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The Ultimate Control of Organizations

People act as they are being rewarded or punished.

There is a fundamental, incurable, basic limitation to controls in a social institution. A social institution is comprised of persons, each with his own purpose, his own ambitions, his own ideas, his own needs. No matter how authoritarian the institution, it has to satisfy the ambitions and needs of its members, and do so in their capacity as individuals through institutional rewards and punishments, incentives, and deterrents. The expression of this may be quantifiable—such as a raise in salary. But eh system itself is not quantitative in character and cannot be quantified.

Yet here is the real control of the institution. People act as they are being rewarded or punished. For this, to them, rightly, is the true expression of the values of the institution and of its true, as against its professed, purpose and role. A system of controls that is not in conformity with this ultimate control of the organization, which lies it will cause never-ending conflict and will push the organization out of control. In designing controls for an organization, one has to understand and analyze the actual control of the business, its people decisions. One has to realize that even the most powerful “instrument board” complete with computers is secondary to the invisible, qualitative control of any human organization, its systems of rewards and punishments, of values and taboos.

ACTION POINT: Specify the system of rewards and punishments in your organization, including the procedure used for making promotion decisions. Evaluate the performance measures in place in your organization. Make sure that good performance on the performance measures leads to rewards, promotions, and punishments.

Management: Tasks, Responsibilities, Practices

* Source: The Daily Drucker by Peter F. Drucker

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