Attaining Behavioural Control
Attaining Behavioural Control
Attaining Behavioural Control
AND BOUNDARIES
The competitive environment is getting increasingly complex and unpredictable, demanding both
flexibility and quick response to its challenges. As firms simultaneously downsize and face the
need for increased coordination across organizational boundaries, a control system based
primarily on rigid strategies and rules and regulations is dysfunctional. Thus, the use of rewards
and culture to align individual and organizational goals becomes increasingly important.
Second, the implicit long-term contract between the organization and its key employees has been
eroded. Today’s younger managers have been conditioned to see themselves as ‘ free agents’ and
view their career as a series of opportunistic challenges. In today’s competitive work
environment, the importance of culture and rewards in building organizational loyalty has found
greater importance.
Organizational culture is a system of shared values and beliefs that shape company’s people,
organizational structures and control systems to produce behavioural norms. Over the years,
numerous best-sellers have emphasized the powerful influence of culture on what goes on within
organizations and how they perform.
Role of culture
Culture wears many different hats, each woven from the fabric of those values that sustain the
organization’s primary source of competitive advantage. Culture sets implicit boundaries, that is,
unwritten standards of acceptable behaviour: in dress, ethical matters, and the way an
organization conducts its business. By creating a framework of shared values, culture encourages
individual identification with the organization and its objectives.
Powerful organizational cultures just don’t happen overnight, and they don’t remain in place
without a strong commitment: both in terms of words and deeds: by leaders throughout the
organization. A viable and productive organizational culture can be strengthened and sustained.
However, it cannot be built or assembled. Instead, it must be cultivated, encouraged and
fertilized.
Potential disadvantage
Generally speaking, people in organizations act rationally, each motivated by his or her personal
interest. However, the collective sum of individual behaviours of an organization’s employees
does not always necessarily result in what is best for the organization. In other words, individual
rationality does not always guarantee organizational rationality.
As corporations grow and evolve, they often develop different business units with multiple
reward systems. They may differ based on industry contexts, business situations, stage of product
lifecycles, and so on. These subcultures within the organization may reflect differences among
an organization’s functional areas, products, services and divisions. Reward systems reinforce
such behavioural norms, attitudes, and belief systems; reduce organizational cohesiveness;
important information is hoarded rather than shared and individuals begin working at cross
purposes losing sight of overarching goals and objectives.
Such conflicts are commonplace in many organizations. For example, sales and marketing
personnel promise unrealistically quick delivery times in business, much to the dismay of
operations and logistics. Over engineering by research and development creates headaches for
manufacturing, and so on. Conflicts also arise across divisions when divisional profits become a
key compensation criteria. As ill will and anger escalate, personal relationships and performance
may suffer.
STRATEGY-CULTURE RELATIONSHIP
Having discussed what constitutes corporate culture and how it affects corporate life, it is
important to understand its relationship with strategy. Since each strategy creates its own set of
managerial tasks, strategy implementation has to consider the behavioural aspects and ensure
that these tasks are performed in an efficient and effective manner. Managerial behaviour arising
out of corporate culture, can either facilitate or obstruct the smooth implementation of strategy.
Therefore, the basic question before strategists is, how to create a strategy-supportive corporate
culture. In other words, a major role of the leaders within an organization is to create an
appropriate strategy- culture fit.
1. To ignore corporate culture: This approach may be followed when it is nearly impossible to
change culture. This is advisable because it is really difficult to change a nebulous phenomenon
such as corporate culture. Besides, cultural changes, when enforced in a short duration, may be
traumatic for members of an organization.
4. To change the strategy to fit the corporate culture: Rather than changing culture to suit
strategy, it is better and more economical to consider the cultural dimension while formulating
strategy in the first place. If an impregnable cultural barrier is faced after strategy
implementation, it may be better to abandon the strategy or use a combination of the above three
approaches.
Corporate Politics and use of Power
All corporate cultures include a political component. Therefore, all organizations are political in
nature. Strategists should understand that organizations are a microcosm of the society in which
they exist. Organizational members bring with them their likes and dislikes, views and opinions,
prejudices and inclinations when they enter organizations. Managerial behaviour cannot be
purely rational. Therefore, an understanding of how how politics works and how power is to be
used, is required.
To be effective, incentive and reward systems need to reinforce basic core values and enhance
cohesion and commitment to goals and objectives. They also must not be at odds with the
organization’s overall mission and purpose. Effective reward and incentive systems share a
number of common characteristics as follows:
The perception that a plan is ‘fair and equitable’ is critically important. Similarly, the firm must
have the flexibility to respond to changing requirements as its direction and objectives change.
Boundaries and constraints play a valuable role in focusing a company’s strategic priorities. A
well-known strategic boundary as set by GE’s Jack Welch was that any business in the corporate
portfolio should be ranked first or second in its industry. The concentration of effort and
resources provides the firm with greater strategic focus and the potential for stronger advantages
in the remaining areas.
Boundaries also have a place in the non-profit sector. Boundaries clearly go beyond simply
taking the moral high road. Rather, they are essential for maintaining legitimacy with existing
and potential benefactors.
• Be achievable, yet challenging enough to motivate managers who must strive to accomplish
them.
Research has found that performance is enhanced when individuals are encouraged to attain
specific, difficult, yet achievable, goals. Short-term objectives must provide direction and at the
same time provide enough flexibility for the firm to keep pace with and anticipate changes in the
external environment.
Rule- based controls are most appropriate in organizations with the following characteristics:
Take the example of McDonald’s Corp. It has extensive rules and regulations that regulate the
operation of its franchises. Guidelines can also be effective in setting spending limits and the
range of discretion for employees and managers.
Minimizing improper and unethical conduct
Guidelines can be useful in specifying proper relationships with a company’s customers and
suppliers. For example, many companies have explicit rules regarding commercial practices,
including the prohibition of any form of payment, bribe, or kickback.
The focus here is on ensuring that the behaviour of individuals at all levels of an organization is
directed towards achieving organizational goals and objectives. The three fundamental types of
control are culture, rewards and incentives as well as boundaries and constraints. An
organization may pursue one or a combination of them on the basis of a variety of internal and
external factors.
Not all organizations place the same emphasis on each type of control. For example, in
professional organizations such as high-technology firms engaged in basic research, members
may work under high levels of autonomy. Here, an individual’s performance is generally quite
difficult to measure accurately because of the long lead times involved in research and
development activities. Thus, internalized norms and values become very important.
Most environments should strive to provide a system of rewards and incentives, coupled with a
culture strong enough for boundaries to become internalized. This reduces the need for external
controls such as rules and regulations.