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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 and pretended to be Perkins, according to the
[4]
letter from AT&T. HP Chairman Patricia Dunn defended this rather extreme form
of control as legal, but the amount of damage to the firm’s reputation from these
charges led the firm to discontinue the practice. It also prompted the resignation of
[5]
several directors and corporate officers.
The third potential cost of having controls is that they can afford less
organizational flexibility and responsiveness. Typically, controls are put in place to
prevent problems, but controls can also create problems. For instance, the Federal
Emergency Management Agency (FEMA) is responsible for helping people and
business cope with the consequences of natural disasters, such as hurricanes. After
Hurricane Katrina devastated communities along the U.S. Gulf Coast in 2005, FEMA
found that it could not provide prompt relief to the hurricane victims because of the
many levels of financial controls that it had in place.
[6]
The fourth area of cost, botched implementation, may seem obvious, but it is
more common than you might think (or than managers might hope). Sometimes the
controls are just poorly understood, so that their launch creates significant
unintended, negative consequences. For example, when Hershey Foods put a new
computer-based control system in place in 1999, there were so many problems with
its installation that it was not able to fulfill a large percentage of its Halloween season
chocolate sales that year. It did finally get the controls in working order, but the
downtime created huge costs for the company in terms of inefficiencies and lost
sales. Some added controls may also interfere with others. For instance, a new
[7]
quality control system may improve product performance but also delay product
deliveries to customers.
Benefits
Although organizational controls come at some cost, most controls are valid
and valuable management tools. When they are well designed and implemented, they
provide at least five possible areas of benefits, including (1) improved cost and
productivity control, (2) improved quality control, (3) opportunity recognition, (4)
better ability to manage uncertainty and complexity, and (5) better ability to
decentralize decision making. Let’s look at each one of these benefits in turn.
Summary of Control Costs and Benefits
• Key Costs
o Financial costs—direct (i.e., paying for an accountant for an audit) and
indirect (i.e., people such as internal quality control the organization employs
whose primary function is related to control).
o Culture and reputation costs—the intangible costs associated with any
form of control. Examples include damaged relationships with employees, or
tarnished reputation with investors or government.
o Responsiveness costs—downtime between a decision and the actions
required to implement it due to compliance with controls.
o Poorly implemented controls—implementation is botched or the
implementation of a new control conflicts with other controls.

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