Operational control systems aim at allocation and use of firm’s various resources by evaluating performance of organizational units to assess their contribution in the achievement of organizational objectives. Operational controls systems direct, monitor, and assess progress in achieving annual objectives.
They provide post-action evaluation and control over short time periods- usually from one month to one year. To be effective, operational control systems must take four steps common to all post-action controls.
Establishing Standards and Targets: As a first step the strategists establish standards of performance and targets. These are the ways in which a company chooses to evaluate its performance. General performance standards can be stated as achieving efficiency of superior degree, quality, innovation, or responsiveness of the customers. Specific performance targets are derived from the strategy pursued by the company. For example, if a company is pursuing a low cost strategy, then reducing costs by 7 percent a year might be a target.
Performance evaluation on the basis of quantitative criteria can be done in two ways: 1. An organization can assess how it has performed as compared to its past achievements. 2. Compare its performance with the average performance of the industry or with that of major competitors.
The qualitative criteria also play a significant role in strategic control. Three sets of qualitative criteria: consistency, appropriateness and workability are suggested.
Measurement of Actual Performance: The company establishes procedures for assessing whether work goals at all levels in the organization are being achieved. In some cases measuring performance is fairly straightforward. For example, managers can measure quite easily how many customers their employees serve by counting the number of receipts from the cash register. In many cases, however, measuring performance is a difficult task because the organization is engaged in many complex activities. How can managers judge how well their research and development department is doing, when it may take five years for products to be developed? How can they measure the company's performance when the company is entering new markets and serving new customers? How: can they evaluate how well divisions are integrating? The answer is that managers need to use various types of control systems. Standards of performance act as the benchmark against which the actual performance is to be compared. The information system is the key component in any measurement system. Accounting, reporting, and communications system are major tools through which measuring is done. In addition a variety of evaluation techniques are used for measurement. If standards of performance are appropriately set, and if means of measurement are available, strategy evaluation is moderately easy task.
Compare actual performance against the standards: The measurement of actual performance and comparing it with the standard performance leads managers to evaluate whether and to what extent performance deviates from the standards and targets developed in step 1.
The following three situations may be possible:
1. The actual performance matches the standard performance.
2. The actual performance deviates positively over the standards.
3. The actual performance deviates negatively from the standards.
If performance is higher, management may infer that it has set the unrealistic standards and may raise them for the next time period. The Japanese are renowned for the way they use targets on the production line to control costs. They are constantly trying to raise performance, and they raise the standards to provide a goal for managers to work toward. On the other hand, if performance is too low, managers must decide whether to take remedial action. This decision is easy when the reasons for poor performance can be identified, for instance, high labor costs. More often, however, the reasons for poor performance are hard to uncover. They may stem from involved external factors, such as a recession. Alternatively, the cause may be internal. For instance, the research and development laboratory may have underestimated the problems it would encounter or the extra costs of doing unforeseen research. For any form of action, however, step 4 is necessary.
Initiate corrective action: The final stage in the control process is to take the corrective action that will allow the organization to meet its goals.
This involves three courses for corrective actions:
(i) Checking of Performance,
(ii) Checking of Standards, and
(iii) Reformulating strategies, plans and objectives.
Such corrective action may mean changing any aspect of strategy or structure. For example, managers may invest more resources in improving R&D, or diversify, or even decide to change their organizational structure. The goal is to enhance continually an organization's competitive advantage.
Initiating corrective action involves a variety of managerial functions that are performed during implementation of a strategy. For instance, checking of performance requires looking into the details of organizational structure and behavioral systems. Number of factors such as distortions in resource allocation, inappropriateness of structure and systems, inappropriate leadership and motivational styles affect the performance adversely. If the performance consistently deviates from the standards, the strategists are required to undertake an in-depth analysis and diagnosis of the factors responsible for such performance.
Checking of standards is not so frequent as the checking of performance. Checking of standards is undertaken when it is found that there is nothing significantly wrong with performance. The revision of standards may take place in two directions: i) Upward revision of standards, and ii) Downward revision of standards.
It may lead to downward revision of standards if the mismatch between the organizational capabilities and the performance requirement is noticed. It may also lead to an upward revision of standards if conditions have improved for better performance due to better equipment, improved systems and upgraded skills.
Reformulation of strategies, plans, and objectives is a more radical and infrequent correction action. Strategic control will lead to the conclusion that there is a need for reformulation of strategies, remodeling of plans and redefinition of objectives. Reformulation of strategy takes us back to the process of strategic management requiring a fresh strategic choice. Remodeling of plans will need designing a new pattern of resource allocation and subsequent modifications to implementation of strategy. Redefinition of objectives, however, may take us to the start of strategic management process.
They provide post-action evaluation and control over short time periods- usually from one month to one year. To be effective, operational control systems must take four steps common to all post-action controls.
Establishing Standards and Targets: As a first step the strategists establish standards of performance and targets. These are the ways in which a company chooses to evaluate its performance. General performance standards can be stated as achieving efficiency of superior degree, quality, innovation, or responsiveness of the customers. Specific performance targets are derived from the strategy pursued by the company. For example, if a company is pursuing a low cost strategy, then reducing costs by 7 percent a year might be a target.
If the company is a service organization such as Wal-mart or MCDonalds’s
, its standards might include time targets for serving customers or guidelines
for food quality. The general performance standard and specific performance
targets may also be described as qualitative and quantitative evaluation
criteria also
Performance evaluation on the basis of quantitative criteria can be done in two ways: 1. An organization can assess how it has performed as compared to its past achievements. 2. Compare its performance with the average performance of the industry or with that of major competitors.
The qualitative criteria also play a significant role in strategic control. Three sets of qualitative criteria: consistency, appropriateness and workability are suggested.
Measurement of Actual Performance: The company establishes procedures for assessing whether work goals at all levels in the organization are being achieved. In some cases measuring performance is fairly straightforward. For example, managers can measure quite easily how many customers their employees serve by counting the number of receipts from the cash register. In many cases, however, measuring performance is a difficult task because the organization is engaged in many complex activities. How can managers judge how well their research and development department is doing, when it may take five years for products to be developed? How can they measure the company's performance when the company is entering new markets and serving new customers? How: can they evaluate how well divisions are integrating? The answer is that managers need to use various types of control systems. Standards of performance act as the benchmark against which the actual performance is to be compared. The information system is the key component in any measurement system. Accounting, reporting, and communications system are major tools through which measuring is done. In addition a variety of evaluation techniques are used for measurement. If standards of performance are appropriately set, and if means of measurement are available, strategy evaluation is moderately easy task.
Compare actual performance against the standards: The measurement of actual performance and comparing it with the standard performance leads managers to evaluate whether and to what extent performance deviates from the standards and targets developed in step 1.
The following three situations may be possible:
1. The actual performance matches the standard performance.
2. The actual performance deviates positively over the standards.
3. The actual performance deviates negatively from the standards.
If performance is higher, management may infer that it has set the unrealistic standards and may raise them for the next time period. The Japanese are renowned for the way they use targets on the production line to control costs. They are constantly trying to raise performance, and they raise the standards to provide a goal for managers to work toward. On the other hand, if performance is too low, managers must decide whether to take remedial action. This decision is easy when the reasons for poor performance can be identified, for instance, high labor costs. More often, however, the reasons for poor performance are hard to uncover. They may stem from involved external factors, such as a recession. Alternatively, the cause may be internal. For instance, the research and development laboratory may have underestimated the problems it would encounter or the extra costs of doing unforeseen research. For any form of action, however, step 4 is necessary.
Initiate corrective action: The final stage in the control process is to take the corrective action that will allow the organization to meet its goals.
This involves three courses for corrective actions:
(i) Checking of Performance,
(ii) Checking of Standards, and
(iii) Reformulating strategies, plans and objectives.
Such corrective action may mean changing any aspect of strategy or structure. For example, managers may invest more resources in improving R&D, or diversify, or even decide to change their organizational structure. The goal is to enhance continually an organization's competitive advantage.
Initiating corrective action involves a variety of managerial functions that are performed during implementation of a strategy. For instance, checking of performance requires looking into the details of organizational structure and behavioral systems. Number of factors such as distortions in resource allocation, inappropriateness of structure and systems, inappropriate leadership and motivational styles affect the performance adversely. If the performance consistently deviates from the standards, the strategists are required to undertake an in-depth analysis and diagnosis of the factors responsible for such performance.
Checking of standards is not so frequent as the checking of performance. Checking of standards is undertaken when it is found that there is nothing significantly wrong with performance. The revision of standards may take place in two directions: i) Upward revision of standards, and ii) Downward revision of standards.
It may lead to downward revision of standards if the mismatch between the organizational capabilities and the performance requirement is noticed. It may also lead to an upward revision of standards if conditions have improved for better performance due to better equipment, improved systems and upgraded skills.
Reformulation of strategies, plans, and objectives is a more radical and infrequent correction action. Strategic control will lead to the conclusion that there is a need for reformulation of strategies, remodeling of plans and redefinition of objectives. Reformulation of strategy takes us back to the process of strategic management requiring a fresh strategic choice. Remodeling of plans will need designing a new pattern of resource allocation and subsequent modifications to implementation of strategy. Redefinition of objectives, however, may take us to the start of strategic management process.
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