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1.Rules
Shorthand for all types of formal
instructions and controls, incl.
Standing instructions, job
descriptions, SOP, manuals, and
ethical guidelines.
From trivial to the most important.
The Formal Control System
Types of Rules :
Physical Controls
Ex. Security guards, locked storerooms,
computer passwords, vaults, television/camera
surveillance, etc.
Manuals
Manuals = written rules.
Should be considered to be guidelines rather
than fiats Should be reexamined periodically
to ensure that they are still consistent with
the wishes of current senior management.
The Formal Control System
System Safeguards
Safeguards are built into the information
processing system to ensure that the information
is accurate and to prevent fraud.
Incl. Cross-checking totals with details, requiring
signatures, separating duties, etc.
Task Control Systems
Task control : the process of ensuring that specific
tasks are carried out efficiently and effectively.
The Formal Control System
2) Formal Control Process
A strategic plan implements the organization’s
goals and strategies
The strategic plan is converted to an annual
budget that focuses on the planned revenues and
expenses for individual responsibility centers.
Responsibility centers are also guided by rules
and other formal information.
The Formal Control System
Actual results are compared with budget to
determine whether performance was
satisfactory.
If it was, the responsibility center receive
feedback (praise or reward).
If it was not, do corrective action in the
responsibility center and possible plan
revision.
Formal Control Process
Types of Organizations
1) A Functional Structure
Each manager is responsible for a specified
function.
2) A Business Unit (BU) Structure
BU managers are responsible for most of
the activities of their particular unit.
3) A Matrix Structure
Functional units have dual responsibilities.
Functional Structure
of Organizations
Functional Structure
of Organizations
An important advantage of a functional
structure is efficiency.
Disadvantages of a functional structure :
a) No unambiguous way of determining the
effectiveness of the separate functional
managers.
b) If the organization consists of managers in one
function who report to higher-level managers in
the same function, then a dispute between
managers of different functions can be
resolved only at the top.
Functional Structure
of Organizations
C) Functional structures are inadequate
for a firm with diversified products and
markets.
D) Functional organizations tend to create
silos for each functions.
Business Units (BU)
BU is designed to solve problems inherent in the functional
structure.
a BU = a Division
BU is responsible for all the functions involved in producing
and marketing a specified product line.
The performance of BU is measured by the profitability of
BU.
Advantages of BU:
• It provides training ground in general management.
• Because BU is closer to the market for its products than
HO, BU can react to new threats & opportunities more
quickly.
Business Units (BU)
Matrix Structure
Corporate Corporate
Controller Controller
Business Business
Unit Unit
Manager Manager
Business Business
Unit Unit
Controller Controller