The five control levers include:

1. Belief systems,
2. Boundary systems,
3. Internal control systems,
4. Diagnostic systems, and
5. Interactive systems.

Belief systems relate to the fundamental values of the organization. Examples in

this category include mission statements and vision statements.

Boundary systems describe constraints in terms of employee behavior, i.e.,

forbidden actions.

Internal control systems are related to protecting assets, while

Diagnostic systems theoretically provide information indicating when a system is

in control or out of control.

Interactive systems focus on communicating and implementing the organization's

strategy. The purpose of an interactive system is to promote debate related to the
assumptions underlying the organization's strategy and ultimately to promote
learning and growth.

The following graphic illustration was adapted from Figure 13-1 (p. 349) in Kaplan
& Norton's book. The original source is from Simon's book (p. 159).
The confusion is related to how and where the balanced scorecard fits into the
levers of control. According to Kaplan & Norton, successful balance scorecard
adopters use the scorecard as an interactive system (p. 350). Some balanced
scorecard implementations have failed because companies used the scorecard as
only a diagnostic system.

Simons' term "interactive system" seems to be essentially the same as Kaplan &
Norton's term "strategic system". The message is, to obtain the potential benefits of
the balanced scorecard, an organization has to use it as a strategic system.
 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
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
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.

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
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

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.

 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.

Bibliography