INPUT CONTROLS
Input controls seek to define and direct employee behavior through a set of explicit, codified
rules and standard operating procedures. Firms use input controls when the goal is to
define the ways and means to reach a strategic goal and to ensure a predictable outcome.
They are called input controls because management designs these mechanisms so they are
considered before employees make any business decisions; thus, they are an input into the
value-creation activities.
The use of budgets is key to input controls. Managers set budgets before employees
define and undertake the actual business activities. For example, managers decide how
much money to allocate to a certain R&D project before the project begins. In diversified
companies using the M-form, corporate headquarters determines the budgets for each
division. Public institutions, like some universities, also operate on budgets that must be
balanced each year. Their funding often depends to a large extent on state appropriations
and thus fluctuates depending on the economic cycle. During recessions, budgets tend to
be cut, and they expand during boom periods.
Standard operating procedures, or policies and rules, are also a frequently used mechanism
when relying on input controls. In our discussion on formalization, we described
how McDonald’s relies on detailed operating procedures to ensure consistent quality and
service worldwide. The goal is to specify the conversion process from beginning to end in
great detail to guarantee standardization and minimize deviation. This is important when a
company operates in different geographies and with different human capital throughout the
globe but needs to deliver a standardized product or service.