Pindelski_Competitive_Strategies

The preventive function refers to the prevention of activities and events, which may prove to be very detrimental to an organization. Control enables to disclose irregularities in action ways and effects. The use alone causes omission of adverse activities, and sometimes, even taking steps to fully eliminate them. 56

In addition to the four, previously mentioned, main control function, the following may also be included:

•increasing quality in company,

•raising labor standards,

•increasing safety at work,

•supporting managers in the management of change,

•avoiding further errors,

•avoiding effects of errors and unresolved problems accumulation,

•maintaining certain stimulation of organization and its employees to search for better solutions,

•reducing negative effects arising from complexity of operations of an organization,

•facilitating the delegation of powers and work in an organization.

Control is to streamline an organization and processes occurring in it. It should help in the regularity of actions assessment in relation to agreed norms and standards of conduct as well as to a goal to be achieved (e.g., a product of relevant parameters, properly carried out service, or appropriately performed manual process). Control is to contribute to the detection of irregularities, the determination of their sources and the constructive action to improve existing methods of work. Completed control should help to find the answers to the questions such as:

Is the present quality adequate and sufficient and will it satisfy customers and suppliers in the near future?

Are the activities and operations effective enough and executed efficiently enough to ensure the best quality and cost-effectiveness?

What should be the next direction of work and processes development?

56 B. R. Kuc, Kontrola jako funkcja zarządzania, Difin, Warsaw, 2009, p. 45 -46.

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The control legality criterion refers to the conformity of actions or decisions with applicable laws, social determinants as a sense of justice, cultural norms, as well as regulations or organization's unit statutes. 59 Such view of control refers only to the possibility of performing it in the light of applicable legislation, standards and values, without reference to other aspects of inspection.

Control purposefulness criterion is a supplement to the legality criterion. It comes down to the substantive assessment of operations, control activities, goals, their proof, and then reference to already set goals. This criterion is very important, as it refers to control itself, organization as a whole and goals to be achieved.

Control diligence is understood as documented compliance with an actual subject of control and inspection activities. Diligence also refers to acknowledging already existing business rules, standards, external directives, which all relate to the business. It allows specifying organization's reliability of operation and conduct.

Control economy is understood as accurate management of available financial and material resources, which is to lead to the achievement of intended purpose. According to references, there are two approaches of economy management. On one hand, it is understood as a way to fully achieve the planned goal, while limiting the use of funds to a certain level; we are talking about effectiveness here. On the other hand, however, economy management refers to goal achievement at the lowest cost and concerns savings measures. Control performed in an economical way simply means achieving control goals in an effective manner. It requires certain type of coverage and use of control tools that will be appropriate to the effect, weight and rank of inspected objects, operations and processes. There is no economic justification of using complex inspection processes, hiring inspectors and expanding control supporting systems, only to e.g.: correct errors of staff in-mail.

Sticking to these control criteria is extremely important, however, in today's changing economy, such criteria must be further enhanced by earlier mentioned transparency and accountability criteria.

The most popular definition of these terms may be classified as those which are to define transparency as the accuracy in classification of revenue and expenditure, following the principles and rules of law or the correct management of reports. Drawn up in a transparent manner, they are easy to read and interpret and do not give an impression of

59 S. Kałużny, J. Szczepanik, Kontrola państwowa w Polsce, Libra, Warsaw 1980, p. 17

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facts manipulation. A business applying to these rules of conduct becomes simply more reliable for its stakeholders.

Disclosure, however, allows access to financial statements and business reports showing organization's transparency to its stakeholders and to control authorities. 60 An organization may provide control input data not only to the internal units or authorized controllers, but also to its suppliers, customers and even competitors. This can be the case for customer satisfaction survey, where the final report may be available online for everyone to view.

An organization that adopts these principles becomes credible to business partners and public administration authorities. In addition, through the adaption and conscious use of specific guidelines, it reduces the risk of high costs or additional loss, as a result of statements and exposure e.g.: media abnormalities.

Control Study Methods

Study methods should be viewed as a specific way of a rational approach to control processes, which should be reflected in the right type and order of activities during inspection. All of this will allow to achieve the purpose and effects in the simplest way possible, while maintaining its full transparency, and letting such approach to be repeated. According to references, there are two dominant research approaches used during inspection:

•the deductive reasoning method,

•the inductive reasoning method,

Deductive reasoning refers to performing initial inspection, which findings set the range and areas of thorough inspection. Conclusions from a detailed inspection of selected areas primarily refer to these specific areas. If another area needs attention, control activities should be redirected towards it. Conclusions coming from other areas may prove to be false and incorrect for other points of the process. It's a bit like work inspection of a singular job position and the conclusions drawn from it, relate only to that specific position.

In turn, the inductive reasoning method consists of looking at the sequence of operations and events as a whole, determining, sometimes intuitively, where undesirable events

60 Glosariusz terminów dotyczących kontroli i audytu w administracji publicznej, Wydany przez Najwyższą Izbę Kontroli, Warsaw 2005.

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occur or simply where exactly control seems to be necessary, inspecting them and consequently transferring conclusions onto the processes. Results of inspection of a specific job position should be applied to all the remaining ones and performance adjustments should be applied accordingly.

Control methods include both, traditional and modern ones. Among traditional methods, we should mention a comparison method, internal confrontation method, external confrontation method, as well as a detailed economic analysis and calculations method.

Comparison method probably occurs in all types and forms of inspection. We can find them in very simple, uncomplicated processes, as well as in very complex control systems that investigate entire connections and activities. The essence of this method involves comparison of the actual state with the state desired. It’s often emphasized that a comparison is the essence of inspection, something without which, inspection loses its true meaning.

Internal confrontation method involves comparing e.g. content of inspected documents with the facts found at inspection site. In case of irregularities found during fragmentary control (i.e. deviations of documented state with the factual state), a full inspection should be performed, which will cover all existing documentation and actual activities, like: processes or operations.

External confrontation method occurs in the form of a compilation of facts or clues resulting from evidence held by a company, with equivalents held by competition, customers, contractors or other entities, which may be used as an object for comparison. This is simply a comparison of control results with other similar results. This method is associated with benchmarking, i.e. referring to accepted standards.

Detailed economic analysis and calculations method. This method involves the division of events into components and examining each of them separately. Economic analysis refers to the evaluation of simple factors and causeand- effect relationships occurring between them, which allows a synthetic assessment of conditions and economic processes from the rational management point of view. An economic calulation is the basis for this type of analysis. It is a logically and economically justified system measuring inputs, costs, revenue and a range of other economic results of a business. An ideal situation is when a detailed economic analysis precedes economic decisions, is present during their implementation and or used after their completion.

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In the context of constantly changing economic environment followed by an even greater computerization, control methods are evolving as well. The so-called modern control methods can be divided into IT control methods or PERT control methods.

IT inspections are any methods and forms of control processes occurring in electronic data processing, information systems or in information systems control processes for regular and financial accounting. The essence of an IT inspection is to ensure correct data processing, and create the best possible reliability protection of the "input" and "output" data. IT control methods frequently include control of input data processing, various information media, user data transfer to a computing center, computer data download, electronic data processing (so-called calculations control) or a final results input data control.61

The second type of modern control is the PERT method (Program Evaluation and Review Technique), which is also known as the network method. It's mostly used in project control process or in investment process, where it supports the ongoing operation inspection, or the implementation stages monitoring, which are considered the critical path elements of processes. Any deviations observed during control should be kept under constant review and corrected/adjusted along with ongoing interventions. Only such action can ensure timely project or investment completion. The PERT control method forces up-to-date planning, efficient decision-making and fast actions implementation. A project, after all, must be completed without any unnecessary delay, therefore control should be performed along with it. If you wait till project completion, control may be extremely troublesome and costly.

10.5. Strategic Control and Balanced Scorecard

Strategic control is one of the most important types and forms of control in an organization. Its main aim is to ensure that all implemented activities are according to a previously approved plan and a strategic goal. R. Kuc points out that with such perception of control, one needs to ask two basic questions:

Is the strategy implemented in the way it was designed?

If achieved results coincide with what was initially intended?

61 B. R. Kuc, op. cit., p. 64.

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They underline the importance of operational and strategic plans, which are the basis for strategy implementation and give a significant rank to the effects of its implementation.62

Strategic control is also associated with a process designed for continuous monitoring and measurement of:

•Operations, which are carried out by a business

•Changes of strategic importance for a business

•Designed for actions execution

•Overestimation and change of core objectives.

At this point, the Strategic Issue Management (SIM) should be mentioned, already introduced by H. I. Ansoff. According to this author, the objective of strategic control is to establish issues that are critical from strategical point of view. It is assumed that a list of such strategic issues should be drawn up periodically, being the basis for determining ranges and areas of a business subjected to observation. This, in turn, allows signals to be recorded, which may have an impact on successful implementation of business strategy. H. I. Ansoff draws attention to three types of signals. These signals, by being the result of observation and control, will become an important resource in determining further policies and improving current systems, ways and methods of strategy implementation.

•Signals impacting a business in a very urgent and strong manner are referred to as type I signals.

•Signals impacting a business in a less urgent but still very strong manner are referred to as type II signals.

•Signals that are barely urgent and have a weak impact on a business are referred to as type III signals.

While considering issues related to control strategy, we should bare in mind that according to L. R. Bittel, "control should be located in strategic points, i.e.: where there is highest probability that it detects existing conditions before they get out of control".63

Such approach allows almost complete management of the control process, because the organization no longer has to control its entire internal and external environment. It may focus on several most important points and causing the biggest effects on the entire system. This provides necessary information and allows making key decisions, with relatively little involvement in control activities. A previous establishment of such

62Ibid., p. 207.

63J.W.Newstrom, L. R. Bittel, Supervision: Managing for Results, 8th ed, MCGraw Hill, Glencoe, 2001, p. 185-186.

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strategic points is required, or determining what areas have the highest impact on an organization and implementation of its strategy, yet still producing very positive results. This type of control, as opposed to a very broad, timeconsuming, and expensive traditional control, is more cost-effective, does not distract managers and controllers, shows the entire crew issues that are really important, it helps to focus attention on the important, eliminating the less important, and restricts freedom of choice of control range and area, which can lead to chaos in control systems and strategy implementation methods.

Control Areas

Control may include, in particular, organizational resources, i.e. focusing on people (although they are not so much a resource, per say), information and data, finance, machinery, equipment, real estate, etc. It affects the merit of their ownership, forms of ownership (full-time hold, property, leasing, rental, etc.), related costs, ways of use, economy and safety of their use, effects they bring, plans for further use, and potentially methods of their disposal along with costs associated with this. Resource control is not only an important procedure, but it is also forms a prerequisite for the appropriate control methods application. Without a doubt, however, it is important that the applied control and its vectors are coherent, especially on the strategic control level.

From a slightly different perspective, the range that should be determine and observed on regular basis by an organization should cover three very broad areas:

•Financial area control methods of raising assets, control of its revenue and expenditure structure and control methods of financial management.

•Operating area- control of supplies, inventories, schedules, production norms and costs, quality standards and production methods and the effects of the jobs performed.

•Human resources area - control of employee check lists, expenses related to wage bills, absence and tardiness, complaints, motivation and commitment levels.

In order to determine appropriate control points in the above-mentioned areas, it requires the executives to have high management skills. Staff responsible for this area could get some support from a set of guiding questions:

What best reflects the tasks that must be performed by an organization? What indicates that they are performed at an expected level?

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What is the best way to measure any deviation between the plan and the implementation? What is the source of information about who is to blame for any shortcomings?

What norms and standards will bring decent effects and be at a fairly low cost?

For what kind of norms and standards obtaining information is the easiest, for example on the range of achievements, but also on indicators for comparison?64

Control, especially strategic control, is very strongly focused on the future. Its purpose is to detected future errors and takes immediate corrective actions, even before any problems arise. Predicting error effects is carried out on the basis of observation and recording of current deviations.

The strategic control, as opposed to other types of control, puts a very strong emphasis on observation of so-called "process entry factors". A correct response here is to avoid a number of problems which may arise in subsequent stages. This is also a fairly inexpensive way to avoid errors. If, for example, a reduced quality plastic enters the manufacturing process, then the modern and eye-catching cellphone cases begin to crack and cause the customer to file complaints and return the entire product, not just the case itself. In this instance, control of other aspects may not bring as many effects as the process entry control. Applicably concentrated on this area control, enables to make appropriate changes, before their effects escalate.

Strategic control is also directed towards continuous verification of the strategic goal in such way, that in the event of threat identification, it is able to make appropriate changes. It focuses on selected key areas of organization, which adds additional protection against the adverse effects of selectivity in planning and conducting subjective decision as to the control areas and range. This is because these actions may effectively block business growth and even contribute to its failure.65

Balanced Scorecard

One of the tools of strategic control is the Balanced Scorecard - BSC. The Balanced Scorecard concept was developed by R. Kaplan and D. Norton. Its main objective is to monitor (control) business strategy. Properly designed system of financial and nonfinancial indicators is used here to assess the business condition. The strategy is presented as a set of measurable goals and objectives, which are necessary for the company's vision

64B. R. Kuc, op. cit., p. 212.

65Ibid., p. 2017-214.

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implementation process. We use it in order to ensure consistency between the objectives and actions taken, measurement and control of strategic effects and motivational impact on employees.

Balanced Scorecard allows the management to translate the vision and strategy of the organization into a set of logically linked performance indicators, which can be easily explained to employees and convince them about the importance of their implementation. There are many companies out there, which mission is basically a memorandum of fundamental values and beliefs of its employees. It is important to remember that a mission is a source of inspiration, from which an organization should get its energy and motivation to act, however, it is not sufficient enough for a company to become successful. A company should have an established vision, i.e. a coherent approach across an organization, allowing the achievement of the set objective. However, the Balanced Scorecard converts the mission, vision and strategy into objectives and measures. Only they can help maintaining the balance between short-term and long-term objectives. Although it may seem that the various measures included in the Scorecard may look complicated and difficult to describe, in reality this type of juxtaposition is a great facilitator of strategy implementation, as all enclosed data and intermediate objectives describe the one, main, strategic goal.

Based on the Balanced Scorecard, organizations objectives are looked at through four main perspectives:

•financial perspective;

•customer's perspective;

•internal processes perspective;

•growth perspective.66

Balanced Scorecard usually identifies various processes within the context of "perspectives" that should be improved, in order to achieve financial and market strategic objectives. Moreover, it indicates the fact that the factors of a long-term financial success depend not only on finances or cost control, but also on a number of other areas and activities. This may require that an organization, for instance creates entirely new products and services, which will satisfy the needs of present and future customers.

66R. S. Kaplan, D. P. Norton, The Balanced Scorecard, Harvard Business Review Press, Boston, 1996, p. 41

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