ENTR 3312 - Chapter 14

ENTR 3312 - Chapter 14 - Chapter 14 Control and...

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Unformatted text preview: Chapter 14 Control and Entrepreneurial Activity Copyright (c) 2007 by Donald F. Kuratko All rights reserved. E Introduction Control sounds like an oppressive word. It evokes images of restraint, dominance, regulation, rigidity, and conformity. Yet organizations would be reduced to chaos without meaningful control measures. Policies, procedures, and rules are needed to ensure order, achieve coordination, and maintain efficiency. E Introduction, cont... Efficiency is concerned with minimizing the amount of expenditures or resources needed to accomplish a task. Effectiveness is concerned with ensuring that the correct tasks are being accomplished. Control systems have historically placed a heavy emphasis on efficiency. "Many centralized companies with highly sophisticated control systems are, in fact, out of control." - Pinchot, 2000 E The Nature of Control in Organizations Control system Formal and informal mechanisms that help individuals regulate what they do with themselves and other resources on the job. It implies a carefully constructed and well-integrated set of items. A set of control mechanisms evolves, with components subject to change The Nature of Control in Organizations The various control measures and mechanisms can be grouped into four general categories: E Simple control Technological control Bureaucratic/administrative control Concertive/cultural control E Examples of Elements in an Organization's Control System Budgets Purchasing policies Hiring rules Annual employee, dept, and division reports Performance reviews Strategic and operational plans Financial and resource audits Financial statements E Organizations Out of Control: Unintended Consequences Control initiatives are almost always well intentioned, yet they frequently have unintended consequences. They become problematic for at least 4 reasons: "Trust problem" "Slowness problem" "Means-end problem" ("Potato Chip rule") "Efficiency-Effectiveness problem" Organizations Out of Control: Unintended Consequences Putting these four problems together, E it becomes apparent that the firm with a highly developed and complex control system may actually be controlling the wrong things or nothing at all. Dimensions of Control and Entrepreneurship A control system can be characterized by a variety of attributes: E Degree of formality and prescriptiveness Desire for conformance and compliance Degree of rigidness Desire for consistency Use of coercive power Dimensions of Control and Entrepreneurship Attributes continued... Distribution of discretion Degree of horizontal interaction and communication Level of detail E Dimensions of Control and Entrepreneurship The principal outcomes sought through control efforts include: Risk reduction Elimination of uncertainty Highly efficient operations Goal conformance Specific role definitions E (Unfortunately, outcomes such as these tend to be inconsistent with entrepreneurship) Dimensions of Control and Entrepreneurship Consistent outcomes: E Risk tolerance Management of uncertainty Enlightened efficiency Goal congruence Role flexibility E Dimensions of Control and Entrepreneurship Administrative Domain Entrepreneurial Domain Tight, extremely detailed Centralized Stress conformity Inflexible, no discretion Formal Rule and procedure based Emphasis on feedback Loose with broad guidelines Decentralized Decentralized Flexible, allow discretion Informal People/comm. based Emphasis on feed forward The Entrepreneurial Philosophy of Control Command and control. Control is control tight, with orders coming from above and with the expectation that they will be executed exactly as they are given. No surprises. The concern is with a surprises control system that generates adequate information on a timely basis for all who really need to know. E The Entrepreneurial Philosophy of Control Another core principle in the E entrepreneurial philosophy of control requires that managers give up control to gain control. To give up control is to empower. The Entrepreneurial Philosophy of Control "Empowerment really means stopping the E disempowerment of people but this just brings back to hierarchy for empowerment (typically) reinforces hierarchy." -Mintzberg E Key Questions for Control Over what specific activity, responsibility, or requirement is management giving up control? Does the employee have or can he/she obtain the proper information to exercise control over the activity or behavior? Is it clear that this is a real and permanent relinquishment of control, with no secondguessing? E Key Questions for Control cont... What specific impact on behavior is management attempting to have? Over what variables is control being gained, and how is it manifested? The Entrepreneurial Philosophy of Control Two final points E The relationship between entrepreneurship and control is not one of simply getting more entrepreneurship when there is less control. Control is vital for sustained entrepreneurship. The real issue is the nature and intent of the controls and how they are used. The Entrepreneurial Philosophy of Control E Control levels can also be expected to vary with the type of entrepreneurship the company seeks. Incremental innovation can occur in more tightly controlled environment, but discontinuous innovation requires extensive autonomy. (See Figure 14.2 on following slide) E Entrepreneurial Philosophy of Control The Figure 14.2: Relating Types of Innovation Initiatives to Control Degree of Control The Control-Autonomy Continuum Degree of Autonomy Projects Assigned and Closely Monitored by Senior Executives Initiatives in Mainstream Departments or Functions Projects in Centralized R&D Departments Independe nt Venture Team Projects Projects in Separate Venture Division Completely Self-Appointed Intrapreneurial Projects Looseness and Tightness Companies should design control systems in a manner that facilitates effective outcomes which include risk reduction, elimination of uncertainty, highly efficient operations, goal conformance, and specific role definitions However, these goals must coincide operational performance and competitive efficiencies Therefore, moderate to intermediate levels of formality will encourage entrepreneurial thinking and yet keep some amount of control over individuals E Concept of Balance: Simultaneous The E Concept of Balance: Simultaneous The Looseness and Tightness A level of slack is deliberately designed into cost controls and budgeting The dual needs for fiscal accountability and individual experimentation suggest a need for intermediate levels of budgetary control, as opposed to very loose or very tight controls E Expanding on the Concept of Slack looseness in resource availability. Employees are able to tap into resources without going through a formal approval process. They can "borrow" expertise, research, money, materials, equipment, and other resources as they develop, test, and refine original concepts. The concept of slack implies a degree of Expanding on the Concept of Slack There is a need for control and moderation managing slack involves a fine balancing act If there is an abundance of easily available E money for projects and ideas huge amounts of money will be wasted -- Likewise -If controls on resources are too tight, the incentive to innovate will disappear Internal Venture Capital Pools There is a need to provide financial support for E entrepreneurial initiatives in the form of special seed and venture capital funds that are separate from operational budgets. Opportunity review boards empowered to provide staged investments, from fairly-easy-toget seed money for initial research to increasingly larger amounts that are tied to the achievement of specific development targets. E Internal Venture Capital Pools Intracapital a resource bank account awarded to employees who successfully pursue entrepreneurship within the company. E and Costs: Control The Open Book Revolution Open book management an approach that attempts to change the line between the employee and the company; from the "what" to the "why". (Jack Stack, CEO, SRI) E and Costs: Control The Open Book Revolution They key to the open book approach is that people take joint responsibility for moving the numbers in the right direction. The open book approach is clearly about trust and enlightened control. E and Costs: Control The Open Book Revolution Table 14.3 Open Book Mgmt and Entrepreneurship: The Ingredients Every employee has access to the company's financials and all the other numbers that are critical to tracking the firm's performance. There is an overt and ongoing attempt to get the information in front of the employee. The company teaches the basics of the business(what the numbers mean) to everyone. E and Costs: Control The Open Book Revolution Table 14.3 Cont. Employees learn that, whatever else they do, part of their job is to move the numbers in the right direction. People are empowered to make decisions in their jobs based on what they know. Employees have a stake in the company's success, and share in the risk of failure. E The Concept of Profit Pools Profit pool the total profits earned in an industry at all points along the industry's value chain. All the product or service segments in the value chain are identified, and each is assessed in term of its current and potential profits. The profit measure itself should be some form of contribution margin. E of a Profit Pool for the Auto Industry Example 25 20 15 10 5 0 Auto manufacturing Used car dealers Service/ repair 100% New car dealers Auto Auto Auto insurance loans rental Leasing Gasoline Aftermarket Warranty parts ...
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This note was uploaded on 08/25/2009 for the course ENTR 3312 taught by Professor Staff during the Spring '08 term at University of Houston.

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ENTR 3312 - Chapter 14 - Chapter 14 Control and...

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