empowerment
Centralization
Higher Lower
 Five Ways to Departmentalize

• Functional
• Product
• Customer
• Geographic
• Matrix
FUNCTIONAL DEPARTMENTATION
 Functional Departmentation
Employees with closely related skills and
responsibilities are assigned to the same department.
Advantages:
Efficiency.
Enhanced communication.
Enhanced career ladders and training
opportunities.
Easier to measure and evaluate performance.
Disadvantages:
A high degree of differentiation.
Poor coordination and slow response to
organizational problems.
Conflicts between departments.

PRODUCT DEPARTMENTATION
 Product Departmentation
Departments are formed on the basis of a particular product, product line, or
service.
Advantages:
– Better coordination and communication among functional specialists who
work on a particular product line.
– Flexibility.
– Departments can be evaluated as profit centres.
– Timely response to customers.
Disadvantages:
– Professional development might suffer.
– Economies of scale might suffer.
– Inefficiency.
– Departments might work at cross purposes.
CUSTOMER DEPARTMENTATION
 Customer Departmentation

Relatively self-contained units deliver an

organization’s products or services to specific
customer groups.

Advantages:
– Better service to customers through specialization.

Disadvantages parallel those for production

departmentation.
GEOGRAPHIC DEPARTMENTATION
 Geographic Departmentation
Relatively self-contained units deliver an
organization’s products or services in a specific
geographic territory.

Advantages:
– Shortens communication channels.
– Caters to regional tastes.
– Some local control to clients and customers.

Disadvantages parallel those for production

departmentation.
MATRIX DEPARTMENTATION
 Matrix Departmentation
Employees remain members of a functional department while also reporting
to a product or project manager.
Advantages:
– Balance between the demands of the product or project and the
people who do the work.
– Flexibility.
– Better communication among the representatives from the various
functional areas.
Disadvantages:
– Conflict between product or project managers and functional
managers.
– Role conflict and stress because employees must report to a
functional manager as well as a product or project manager.
 Hybrid Departmentation

• A structure based on some mixture of

functional, product, geographic, or
customer departmentation.

• Hybrids attempt to capitalize on the

strengths of various structures while
avoiding the weaknesses of others.
 Prebureaucratic Structures
Prebureaucratic structures lack the standardization that
is the defining characteristic of bureaucracies
They can be used successfully only in small and simple
organizations where mutual adjustment or direct
supervision provides the only coordination needed to
maintain interdependence
Types of prebureaucratic structures include:
Simple undifferentiated structure: coordination is
accomplished solely by mutual adjustment
Simple differentiated structure: direct supervision is the
primary means of coordination
Bureaucratic Structures
Max Weber’s view of bureaucracy.
Emphasizes legal authority, logic, and order.
Relies on:
Division of labor.
Hierarchical control.
Promotion by merit with career opportunities for employees.
Administration by rule.
The ideal form of organization.
Problems with bureaucratic model
Lots of RED TAPE
Dominance of Authority
Reduced Flexibility
People usually do not rise due to merit, but rise because
of seniority
Types of bureaucracies.
The mechanistic type.
The organic type.
The hybrid type.
The Mechanistic Type
 Characteristics of the mechanistic type of bureaucracy (machine
bureaucracy).
 Emphasizes vertical specialization and control
 Relies on rules, procedures, and policies.
 Has well-documented control systems backed by strong middle
management and supported by a centralized staff.
 Specifies techniques for decision making.
 Often uses functional departmentation.
 Benefits of the mechanistic type.
 Efficiency.
 Limitations of the mechanistic type.
 Employees dislike rigid designs, which makes work motivation problematic.
 Unions may further solidify rigid designs.
 Key employees may leave.
 Hinders organization’s capacity to adjust to subtle environmental changes
or new technologies.
The Organic Type.
 Characteristics of the organic type of bureaucracy (professional bureaucracy).
 Horizontal specialization.

 Procedures are minimal, and those that do exist are not highly formalized.
 Relies on the judgments of experts and personal means of coordination.
 Controls back up professional socialization, training, and individual reinforcement.
 Staff units are placed toward the middle of the organization.
 Benefits of the organic type.
 Good for problem solving and serving individual customer needs.
 Good at detecting external changes and adjusting to new technologies .
 Limitations of the organic type.
 Less efficient than mechanistic type.
 Sacrifices ability to respond to central management direction.
 Organic versus Mechanistic Structures

• Mechanistic structures are characterized by narrow spans of

control, specialization, high centralization, and high
formalization.
• Organic structures are characterized by wider spans of control,
fewer authority levels, less specialization, less formalization,
and decentralization.
• More mechanistic structures are called for when an
organization’s environment is more stable and its technology is
more routine.
• Organic structures work better when the environment is
uncertain, the technology is less routine, and innovation is
important.
 MECHANISTIC VERSUS
ORGANIC STRUCTURES
ORGANIZATIONAL ORGANIC MECHANISTIC
CHARACTERISTICS
Span of control Wide Narrow
Number of levels of Few Many
authority
Degree of centralization Long Short
in decision making
Quality of formal rules High Low
Range of skill levels Narrow Wide
Knowledge-based High Low
authority
The Hybrid Type
 The hybrid type of bureaucracy.
Many very large firms have found that neither the
mechanistic type nor the organic type was suitable for
all their operations, and therefore have adopted a
hybrid type.
Two hybrid types.
Divisional firm
Composed of independent divisions so that different
divisions can be more or less organic or mechanistic
Conglomerate
A single corporation that contains a number of
unrelated businesses
 Postbureaucratic Structures

Within the past 25 years, many organizations have found it

necessary to be more flexible than allowed by even the most
flexible form of bureaucracy
As a result, attention has turned to forming information-rich
organization structures grounded in computerized
communication networks and coordinated by mutual
adjustment that can successfully deal with extreme
complexity and identify change before it threatens
organizational viability
 Network Organization
Various functions are coordinated as much by market
mechanisms as by managers and formal lines of authority.
Emphasis is placed on who can do what most effectively and
economically.
In stable networks, core firms contract out some functions to
favoured partners so that they can concentrate on the things that
they do best.
Advantages
Maximizes the effectiveness of the core unit.
Do more with less resources.
Flexibility.
Disadvantages
Fragmentation makes it difficult to develop control systems.
Success is dependent on ability to locate sources.
Difficult to develop employee loyalty.
 Virtual Organization

A network of continually evolving independent

organizations that share skills, costs, and access to one
another’s markets.
Each partner contributes only in its area of core
competencies.
A key advantage is its flexibility and adaptability.
 Modular Organization
 An organization that performs a few core functions and outsources
noncore activities to specialists and suppliers.
 The modular organization maintains complete strategic control.
 By outsourcing noncore activities, modular organizations can keep unit
costs low and develop new products more rapidly.
 A lean and streamlined organizational structure with great flexibility.

 Modular organizations work best when they focus on the right speciality
and have good suppliers.
 Requires good suppliers who are reliable, loyal, and can be trusted with
trade secrets.
 They must be careful not to outsource critical technologies.
 Operational control is reduced due to the dependence on outsiders.
 Boundaryless Organization
 An organization structure that removes vertical, horizontal, and
external barriers.
 It is made up of self-managing and cross-functional teams that are
organized around core business processes that are critical for
satisfying customers.
 The teams include employees from different functional areas as well
as customers and suppliers.
 Boundaryless organizations are able to achieve greater integration and
coordination within the organization and with external stakeholders.
 It can be difficult to overcome political and authority boundaries.
 It can be time consuming to manage the democratic process required
to coordinate the efforts of many stakeholders.
THE DIVISION AND COORDINATION OF LABOUR
Labour must be divided because
individuals have physical and
intellectual limitations.
 VERTICAL DIVISION OF LABOUR is concerned with
apportioning authority and for planning and decision
making

HORIZONTAL DIVISION OF LABOUR groups the basic

tasks to be performed into jobs and then into
departments so organizational goals can be achieved.
 Bartlett and Ghoshal Model
Bartlett and Ghoshal define four models for categorizing
company’s business culture and operating style:
•Multinational – highly localized (multi-local)
•Global – highly standardised (centralized)
•International – highly leveraged (learning)
•Transnational – highly networked (matrixed)
The Transnational organisation demonstrates leadership
all three competencies simultaneously:
1.Locally responsive and flexible – like the Multinational
2.Globally efficient and competitive – like the Global
3.Leveraging worldwide learning – like the International
 Global
organisation
Transnational
organisation
Forces for
global
integration

Multinational
organisation

Forces for national differentiation

Evolution of organisational forms

Loose, simple
controls;
strategic Mainly
decisions financial flows
decentralised. (capital out;
dividends back).

Decentralised federation model

Tight, simple One-way flows
controls ; key of goods, infor-
strategic deci- mation, and
sions made resources.
centrally.

Centralised hub model

Tight, complex controls Heavy flows of tech-
and co-ordination, shared nology, finances, people,
strategic decision process and materials between
interdependent units.

Network model
 COUNTRY RISK ANALYSIS
POLITICAL RISK

DOMESTIC LEVEL INTRNATIONAL LEVEL

Political System Relations with major
trading partners
The group in Power Relations of
Home
country with Host country
Opposition Groups Due to treaties
and other
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obligations
57
 SOCIO CULTURAL RISK
DOMESTIC LEVEL INTERNATIONAL LEVEL

Social Groups Cross Boundaries Ties

General psychology of
population work ethics
Unemployment
Political activism of
population
Extent of social unrest
04/16/25 58
 ECONOMIC RISK

DOMESTIC LEVEL INTERNATIONAL

LEVEL

Economic Growth Balance of

Payment

Investment Trends International

Treaties
04/16/25 59
 What is a “scenario”?
A scenario may be defined as an outline, description
or model of a sequence of unexpected or adverse
events.
• Scenarios vary in detail according to the level of the
organisation at which they are researched and
focussed, but are generally made up of similar
components.
• Scenarios are described using event types and may
detail the causes and potential impacts of the event,
should it actually crystallise.
• Scenarios may also include a causal analysis, along
with expected direct and indirect impacts,
particularly those of a reputational nature.
04/16/25 60
 Uses for Scenarios
Management:
• Evaluation of exposure to risks and/or
effectiveness of controls under specific
conditions
1.General risk management
2.Supporting risk and control assessment
• Risk Transfer/Mitigation
• Crisis and Business Continuity Management
• Training and Education
04/16/25 61
 Uses for Scenarios Contd…..
Measurement:
Calculation of Economic or Regulatory Capital
Requirements
• Economic Capital
• Expected Loss
• Unexpected Loss for worst 1 year

04/16/25 62
 The role of Scenarios
• The firm should clearly articulate the purpose
behind its Scenario Analysis program and
create a schedule for the different forms to be
employed:
􀂃 Risk evaluation and mitigation
􀂃 Business continuity management
􀂃 Training and education
• Need to clearly differentiate between Scenario
Analysis and Risk and Control Assessments
04/16/25 63
 Developing Scenarios

Four primary approaches:

• Loss Data-driven approach – use internal and
public loss data to identify possible scenarios
• Risk-driven approach – evaluate actual potential
risks and select a range on severity
• Control-driven approach – evaluate existing
controls and measure impact of failure
• Expert Opinion-driven approach – brainstorm
possible “worst-case” situations which the
business will have to deal with
04/16/25 64
 Scenario Analysis for Management
Outputs:
• Assessment of management response
• Identified corrective actions
• Anticipated loss, deemed maximum loss and
ancillary impacts (reputation, etc)
• Trend over time of management effectiveness
• Training proxy for experience and expertise in
managing the unexpected or adverse event
04/16/25 65
Scenario Analysis for Measurement
Outputs:
• Economic Capital (99.9% confidence level, 1 year
time horizon)
• Expected Loss
• Unexpected Loss for worst 1 year in 10 (UL10)
• Other percentiles of the loss distribution where
necessary
• Effects of insurance on capital (for cost/benefit
analysis)
• Effects of each scenario on capital (for
management / mitigation project focus)
04/16/25 66
 Using Scenarios

Most firms started with a pure Loss Distribution

Approach (LDA) for economic/ regulatory
capital, some started with Scenario Based
Approach (SBA) due to a lack of data, many
are now converging onto a Hybrid
Measurement Approach (HMA), including
both LDA and SBA concepts

04/16/25 67