Customer Reviews

Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal

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The book is far more interesting than the title suggests. "Levers of control" makes one think of man/woman being reduced to robots directed by the pulling of levers. The book is exactly about the opposite, how one can have his cake and eat it. It provides a practical framework on how to combine opposing forces in managing a company. Opposites like creativity and meeting profit objectives, precise objectives and alertness to the necessasity of changing course, reward and punishment, control and freedom. Some of the insights require reader effort to understand. For example. "Strategic planning is useless to develop strategies. Strategic planning starts once the strategy has been determined." What is meant is this. Long range planning carried out by staff departments trying to involve managers is a waste of time. Real strategies evolve interactively between several layers of managers in the organisation. Once a strategy is determined a plan must be made for implementing it. However the reader has to figure out that strategic planning no longer means strategy development but the development of a plan for strategy implementation, the execution of which has to be monitored. The book covers how to deal with the positive and negative motivations of employees, how it is possible to manage the tension between a budget system (referred to as a diagnostic system) and an action oriented intelligence-gathering system (referred to as an interactive control system). These two "control systems" are combined with two higher level "control systems", the vision and core values on the one hand and clarification of authority, accountability and no-go areas (referred to as boundary systems)on the other. None of these "control systems" are original. The originality of Prof Simons is that he shows how to operate these systems so that they reinforce and complement each other. This book is very useful for persons that have experienced how hard it is to implement strategies and to reconcile freedom with the requirement of delivering predictable financial results.

One of the key concepts in this book is how difficult it is to balance the company's need for predictable results with its need for innovation. How do you stay on track while being able to identify new opportunities? Dr. Simons emphasizes the scarcity of management attention and the importance of realizing there are too many "good ideas" to pursue. The countervailing levers he has identified, allow management to reduce risk in the right areas thus freeing the organization to achieve higher levels of productivity. Great book for seasoned leaders responsible for designing and implementing strategy.

I read this book when it was first published in 1994 and recently re-read it, curious to see how well it has held up. My conclusion? Very well indeed. What I find especially noteworthy is the fact that, only decade ago, there was nowhere near the understanding and appreciation of innovation that we have today. As I compose this brief commentary, Amazon offers 40,135 books on the general subject and 8,707 on innovation management. That is amazing.

In any event, Robert Simons wrote this book in order to explain "how managers use innovative control systems to drive strategic renewal." There is a paradox involving innovation that has always fascinated me: That innovation initiatives are most productive and lucrative when launched and then sustained within a stable (albeit flexible) environment. In other words, innovative thinking needs order, structure, discipline, etc. to which it can respond. There had to be a GE for Jack Welch to "blow up" when Reginald Jones selected him to become its CEO. The same was true of IBM when Lou Gerstner became its CEO. Moreover, another paradox, organizational renewal - if not transformation - requires control systems (key phrase) that are themselves innovative. In this volume, Simons focuses primarily on "the informational aspects of management control systems - the levers managers use to transmit and process inf0ormation within organizations. For the discussion to follow, I adopt the following definition of management control systems: [begin italics] management control systems are the formal, information-based routines and procedures managers use to maintain or alter patterns for organizational activities. [end italics]" More than a decade ago, Simons saw the need for a new theory of control that recognizes the need to balance competing demands. Such demands today are much more intense and in much greater numbers.

Simons suggests that an organization's strategy for control must (somehow) accommodate these "variables": belief systems which are used to inspire and direct the search for new opportunities; boundary systems which set limits of opportunity-seeking behavior; diagnostic systems which motivate, monitor, and reward achievement of specific goals; and interactive control, systems which stimulate organizational learning and the emergence of new ideas and strategies. I agree with Simons that any theory of management control must be evaluated according to criteria such as the extent to which the potentially important variables are included in the theory, the clarity of the linkage between control system variables and the achievement of organizational strategies, and the reliability and validity of the evidence. The "new theory of control" which Simons offers in this book fully accommodates such criteria.

I especially appreciate the provision of all manner of "figures" and "exhibits" which organize and illustrate clusters of key points and concept relationships that are analyzed in each chapter. These reader-friendly devices will later facilitate, indeed expedite review of Simons' key points. If reviewing nothing else in the book, busy executives should frequently check out the detailed "Checklist Summary" in Appendix A which identifies the WHAT, WHY, HOW, WHEN, and WHO of each of the four control levers and of the internal control systems which are fundamental to ensuring the integrity of data used in all control systems.

For me, some of the most valuable material is provided in Chapter 7, "The Dynamics of Controlling Strategy." Simons points out that strategic control "is not achieved through new and unique systems but through belief systems, boundary systems, diagnostic control systems, and interactive control systems working in concert to control both the implementation of intended strategies and the formation of emergent strategies. These systems provide the motivation, measurement, learning, and control that allow efficient goal achievement, creative adaptation, and profitable growth." Figure 7.3 on page 159 cleverly illustrates the dynamic relationships between and among an organization's core values, risks to be avoided, strategic uncertainties, and critical performance variables. "Managing the tension between creative innovation and predictable goal achievement is the key to profitable growth." Hence the importance of the four control levers that can enable managers to "direct collaborative enterprises toward their worthwhile goals."

Although published in 1994, this book offers even greater value today than it did then. Congratulations to Simons and on a brilliant achievement. As he explains so thoroughly and so eloquently, the extent to which innovative thinking is both productive and profitable will largely be determined by how well managers use innovative control systems to drive strategic renewal. I also highly recommend two of Simons' later works, Performance Measurement and Control Systems for Implementing Strategy and Levers of Organization Design.

Levers of Control presents a comprehensive theory illustrating how managers control strategy using 4 basic levers: belief systems, boundary systems, diagnostic systems, and interactive control systems (the whole book is based on these 4 levers). Simons shows how these control levers complement each other when used together and how effective top managers use these levers to stimulate and guide the search for strategies in the futures.

The book does a fantastic job of describing the levers theoretically, but doesn't do quite as much in the way of real world explanation of how to fix, manipulate or otherwise build levers that work.

That said, I was looking for a piece that was more theoretical in nature. Skip this if that is not your goal or if you do not approach topics by first building a theoretical framework.

Here are a few key points:

Definitional:
Belief Systems - what the organization has set out to do, to achieve
Boundary Systems - what an individual part of the organization must never do (ex: 10 commandments)

Concept 1:
P. 53 - "Organizational participants can view boundary systems either as either constraining or liberating... a lack of rules can be deceiving. At first, subordinates believe they have freedom of action, but they quickly learn that superiors hold them accountable to unwritten rules that can only be determined by trial and error. The result is uncertainty and a reluctance to act."
Also,
P. 54 - "If improperly set, strategic boundaries can hinder adaptation to changing product, market, technology, and environmental conditions. Boundary systems make it risky for employees to search for new opportunities ouside acceptable domains of activity. Rigid strategic boundaries make it clear to employees that using company resources to experiment in proscribed product markets is subject to discovery and punishment."

Thoughts: These concepts point to the idea that structure is everything inspiring people to fulfill actions in a particular manner that is counter-intuitive to the concept of the ID.

Concept 2:
P. 81-83 talks about dysfunctional side effects. Diagnostic measurement systems are gamed in order to achieve incentive goals that do not meet the end organizations goals. The book then draws out a few popular types of diagnostic failure:
"Measuring the wrong variables" - Example was Sears incentivizing based on number of repairs completed. They ended up getting sued for making unnecessary repairs.
"Building slack into targets" - Purposely making targets below standards so that anything achieved about this looks like a win for managers.
"Gaming the system" - The book gives the example of a credit card company where managers were incentivized by decreasing the amount of time on a call in there department. As a result, managers would pass a caller to multiple departments instead of trying to handle the situation. Productivity numbers looked improved, but callers were not happy.
"Smoothing - altering the timing and flow of data without changing the underlying transactions being measured...."
"Biasing - transmitting only data that are perceived to be favorable..."
"Illegal acts - violation of organizational rules and/or laws

Concept 3:
Strategic planning should be interactive at the boundaries. Assuming the structure is put together correctly, strategic planning on the long range should have a lot of input from the fringe senior managers and everyone should be capable of voicing change. The Section starting P. 114 goes into great detail on how to achieve this.

I was looking forward to reading this book but gave up after the first few chapters. The book starts off on solid footing but quickly shifts into a maze of verbosity so cumbersome that eventually I gave up. For example, if you like sentences such as "belief systems empower and expand opportunity seeking" or "By guiding an organization's search behavior, interactive control systems may divert attention from cues that would enable successful adaptation", then by all means, go ahead and buy this book. Indeed, the author makes some great points but they are camouflaged due to a dense and cumbersome writing style. I was taught that clear writing leads to clear thinking, and vice-versa. The author has many solid insights, and I wish I could have read this book to the finish, but I just couldn't get through it.