Lo Escencial Del Control

What Is Organizational Control?

The fourth facet of the P-O-L-C framework, organizational control, refers to the process by which

an organization influences its subunits and members to behave in ways that lead to the attainment of

organizational goals and objectives. When properly designed, such controls should lead to better performance

because an organization is able to execute its strategy better.[1] As shown in the P-O-L-C

framework figure, we typically think of or talk about control in a sequential sense, where controls

(systems and processes) are put in place to make sure everything is on track and stays on track. Controls

can be as simple as a checklist, such as the ones commonly used by pilots, flight crews, and some

doctors.[2]

Organizational control typically involves four steps: (1) establish standards, (2) measure performance,

(3) compare performance to standards, and then (4) take corrective action as needed. Corrective

action can include changes made to the performance standards—setting them higher or lower or

identifying new or additional standards. Organizational controls are often most noticeable when they

seem to be absent, as in the 2008 meltdown of U.S. financial markets, the crisis in the U.S. auto industry,

or the much earlier demise of Enron and MCI/WorldCom due to fraud and inadequate controls.

As shown in these examples, effective controls are relevant to a large spectrum of organizations.

Costs

Controls can cost the organization in several areas, including (1) financial, (2) damage to culture and

reputation, (3) decreased responsiveness, and (4) failed implementation. An example of financial cost is

the fact that organizations are often required to perform and report the results of a financial audit.

These audits are typically undertaken by external accounting firms, which charge a substantial fee for

their services; the auditor may be a large firm like Deloitte or KPMG, or a smaller local accounting

office. Such audits are a way for banks, investors, and other key stakeholders to understand the firm’s

financial health. Thus, if an organization needs to borrow money from banks or has investors, it can

only obtain these benefits if it incurs the monetary and staffing costs of the financial audit.

Controls also can have costs in terms of organization culture and reputation. While you can imagine

that organizations might want to keep track of employee behavior, or otherwise put forms of strict

monitoring in place, these efforts can have undesirable cultural consequences in the form of reduced

employee loyalty, greater turnover, or damage to the organization’s external reputation. Management

researchers such as the late London Business School professor Sumantra Ghoshal have criticized theory

that focuses on the economic aspects of man (i.e., assumes that individuals are always opportunistic).

CHAPTER 14 THE ESSENTIALS OF CONTROL 359

According to Ghoshal, “A theory that assumes that managers cannot be relied upon by shareholders

can make managers less reliable.”[3] Such theory, he warned, would become a self-fulfilling prophecy.

Evidence of the need for controls is found in Hewlett-Packard’s (HP) indictment on charges of

spying on its own board of directors. In a letter to HP’s board, director Tom Perkins said his accounts

were “hacked” and attached a letter from AT&T explaining how the breach occurred. Records of calls

made from Perkins’s home phone were obtained simply with his home phone number and the last four

digits of his Social Security number. His long-distance account records were obtained when someone

called AT&T

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