levers-of-control

Levers of Control

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Levers of Control, a framework by Robert Simons, encompasses components like beliefs, boundaries, diagnostics, and interaction. Its purpose involves strategic alignment, risk management, and adaptability. Implementing customization, communication, and relevant metrics enhances benefits like alignment, risk mitigation, and adaptability. Addressing resistance and complexity, it’s applied in tech startups and manufacturing.

Components of the Levers of Control:

  • Belief Systems:
    • Core Values: These are the fundamental principles that guide behavior and decision-making within the organization. They define what the organization stands for and believes in.
    • Cultural Norms: Cultural norms are the shared beliefs, attitudes, and behaviors that shape the actions and interactions of employees. They represent the unwritten rules and expectations within the organization’s culture.
  • Boundary Systems:
    • Defined Rules: Boundary systems include explicit guidelines and regulations that outline acceptable behavior and practices within the organization. These rules set clear boundaries for what is considered appropriate conduct.
    • Limits and Constraints: Limits and constraints within boundary systems establish boundaries that prevent deviations from established rules and ensure adherence to defined standards and policies.
  • Diagnostic Control Systems:
    • Performance Measurement: Diagnostic control systems involve the systematic monitoring of key metrics and indicators to assess progress toward organizational goals and objectives. They provide a quantitative basis for evaluating performance.
    • Key Performance Indicators (KPIs): KPIs are specific, measurable benchmarks used to gauge performance against strategic objectives. They serve as critical metrics for evaluating success.
  • Interactive Control Systems:
    • Collaborative Communication: Interactive control systems facilitate open dialogues and feedback among teams and individuals within the organization. They create a platform for collaborative communication.
    • Problem-Solving Channels: These mechanisms provide structured avenues for addressing challenges, solving problems, and making decisions collectively within the organization.

Purpose of the Levers of Control:

  • Strategic Alignment:
    • Goal Consistency: The levers of control ensure that the actions and decisions of individuals and teams align with the overarching goals and objectives of the organization. They help synchronize efforts toward common aims.
    • Strategic Focus: By providing guidance and direction, these controls ensure that organizational efforts are directed toward prioritized strategies critical for achieving success.
  • Risk Management:
    • Risk Identification: The controls help identify potential threats and challenges that may impact the organization’s operations, performance, and objectives. This early identification is crucial for effective risk management.
    • Mitigation Strategies: In addition to identifying risks, the levers of control also facilitate the implementation of control mechanisms and strategies to minimize these risks, ensuring organizational resilience.
  • Adaptive Management:
    • Flexibility and Responsiveness: Adaptation to changing conditions, whether they are market shifts, technological advancements, or internal transformations, is essential for organizational survival. The levers of control enable organizations to respond swiftly and make necessary adjustments.
    • Organizational Agility: The ability to make quick and effective adjustments in response to emerging opportunities and challenges is a competitive advantage. Adaptive management is facilitated through these controls.

Implementation Strategies for the Levers of Control:

  • Adaptive Management:
    • Tailoring Components: Organizations should customize control mechanisms to align with the unique context, culture, and needs of the organization. One size does not fit all, and controls should be adaptable.
    • Contextual Fit: Ensuring that control systems are closely aligned with specific organizational requirements, strategies, and the external environment is critical for their effectiveness.
  • Communication:
    • Value Dissemination: It is essential to clearly communicate core beliefs, values, and strategic priorities throughout the organization. Effective communication ensures that everyone is on the same page.
    • Rule Clarification: Transparency in communication helps employees understand behavioral expectations, rules, and guidelines. This clarity reduces ambiguity and fosters compliance.
  • Measurement Metrics:
    • Relevant Metrics Selection: Organizations should carefully choose performance indicators that directly align with their specific goals and objectives. The selection of relevant metrics is crucial for meaningful performance evaluation.
    • Data-Driven Insights: Leverage data analytics and insights to make informed decisions. Data-driven decision-making enhances the organization’s ability to adapt and improve performance continually.

Benefits of Implementing the Levers of Control:

  • Strategic Alignment:
    • Goal Achievement: Enhanced alignment results in more effective goal attainment, driving the organization closer to its strategic vision. When everyone is working toward the same objectives, progress is accelerated.
    • Efficient Resource Allocation: Resources, including time, manpower, and capital, are directed toward strategic priorities. Efficient resource allocation optimizes resource utilization and maximizes returns.
  • Efficient Risk Management:
    • Risk Identification: Early identification of potential risks allows for proactive mitigation efforts. By addressing risks before they escalate, organizations can avoid costly disruptions.
    • Compliance Assurance: Adherence to rules and regulations is ensured through boundary systems, reducing the organization’s exposure to legal and reputational risks.
  • Adaptability:
    • Change Readiness: Organizations become more prepared to navigate market shifts, seize opportunities, and effectively respond to crises. The ability to adapt ensures survival and growth.
    • Innovation Enablement: Adaptable structures and a culture of adaptive management foster innovation. This enables the organization to stay competitive and innovative in its industry.

Challenges in Implementing the Levers of Control:

  • Resistance to Change:
    • Employee Buy-In: Overcoming resistance from employees who may be reluctant to adopt new control mechanisms and practices is a common challenge. Effective change management strategies are required.
    • Change Management: Developing effective strategies to facilitate smooth transitions and minimize disruptions during the implementation of new controls is essential.
  • Complexity:
    • Control Integration: Managing multiple control systems effectively without creating overwhelming complexity is a significant challenge. Balancing the various levers of control and ensuring they work cohesively is essential for success.

Examples:

  • Tech Startups:
    • Innovation Alignment: Levers of Control to align innovation with strategic goals.
    • Agile Operations: Adaptability for navigating dynamic startup environments.
  • Manufacturing Companies:
    • Quality Management: Implementing controls for product consistency.
    • Compliance Assurance: Adhering to industry standards and regulations.

Key Highlights

  • Framework: Developed by Robert Simons, it emphasizes control mechanisms for organizational alignment.
  • Components: Beliefs, boundaries, diagnostics, and interaction are integral elements.
  • Purpose: Focuses on strategic alignment, risk management, and adaptive responses.
  • Implementation: Customization, communication, and relevant metrics facilitate effective implementation.
  • Benefits: Drives goal achievement, efficient risk management, and adaptability.
  • Challenges: Addresses resistance to change and the complexity of managing multiple controls.
  • Examples: Applied in tech startups for innovation and manufacturing for quality and compliance.

Framework NameDescriptionWhen to Apply
Levers of Control– Developed by professors Robert Simons and Christopher Chapman, the Levers of Control framework provides a strategic management framework that emphasizes the use of four types of control systems to align organizational actions with strategic objectives: beliefs control, boundary control, diagnostic control, and interactive control. These levers allow organizations to balance the need for flexibility and innovation with the requirement for accountability and alignment with strategic goals.– When designing organizational control systems or strategic management practices, to apply the Levers of Control framework by integrating multiple control mechanisms that address different aspects of organizational performance, fostering alignment, adaptability, and innovation while ensuring accountability and goal achievement across various levels and functions within the organization.
Beliefs Control– Involves shaping organizational values, norms, and culture to guide employee behaviors and decisions towards desired strategic objectives, suggesting that beliefs control mechanisms influence organizational culture, identity, and shared values to align actions with strategic goals and promote a sense of purpose and commitment among employees.– When shaping organizational culture or fostering alignment with strategic goals, to utilize beliefs control mechanisms by articulating and reinforcing core values, mission, and vision statements, fostering a shared sense of purpose and identity, and promoting behaviors and decisions that align with organizational goals and strategic priorities.
Boundary Control– Refers to establishing boundaries or constraints to govern employee actions and decisions, providing guidelines or limits within which individuals can exercise discretion and autonomy, suggesting that boundary control mechanisms define acceptable behaviors, practices, and risk tolerances to ensure consistency and alignment with strategic objectives while allowing for flexibility and innovation within established parameters.– When managing risk or ensuring compliance with organizational policies and standards, to implement boundary control mechanisms by defining clear rules, guidelines, or limits that delineate acceptable behaviors and practices, fostering consistency, accountability, and alignment with strategic objectives while empowering employees to exercise discretion and autonomy within established boundaries.
Diagnostic Control– Involves monitoring and evaluating performance against predefined targets, standards, or key performance indicators (KPIs) to assess progress and identify deviations from strategic goals, suggesting that diagnostic control mechanisms enable organizations to track performance, diagnose issues, and take corrective actions to ensure alignment with strategic objectives and promote continuous improvement and accountability.– When monitoring organizational performance or assessing progress towards strategic goals, to deploy diagnostic control mechanisms by establishing relevant performance metrics, KPIs, or benchmarks, collecting and analyzing data to evaluate performance, and using insights to identify areas for improvement, diagnose root causes of performance gaps, and take proactive measures to address issues and ensure alignment with strategic objectives.
Interactive Control– Encompasses ongoing communication, dialogue, and feedback between managers and employees to clarify expectations, share information, and align actions with strategic objectives, suggesting that interactive control mechanisms facilitate collaboration, learning, and adaptation by promoting open communication, transparency, and shared understanding of goals and priorities to enhance agility, responsiveness, and organizational performance.– When promoting collaboration or fostering alignment with strategic goals, to implement interactive control mechanisms by fostering open communication, dialogue, and feedback channels between managers and employees, encouraging mutual understanding, sharing of information, and alignment of actions with organizational objectives, and promoting a culture of collaboration, learning, and adaptability to enhance organizational performance and agility.
Strategic Alignment– Refers to ensuring that organizational actions, behaviors, and decisions are consistent with strategic objectives and priorities, suggesting that strategic alignment is facilitated by the effective deployment of control mechanisms that guide, monitor, and adapt organizational activities to support the achievement of strategic goals and promote organizational success and sustainability.– When aligning organizational activities or behaviors with strategic objectives, to leverage the Levers of Control framework by deploying control mechanisms that foster strategic alignment, accountability, and adaptability, enabling organizations to translate strategic goals into actionable plans, monitor progress, and take corrective actions to ensure alignment, agility, and resilience in the face of changing internal and external environments.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

convergent-vs-divergent-thinking
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

critical-thinking
Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Second-Order Thinking

second-order-thinking
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

lateral-thinking
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Lindy Effect

lindy-effect
The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.

Antifragility

antifragility
Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).

Systems Thinking

systems-thinking
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

vertical-thinking
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

einstellung-effect
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

peter-principle
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

straw-man-fallacy
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

streisand-effect
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.

Heuristic

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

recognition-heuristic
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

representativeness-heuristic
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

take-the-best-heuristic
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Bundling Bias

bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Barnum Effect

barnum-effect
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

first-principles-thinking
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

ladder-of-inference
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Goodhart’s Law

goodharts-law
Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.

Six Thinking Hats Model

six-thinking-hats-model
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Moore’s Law

moores-law
Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.

Disruptive Innovation

disruptive-innovation
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Value Migration

value-migration
Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Bye-Now Effect

bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Groupthink

groupthink
Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.

Stereotyping

stereotyping
A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.

Murphy’s Law

murphys-law
Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”

Law of Unintended Consequences

law-of-unintended-consequences
The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.

Fundamental Attribution Error

fundamental-attribution-error
Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.

Outcome Bias

outcome-bias
Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.

Hindsight Bias

hindsight-bias
Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.

Read Next: Biases, Bounded Rationality, Mandela Effect, Dunning-Kruger Effect, Lindy Effect, Crowding Out Effect, Bandwagon Effect.

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