Strategic Management: Formulation and Implementation

Set Control Standards

The second step in the control process is establishing standards. A control standards is a target against which subsequent performance will be compared.

Standards are the criteria that enable managers to evaluate future, current, or past actions. They are measured in a variety of ways, including physical, quantitative, and qualitative terms. Five aspects of the performance can be managed and controlled: quantity, quality, time cost, and behavior. Each aspect of control may need additional categorizing.

An organization must identify the targets, determine the tolerances those targets, and specify the timing of consistent with the organization's goals defined in the first step of determining what to control. For example, standards might indicate how well a product is made or how effectively a service is to be delivered.

Standards may also reflect specific activities or behaviors that are necessary to achieve organizational goals. Goals are translated into performance standards by making them measurable. An organizational goal to increase market share, for example, may be translated into a top-management performance standard to increase market share by 10 percent within a twelve-month period. Helpful measures of strategic performance include: sales (total, and by division, product category, and region), sales growth, net profits, return on sales, assets, equity, and investment cost of sales, cash flow, market share, product quality, valued added, and employees productivity.

Quantification of the objective standard is sometimes difficult. For example, consider the goal of product leadership. An organization compares its product with those of competitors and determines the extent to which it pioneers in the introduction of basis product and product improvements. Such standards may exist even though they are not formally and explicitly stated.

Setting the timing associated with the standards is also a problem for many organizations. It is not unusual for short-term objectives to be met at the expense of long-term objectives.

Management must develop standards in all performance areas touched on by established organizational goals. The various forms standards are depend on what is being measured and on the managerial level responsible for taking corrective action.

Commonly uses as an example, the following eight types of standards have been set by General Electric :

Critical Control Points and Standards. The principle of critical point control, one of the more important control principles, states: "Effective control requires attention against plans". There are, however, no specific catalog of controls available to all managers because of the peculiarities of various enterprises and departments, the variety of products and services to be measured, and the innumerable planning programs to be followed.