Levers of Control

The four levers of control were developed by Robert Simons in the 1990s from his study of practice. The four levers comprise:

• Diagnostic control
• Interactive Control
• Boundary Systems
• Belief Systems

Diagnostic control is the standard use of performance measures and is primary focused on Feedback control. Performance is measured against a target and management acts on the variance. Diagnostic control also means that performance is regularly reviewed in formal meetings such as board, departmental and team meetings on a regular basis.

Interactive control is completely different. This is an approach senior managers use to create meaningful and purposeful conversations right across the company and to interact at all levels. Typically, companies take just one issue which they subject to interactive control. One of the examples used by Simons was Pepsi's focus on market share against Coca-Cola in the US. Pepsi's objective was to overtake Coca-Cola's market share, so this was the measure used in every review meeting and every conversation. Senior managers could ask at any level in the organisation, what was happening about the market share, how that compared to Coca-Cola and why the changes (good or bad) were happening?

The benefit of using interactive control in this way is that it creates real focus on a single issue. That doesn't mean other issues are ignored (there are diagnostic controls to look after those) but one issue is singled out for special attention. It also means the senior executives speak with a single voice, they can't all have their own pet issue. Further, it is a conduit for feedback and learning, through the continuous questioning around why performance is or is not improving on this measure.

The four key elements that make control interactive are:

• A recurring theme on the agenda at the highest level of management,
• that requires regular attention from middle management, which is
• interpreted and discussed in face to face meetings and conversations and
• subject to continuous challenge and debate of the data, assumptions and action plans.

Boundary systems are a statement of what the company is not going to do. This may seem counter intuitive, but it is a mechanism for focusing the organisation and ensuring people don't spend time investigating and developing new opportunities that the company is never going to pursue.

One example given was Bill Gates statement of what Microsoft was not going to be. They weren't going into hardware and computers, they weren't going to go into telephone networks or consulting and software integration.

There is also the story of IBM and EDS. IBM was developing their world wide consulting offering. Ross Perot was a top salesman but wanted IBM to create a facilities division. Facilities management was not a consulting offering in IBMs view of the world and through this boundary condition he was prevented from pursuing his idea. Ross Perot eventually left IBM to start Electronic Data Services (EDS), which went from strength to strength. There was then the apocryphal meeting when the chairman of IBM met Ross Perot by chance in a restaurant and asked him if he had realised at the time how big the facilities market was going to be for EDS. Apparently Ross Perot said that he didn't but that it was big enough for him to see a good business opportunity for his new company.

So Boundary Controls are a two edge sword. They do stop people wasting time by constraining the opportunities they explore, but if they are badly drafted or nor reviewed, they can prevent the creation of new growth areas for the business.

Consequently, you need to take time to think through your boundary controls before you state them as they will guide development and block certain avenues.

Belief systems are there to communicate the vision, mission and values of the business. In so doing, they are communicating what the organisation is trying to achieve and how individuals are to behave, to each other, to customers and suppliers and to society at large.

Belief systems can be very powerful in directing people and giving them purpose. Lots of companies have their values prominently displayed, but getting these values into everyday conversations is much harder to do.

I did a case study in the Nationwide Building Society a few years ago and was a little amused to see flags flying in the foyer spelling out the core values of the organisation. However, these values weren't skin deep, as I talked to the managers about how they managed people in the business, the values kept coming up in the conversations and as I spoke to the employees, the same conversations recurred. People knew what was expected of them, how they were to be treated and how to behave in difficult situations.

Similarly, when I worked for Kingsway Group many years ago, I quickly had to learn what was and wasn't acceptable business conduct. Through discussing business opportunities and potential deals with the chairman and chief executive it rapidly became clear that there was an ethical imperative in all our dealings and certain practices were off limits because they didn't deal fairly with certain stakeholders. When I became a Managing Director of one of the subsidiary companies I continued to communicate those values to the people we took on and it guided what we did and didn't do. One of the strengths of this belief system was that we had a builders merchant only policy, and refused to ever deal directly with builders by going round our agents the builders merchants. The strength of this policy was that it was ingrained in the belief system, so we all knew that no one would break it and our customers knew that too, which cemented a strong relationship.

The four levers of control are supposed to complement each other. Diagnostic Controls and Boundary Systems are constraining, whilst Interactive Controls and Belief Systems should be designed to guide development and growth. But the hard part is keeping them up to date so that they continue to be relevant and to reflect the strategic direction of the business.

Benefits

• Different controls have different roles to play in managing the organisation.
• Diagnostic Controls can become very mechanical and even destructive if used the wrong way, having a strong Belief System can mitigate against the worst consequences of overused Diagnostic Controls.
• Interactive Controls work well when there is a cohesive senior management team.
• Belief Systems work best when senior management really believe in the values of the business, but you can't fake this.

• Managing four control systems needs lots of effort and permanent attention from every level of management.
• Getting Belief Systems to permeate the business takes time to build and can be destroyed by one bad action or decision.
• Boundary Systems can be over constraining, so pay attention to writing these well and reviewing them frequently.

Simons, R. (1995) 'Control in the Age of Empowerment', Harvard Business Review, 73, 2, pp.80-88 - available through the 'Further reading' section below.