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Levers of Control
Archived content
Publish date: 27 January 2016

Archived on: 27 January 2017

The following BPM tool guide is one of a series produced for ICAEW by
Professor Mike Bourne of Cranfield University.

Introduction
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
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Diagnostic Levers of
control is the standard use of performance measures andControl | ICAEW focused on Feedback control. Performance
is primary
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
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
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.
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Consequently, you need to take time to think through your Levers of Control
boundary | ICAEW
controls before you state them as they will guide
development and block certain avenues.

Belief Systems
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.

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The Four Levers of Control

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.

Pitfalls to be avoided

Managing four control systems needs lots of effort and permanent attention from every level of management.
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Getting Levers
Belief Systems to permeate the business takes time toofbuild
Control
and| ICAEW
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.

Bibliography
Simons, R. (1995) 'Control in the Age of Empowerment', Harvard Business Review, 73, 2, pp.80-88

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© ICAEW 2018

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