Pindelski_Competitive_Strategies

Fig.22 An outline of organization's control process

Yes

Not to take action

Source: own elaboration based on: J.F.Smuts, Process Control for Practicioners, OptiControls Inc., USA, 2011, p.211

So as we can see in figure 22, the steps in the process are finalized with a decision based on responses. Should we take corrective actions, or should we not? This is a very important decision and therefore, in order to make it a little easier, assumptions are made according to planned effect levels or acceptable margins of error. Going beyond this margin, should result in a decision about the reaction or lack thereof.

Phase 1 - Setting standards and methods of effectiveness measure

Initiation of control should begin with proper preparations. First action is to identify appropriate criteria for the measurement process allowing assessment of current results. Established measure criteria will result from plans and market standards, competitors data, statistical data and various experiences of an organization. Methods of measurement must be, after all, adapted to selected criteria and specific characteristics of an organization. Standards of conduct should, therefore, be of a strategic nature, be clear to all participants, but also very importantly, be understood and accepted by both the controllers and the ones undergoing control. Extremely important is to decide on what type of standards and examples to take into account when comparing and measuring the deviations from the desired state. If the example will be only the intent or plan of action, then control may be carried out during the process. However, if we adopt a result of action as a comparison model, then we can perform an assessment based on the final stages of control.

For example, during control of operations carried out by employees (e.g. sending 100 emails per day), actions can be taken at any point in the process. If, however, we assume that the objective is the effect of already sent emails, i.e. accepting the meeting invitation,

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then the final control is of greater importance (i.e. how many people have accepted invitations sent via email). So as we can see, everything is relative and depends on the decision of what is an action, what is an operational activity, and what is tactical or strategical. Writing an email may also be a result, so the action would be a use of appropriate number of characters, words and lack of spelling errors.

Stage II Effectiveness Measure

The second stage of control process is to measure company's actual state, which is to gather relevant information in regards to approved standards. This is a sustainable and repeatable process, which frequency of use and range of activities depends on the type of a process being measured. Correctly performed measure should include the following elements:

•up-to-date information, which guarantee making the appropriate decision,

•compatibility of collected information with adopted control standards,

•complete information, which means that as a result of the comparison, all necessary information was gathered in order to present the entire controlled situation,

•value of collected data (representativeness), giving the confidence that collected data is actually very important and necessary for the evaluation of subjects undergoing control,

•information flexibility, allowing to use it during changes of plans, activities and surroundings,

•objectivity, allowing safe receipt and analysis of data, in which there is no subjective feelings, presumptions or conjectures.

Step III Corrective Actions Introduction

The third step is to take actions in order to correct what turned out to be incompatible with expectations or simply incorrect. Control is very closely related to the entire management process; therefore, it is necessary to take actions that result from control recommendations. The desired situation is, when accepted standards of control, include in an early stage business organization structure and are used to measure performance of individual processes. In this situation, it is easier to take actions to correct deviations.

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Control is only effective when it is carried out systematically and follows certain rules. It is important to continue control activities, even if there are no identified deviations from standards. This situation indicates that the organization made right assumptions, and the whole process is carried out properly and efficiently. This does not mean, however, that such state will continue infinitively long. This may be a result of scheduled job, but also an advantageous coincidence. Even more so, regardless of final results, control activities should be carried out consistently and continuously.

Control process should be recognized in two ways: narrow or broad. The narrow control term recognition refers only to the final inspection and formulation of conclusion for an organization to adjust to. The broad control term recognition refers to making changes of the realistic process components, business strategies, various adapted patterns, or operational activities. Here, a broadly understood and omnipresent control, thanks to the maintenance of proper response rate and proper prioritization of reactions to deviations, allows for its most efficient utilization and benefits the entire organization.

10.3. Types of control

Control is one of the basic functions of management (administration), which significantly affects the efficiency and effectiveness of organization's strategy. Control takes many different forms and variations. It appears as one of the phases of a business cycle, a management function, as well as an institution of a specific nature.

Both, in theory and in practice, one of the key problems are the criteria for assessment selection, which is the foundation for choosing the appropriate control type. Therefore, the type of control and appropriate tools and application methods will depend on the specific control criteria. While making a distinction and evaluation of control activities, typically there are different types of control, due to the subject and the object of control, methods and techniques, procedures used, duration, location and scope of research. Depending on a certain criterion, we can distinguish specific control types, presented in table below (tab.18).

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Tab.20 Control criteria and types

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Source: own elaboration based on B. R. Kuc, Kontrola jako funkcja zarządzania, Difin, Warsaw, 2009, p. 32-33.

An organization can easily choose from various types and scopes of control that best match its needs and allow achievement of best results. However, it can be noted, that regardless of the form, type or location of control, the control activities performed are in general similar to each other as to their character, goal or scope.

Case Study 21

The HAKO Company

It all started in the year 2000. Several young hardcore enthusiasts, even computers fanatics, decided to turn their passion into money by founding a company. The HAKO company, from the very beginning of its existence, dealt with server sales, entire computer systems and wireless connectivity. The beginning of the XXI century in Poland was still a period of formation of many domestic and foreign offices and office branches. In the early stages of its activity, the company did not have too many

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competitors offering such low prices with relatively high quality, and gaining new number of customers at an extremely fast pace. In its third year of operation, the company had already more than 1% of the market and a full portfolio of future orders. Such enviable situation. The increase in sales and market shares combined with market's incredible absorption caused the company to rapidly expand to more than 200 employees. The increase in number of employees went along with the increase of company's assets. The company's CEO, John Mullen, used to say that "The measure of company's wealth are not only the people but also the company's proprietorship", speaking particularly about the real estate across Poland, which in the years 2003 to 2007 the company purchased for nearly 20 million Euro, becoming the holder of nearly 10 hectares of land and two large office buildings. There were also purchases of fleets of cars and all types of equipment. This was, to a large extent, an escape from taxes. And who would be worried anyways, if in 2007, the net profit of the company exceeded fifty million PLN. The great fortune of the company would have probably been growing, if it were not for the fact that since HAKO was founded, a number of similar businesses were introduced to the market, becoming its competition.

Fig.23 Hako market share

Source: authors own elaboration on the basis of unpublished material Hako’s reports.

With the increased aggression of similar businesses, it turned out that products offered do not meet client expectations and requirements, especially considering hardware failure. Until recently, the most important factor was the low price of PCs (even though fairly high in relation to potential buyers’ earnings). In order to meet these expectations, low-cost sub-parts were imported from Asia, immediately assembled and put out for sale. Despite the fact that the late XX and XXI century was the time of many producers

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of such components consolidating or bankrupting, limiting the choice of supplier, HAKO made sure to buy parts for the lowest price available. Such activities were the basis for maintaining the low price of their products.

2011 can be considered as a breakthrough year in the HAKO company activity. The revenue, together with the market shares, dropped for the first time in company's history. The consolation was that this is certainly due to the general world economical crisis and buyers whims; in other words, there was nothing to worry about. First major problems related to equipment returns by dissatisfied customers and costly warranty repairs, often associated with replacement of all components, begun to arise. As the repair-service department was not too large, customers often had to wait more than a month for repairs. Imagine dissatisfied buyers of equipment without systems and tools necessary for their work for a dozen or several dozen of days? It didn't take long for the results to take effect. There was a drastic drop in sales and increased customer dissatisfaction. HAKO performed a survey about the level of contractors’ satisfaction and hired a survey company as well. This single, quite expensive move, showed very interesting results. Buyers score of HAKO company (on a scale from 1-10) was 3.5. So there was nothing to be happy about. The main reasons for dissatisfaction were: frequent server failures, only a one-year warranty and long wait for repairs. As a result of such findings, all customers received New Year's greeting cards, with invitations to extend the warranty period to one year, expand the post-sales services (particularly warranty and repair) and additional discounts and coupons. Everything was supposed to go back to normal by 2012. The problem was that as early as in June, it was already clear that things will get even worse than before. Figures spoke for themselves. And clearly things did not get better by the end of 2012.

The company's president, Mr Mullen, despite the will of acting solo, decided to confer on the subject with his closest associates. During the meeting summarizing the reporting period for 2012, he announced his recovery plan. "This is outrageous! - Mr. Mullen fulminated - You must meet all the promises made to customers! And nothing, absolutely nothing has been done in this matter!" "You're right, Mr. President, you are so wonderful," Lucy Smith, the secretary, added astutely. "In order to provide what we have committed to, we must reduce the costs of operation" - Mr Mullen continued, slightly blushing. And quite frankly, not much in this matter was added. The entire focus was on the issues that something has to be done about the existing situation.

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After the discussion on the means and methods of improvement, the associates came to the conclusion, that an essential element of corrective actions should be the introduction of an adequate control system. High costs, to a large extent, were due to the fact that the product manufactured was simply cheap and of low quality. With the use of professional resources, the company’s president, together with his closest colleagues, came to the conclusion that the cost of server testing and verification before it leaves the factory, is at least several times lower than the price of repairs. Such occurrence could lead to a rapid disaster, in accordance with the principle that an unhappy customer will tell several other people about his bad experience, causing a chain reaction of bad reputation. Another factor was also the quite unique IT work environment, where scheduled work times were never followed. This was all about to change.

The President ordered the use of time cards, and requested Henry Smart, the Vice President of Engineering, to develop so-called "Rules for efficient server assembly", highly approved by the board. He described in detail all the steps an employee must go through, in order to effectively complete a product. Each worker had to pay close attention to what components are to be inserted into a case and make sure they are all working, which slightly lengthened times of entire operation. Moreover, new quality controller job positions were created, in order to perform components verification on delivery and inspection of entire computers at the final production phase, and even before their packaging process verifying such inspection with placing a 'quality guaranteed' sticker on them. H. Smart also created a special survey that each employee had to fill out before and after performing a job. It was created to keep the workplace organized and to help control components during their installation. Shortly after, it was noticed that employees taking cigarette breaks worked less efficiently. Firstly, they lose at least half an hour a day on smoking, and secondly, they get quite distracted and end up spending the first fifteen minutes after their break working quite ineffectively. Each employee got a magnetic badge that would track their movement throughout the course of a day. This became the criteria for giving out bonuses. The service department would rigorously be following the standard of "five working days" schedule, meaning that within these five days a failed server was to be repaired immediately on location, or taken from the customer, fixed and delivered back to that customer. Daily reports and information from both, the hardware and service departments, were supposed to be

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delivered to company's president who made heroic efforts to encompass all this and distribute appropriate assignments. The Accounting and Controlling Department performed monthly cost control analysis that would indicate the place of their initiation. After each period there would be a special report of results prepared for the president. Maybe these actions resulted in some disruptions in processes and often offset delivery deadlines, but the operating costs were significantly reduced and at the end of 2013, the financial results were at a "tiny advantage". Therefore it was possible to slightly lower the prices. The board, encouraged by such results, decided to allocate additional resources to the service department and expand control system of finished computer systems.

The year 2014 was looking to be pretty good. It turned out, however, that there was higher employee turnover, and despite the documented profit, money was nowhere to be found.

"Maybe it's because we didn't do any intensive promotional activities?" – the vice president Smart wrung his hands in despair. "What impertinence, I beg to differ" - quickly remarked Alf Connor, the director of marketing, - "It's rather all this control activity that's been going on that’s unnecessary and is messing with our lives".

Fig.24 Role of claims in sales – Hako company

Source: authors own elaboration on the basis of unpublished material Hako’s reports.

Discussion questions:

1.Please specify what resources have been inspected?

2.What control phases have been included and when? Are all of these necessary?

3.What control criteria can be distinguished here?

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4.Which of the elements of the repair program should be evaluated positively, and which negatively?

5.What do you think the Board should do next?

10.4.Functions and objectives of control

The control process within a business has four basic functions, which allow meeting critical needs of an organization. These functions are as follows:

1.Indicative

2.Stimulative

3.Instructive

4.Preventive.

The indicative function, also called informative, is to give a response signaling certain irregularities. It is linked between the transfer of relevant information obtained during control, and to arising, or potential problems, which may cause interference with the efficiency and effectiveness in functioning of a certain area (e.g. production process). The information with control results is forwarded to management, which thanks to such signal and post-control information is able to take appropriate corrective action. It is important that the collected data becomes an inspiration to the management to take corrective action. Otherwise, control seems to be unnecessary and an unreasonable expense.

Hence the importance of not only the relevance, suitability and rank of gathered information, but also of all working managers. In order for control to bring desirable results, they should have an array of tools enabling introduction of changes and, perhaps more importantly, be motivated to enhance and improve existing state of affairs.

The stimulative function, also known as inspirative, is intended to help an organization to find ways to observe undesirable factors which cause divergence from planned activities and already set goals. This stimulates an organization and especially its management, to feel obliged to take appropriate steps. They will aim to reduce the probability of occurrence of situations in which the achievement of goals is at risk.

The instructive function, also called educative, is expressed through offering advice and assistance to people, teams and entire organizations undergoing control, through for example, giving advice, indicating appropriate interpretation of the rules and regulations, briefing on the proper task performance, etc. This function appears to be particularly important for the executives. One could even call it a tool of governance, strongly supporting managerial work.

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