Exam 14: Control

When a company emphasizes ____ as its quality goal, managers must simultaneously control excellence, price, durability, or other features of a product or service that customers strongly associate with it.

Interpublic Interpublic, the world's third-biggest marketing services group, informed the SEC that it "had found accounting errors resulting from incompetence as well as falsified books and records, violations of the laws and company policies, and inappropriate customer charges" that required it to restate its earnings for every year in the decade. Interpublic is guilty of overstating both its expenses and its revenues in its earning reports. Interpublic blames its faulty revenue reporting on "inadequate procedures for review of customer contracts." This fraudulent activity will more than likely result in a default on the company's debt and the loss of its stock market listing. Refer to Interpublic. It appears that the control method Interpublic believed it should have used was one that focused on whether rules and policies were being followed. This approach is called ____.

Marriott's top management decided that there was need for a serious effort to "put democracy back in the company" and make employees feel "involved in the success of the company." Employees asked special corporate guests to comment on the good and bad issues of their stay and also to tell what the competition is doing that is better than Marriott. Then the employees acted accordingly. Marriott adopted ____ control.

Explain the term cybernetic and its relevance to the control process.

____ control regulates workers' actions and routines on the job, while ____ control measures the results of their efforts.

Control loss occurs when behavior and work procedures merely meet minimally acceptable standards rather than exceeding those minimal standards.

The two types of objective controls managers use are ____.

WWYD Caterpillar Caterpillar dominates the construction and earth-moving equipment industry. However, Caterpillar has not been able to master the cyclical nature of its industry. When the heavy machinery industry booms, no one keeps up with demand. Caterpillar doubled its workforce the last time global demand surged. But when the industry goes bust, factories are closed and tens of thousands of employees are laid off. So, in sudden downturns, Caterpillar learned to switch from selling new equipment to refurbishing used equipment, which is a profitable way to offset the boom-and-bust cycle to some extent. The second way Caterpillar has dealt with sudden swings was to try to predict when they occur. The problem, though, was that while it could generally predict when a shift in sales would occur, Caterpillar couldn't predict the severity . As a result, the last time a severe downturn occurred, Caterpillar laid off 35,000 managers and workers out of 120,000 worldwide. While almost all companies cut expenses, pay, and jobs during severe economic downturns, few companies suffer the severe upturns and downturns that Caterpillar encounters in its business. In a very broad sense, Caterpillar's inability to manage these deep, quick upturns and downturns means that its business is "out of control." To be more precise, Caterpillar swings from dramatically outperforming it goals (during good times)to being dramatically below goals (during bad times). Guiding everyone in the company were three key goals. First, maintain cash flows and earn a profit, even if Caterpillar was a smaller company than before. Second, maintain Caterpillar's credit rating. This was key to being able to handle the sudden recoveries or upturns that often followed Caterpillar's downturns. Third, keep paying the company's stock dividend, so that investors would not lose faith in Caterpillar, and thus decrease its ability to raise capital, which would hurt its ability to expand. Caterpillar accomplished all three. To get the company in control, new CEO Doug Oberhelman developed Caterpillar's "trough strategy." Caterpillar's "trough teams" used a 13-point list of priorities to maintain focus, such as cash flows, the health of their dealers and suppliers, and the like. A related approach is Caterpillar's "lane strategy," in which Caterpillar tells customers that there are four "lanes" of products they can order. "First lane" products contain the most common and popular options and packages (similar to buying a car), whereas "fourth lane" products are highly specialized and customized. First lane products are delivered quickly, whereas fourth lane products take six months and cost more. The advantage for suppliers is that most of Caterpillar's customers choose first lane products. That, in turn, helps Caterpillar's suppliers know exactly what they need to produce. The core of Oberhelman's strategy is for Caterpillar's customers to make "more money using our equipment rather than anybody else's." While Caterpillar's equipment is more expensive than the competition's, after factoring in maintenance, down time, operating costs, how long the product will last, and what you can sell it for when done, Caterpillar's products are a value in the marketplace. And when Cat machines break, or need parts or service, Caterpillar's dealer network is there to meet customers' needs. CEO Oberhelman says, "Our dealers--that has been the source of our Cat brand advantage more than most people really understand." Refer to WWYD Caterpillar. Caterpillar announced plans to cut its production of construction equipment due to forecasted increases in steel prices. By discovering the problem with product inputs and letting customers know that its output will fall short, Caterpillar used ____ controls.

Control is a cybernetic process because it ____.

McDonald's fast-food restaurants have a well-designed training program for all new employees. Each new employee is supposed to learn how to perform standardized tasks. Due to labor shortages in some areas, these new employees begin work as soon as they are hired and do not receive any off-the-job training. This nonconformity to standards creates ____.

While the bureaucratic control model is designed to make companies more efficient, effective, and fair, it frequently has the opposite effect.

Which of the following statements about economic value added (EVA)is true?

In the behavioral approach to managerial control, a company's widely shared values and beliefs guide workers' behavior and decisions.

Briefly describe the balanced scorecard approach to control. Explain how it differs from the traditional approach to control used in most companies.

When it comes to finances, the balanced scorecard focuses on one simple question. That question is ____.

Several extended-stay hotel chains ask guests to hang their towels so they can be reused as a way to help the environment. This request reflects which stage of waste minimization?

Budgets are used to project costs and revenues, to prioritize and control spending, and to ensure that expenses don't exceed available funds and revenues.

C&K Brewing Company C&K Brewing Company is a microbrewery in western Canada. It produces Maiden's Honor brand ale, a dark beer called Warrior's Cry, and several seasonal beers under the brand name Hearthfire. Its owners George Claiborne and Pete Kunard both believe the brewery's competitive advantage comes from the duo having hired an experienced German brewmaster to oversee the production of its beers. The brewmaster checks all of the ingredients before they are mixed together to make sure that each component is of the highest possible quality and rejects those that are not. After the beer has brewed, the brewmaster runs several tests on the beer to check for taste and clarity and throws out barrels that are cloudy and/or bitter. Refer to C&K Brewing. To maintain the reputations of the brewery and the brewmaster, the company typically destroys about 8 percent of its production because the beer is not of a high enough quality. This would be an example of ____ control.

A manager has instructed Ralph and his fellow workers to develop a daily theme such as patience, empathy, and kindness. Each day, the workers are to try to emphasize the theme as they work with customers, suppliers, and each other. What kind of a control system is Ralph's manager using?

WWYD Caterpillar Caterpillar dominates the construction and earth-moving equipment industry. However, Caterpillar has not been able to master the cyclical nature of its industry. When the heavy machinery industry booms, no one keeps up with demand. Caterpillar doubled its workforce the last time global demand surged. But when the industry goes bust, factories are closed and tens of thousands of employees are laid off. So, in sudden downturns, Caterpillar learned to switch from selling new equipment to refurbishing used equipment, which is a profitable way to offset the boom-and-bust cycle to some extent. The second way Caterpillar has dealt with sudden swings was to try to predict when they occur. The problem, though, was that while it could generally predict when a shift in sales would occur, Caterpillar couldn't predict the severity . As a result, the last time a severe downturn occurred, Caterpillar laid off 35,000 managers and workers out of 120,000 worldwide. While almost all companies cut expenses, pay, and jobs during severe economic downturns, few companies suffer the severe upturns and downturns that Caterpillar encounters in its business. In a very broad sense, Caterpillar's inability to manage these deep, quick upturns and downturns means that its business is "out of control." To be more precise, Caterpillar swings from dramatically outperforming it goals (during good times)to being dramatically below goals (during bad times). Guiding everyone in the company were three key goals. First, maintain cash flows and earn a profit, even if Caterpillar was a smaller company than before. Second, maintain Caterpillar's credit rating. This was key to being able to handle the sudden recoveries or upturns that often followed Caterpillar's downturns. Third, keep paying the company's stock dividend, so that investors would not lose faith in Caterpillar, and thus decrease its ability to raise capital, which would hurt its ability to expand. Caterpillar accomplished all three. To get the company in control, new CEO Doug Oberhelman developed Caterpillar's "trough strategy." Caterpillar's "trough teams" used a 13-point list of priorities to maintain focus, such as cash flows, the health of their dealers and suppliers, and the like. A related approach is Caterpillar's "lane strategy," in which Caterpillar tells customers that there are four "lanes" of products they can order. "First lane" products contain the most common and popular options and packages (similar to buying a car), whereas "fourth lane" products are highly specialized and customized. First lane products are delivered quickly, whereas fourth lane products take six months and cost more. The advantage for suppliers is that most of Caterpillar's customers choose first lane products. That, in turn, helps Caterpillar's suppliers know exactly what they need to produce. The core of Oberhelman's strategy is for Caterpillar's customers to make "more money using our equipment rather than anybody else's." While Caterpillar's equipment is more expensive than the competition's, after factoring in maintenance, down time, operating costs, how long the product will last, and what you can sell it for when done, Caterpillar's products are a value in the marketplace. And when Cat machines break, or need parts or service, Caterpillar's dealer network is there to meet customers' needs. CEO Oberhelman says, "Our dealers--that has been the source of our Cat brand advantage more than most people really understand." Refer to WWYD Caterpillar. The most problematic deviation that Caterpillar, its dealers, and suppliers faced during economic downturns was related to which quadrant of the company's balanced scorecard?