Control Systems

Control systems are designed to provide corrective action to align actual performance with standard performance. Effective control systems use feedback to determine whether organizational performance meets established standards to help the organization achieve its objectives.

Managers like to be in control; they try to shape their organization's future by formulating and implementing strategies designed to achieve objectives. For this reason, control systems are ubiquitous in organizations. There may be traditional budgetary control systems or the more recent and sophisticated strategic control systems. There may also be management control systems or business control systems.

When the structure of an organization is created, it results in subdivision of responsibility and dispersal of the total managerial task among different organizational units. Since the activities of each of these units are to be coordinated, control systems are necessary. Control systems are, in fact, devices to enforce or facilitate desirable behavior so that the organization, as an entity, moves toward its predetermined goals.

Control systems operate on the basis of the control cycle. This cycle is made up of a process that has four elements: Establishing standards, measuring actual performance, evaluating actual performance against standards, and determining corrective action. The control process works to bring performance in line with the predetermined plan. Standards are in the form of budgeted performance. Measurement of performance is done through an appraisal system. Actual performance is evaluated with reference to the standards, and positive or negative variation is observed. Corrective action follows so that performance corresponds to standards.

Control systems may be classified as preventive or corrective, formal or informal, direct or indirect, or social or individual controls. Preventive controls are mechanisms designed to reduce the possibility of errors and minimize the need for corrective action. Corrective controls are mechanisms to correct errors that have occurred. Formal controls are prescribed in nature and are based on quantitative, objective data; for instance, financial controls are based on accounting data and are used to quantify performance in fiscal terms. Informal controls are emergent in nature and are based on quantitative, subjective data; for example, adherence to ethical standards can only be ensured through informal means. Direct controls are exercised in face-to-face situations such as controlling performance through direct observation. Indirect controls are exercised though the means of mechanisms such as financial statements and information systems. Social controls act through the collective will of groups in organizations. Individual control takes place through direct interventions.

Control systems are also classified as open- and closed-loop systems. Open-loop control systems are [Page 387]those in which the output has no effect on the input. Closed-loop control systems are those in which the output has an effect on the input in such a way as to maintain the desired output value. A closed-loop system includes some way to measure its output to sense changes so that corrective action can be taken.

In organizations that operate globally, control systems assume special importance. The relationship between headquarters and subsidiaries in a multinational corporation, for instance, is determined on the basis of the distribution of authority among them. Where centralization of control systems is preferred, it results in concentration of authority at the headquarters. Where authority is delegated to the level of subsidiaries, decentralization of control systems takes place. Each of these options has its own set of advantages and disadvantages, making it challenging for organizations to decide in favor of one or the other. As an illustration of this dilemma, consider the case of Alfred Sloan of General Motors. When this multinational corporation chose a multidivisional structure, Sloan found that when the headquarters retained excessive power and authority, the subsidiaries having the operating divisions lacked sufficient autonomy to take their own decisions. Conversely, when too much power and authority was delegated to the subsidiaries, they tried pursuing their own set of objectives, ignoring the needs of the greater corporation. The design of control systems in multinational corporations thus has to deal with special challenges not faced by organizations operating domestically.

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