Chapter 14

1. Chapter 14 Control and Entrepreneurial Activity

2. Introduction • Organizations need control systems • Policies, procedures, and rules are needed to ensure order, achieve coordination, and maintain efficiency • Control systems have historically placed a heavy emphasis on efficiency. • Efficiency v. effectiveness • Efficiency: minimizing the amount of expenditures or resources needed to accomplish a task • Effectivenessis concerned with ensuring that the correct tasks are being accomplished • Doing things right (efficiency) v. doing the right things (effectiveness)

3. 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 Implies a carefully constructed and well-integrated set of items A set of control mechanisms evolves, with components subject to change

4. The Nature of Control in Organizations The various control measures and mechanisms can be grouped into four general categories: • Simple control • Direct supervision by the manager over subordinates • Technological control • Technology-based techniques that production/service deliverable processes • Bureaucratic/administrative control • Formal rules and procedures outlined by company • Concertive/cultural control • Cultural norms, shared values, and beliefs held within the firm

5. Example 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 Informal norms/behavior rules

6. Control Systems: Unintended Consequences • “Trust problem” • Increasing control mechanisms may make employees feel “micro-managed” or “untrusted” • “Slowness problem” • Moderate controls = efficiency • High controls = slow/inefficient • “Means-end problem” • Managers can become so concerned with enforcing controls they forget what the controls are for • “Efficiency-Effectiveness problem” • Controls improve efficiency, but hurt effectiveness

7. Dimensions of Control and Entrepreneurship A control system can be characterized by a variety of attributes: • Degree of formality and prescriptiveness • Desire for conformance and compliance • Degree of rigidness • Desire for consistency • Use of coercive power • Distribution of discretion • Degree of horizontal interaction and communication • Level of detail

8. 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 Unfortunately, outcomes such as these tend to be inconsistent with entrepreneurship

9. Dimensions of Control and Entrepreneurship ENT Consistent outcomes: • Risk tolerance • Management of uncertainty • Enlightened efficiency • Goal congruence • Role flexibility

10. Administrative Domain Entrepreneurial Domain Tight, extremelydetailed Loose with broadguidelines Decentralized Centralized Stress conformity Decentralized Inflexible, nodiscretion Flexible, allowdiscretion Informal Formal Rule andprocedure based People/comm.based Emphasis onfeedback Emphasis on feedforward Dimensions of Control and Entrepreneurship

11. The Entrepreneurial Philosophy of Control A core principle in the entrepreneurial philosophy of control requires that managers give up control to gain control To give up control is to empower Doesn’t mean to give up complete control

12. 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 second-guessing?

13. Key Questions for Control What specific impact on behavior is management attempting to have? Over what variables is control being gained, and how is it manifested?

14. The Entrepreneurial Philosophy of Control • Less control does not guarantee entrepreneurship • Control is vital for sustained entrepreneurship • The real issue is the nature and intent of the controls and how they are used • Control levels varies with the type of entrepreneurship the company seeks • Incremental innovation can occur in more tightly controlled environment • discontinuous innovation requires extensive autonomy

15. Balancing Control Moderate to intermediate levels of formality encourage entrepreneurial thinking and yet maintain some control over individuals 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

16. 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 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

17. Internal Venture Capital Pools There is a need to provide financial support for 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-to-get seed money for initial research to increasingly larger amounts that are tied to the achievement of specific development targets.

18. Internal Venture Capital Pools Intracapital– a resource bank account awarded to employees who successfully pursue entrepreneurship within the company