A broader concept of control Benedict Wauters. Boundary systems Balancing learning and control Strategy (plan) Internal control Core values, mission,

A broader concept of control

Benedict Wauters

Boundary systems

Balancing learning and control

Strategy(plan)

Internal control

Core values,mission, vision

Criticalperformance

variables

Strategicuncertainties

Risks to be avoided

Interactive control systems Diagnostic control systems

Belief systems

Safeguarding critical assets by ensuring adherence to specific rules and regulations

(no arrow as does not rely on the content of the

strategy)

Bob Simons is the Charles M. Williams Professor of Business Administration at Harvard Business School. Over the last 30 years, Simons has taught accounting, management control, and strategy implementation courses in both the Harvard MBA and Executive Education Programs.

Boundary systems

Strategy(plan)

Core values,mission, vision

Criticalperformance

variables

Strategicuncertainties

Risks to be avoided

Interactive control systems Diagnostic control systems

Belief systems

SEARCH CREATIVELY AND EXPAND OPPORTUNITY SPACE. LEARNING dominates over constraints.

Boundary systems

Strategy(plan)

Core values, mission, vision

Criticalperformance

variables

Strategicuncertainties

Risks to be avoided

Interactive control systems Diagnostic control systems

Belief systems

CONSTRAIN SEARCH BEHAVIOUR AND ALLOCATE SCARCE ATTENTION. Constraining dominates learning.

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http://www.toyota-global.com/company/vision_philosophy/toyota_global_vision_2020.html

Belief systems

• Explicitly (e.g. via documents) providing basic values, mission, credos about added value, vision: Say something about what is of value (to be proud of,

responsible for) for the long run, providing a compass for action …and hence that is NOT to be compromised for the short term

• Due to the high level of abstraction, not specific enough to ensure that staff actions do not create (however well-intended) serious risks Telling people what to do creates the risk they do not

innovate/adapt …but only holding them accountable for achieving

vision/mission, creates the risk they do take ‘innovative’ actions, driven by their intrinsic motivation, but that are inadvertently damaging to the organisation

Learningdominates constraining

We therefore also need systems that tell people what NOT to do and that INHIBIT people to do certain things:

1) Internal control (not linked to strategy, focus of EU rules in ESIF)

2) boundary systems for strategy

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• Toyota’s drive for growth moved into high gear in 1995 with the appointment of Hiroshi Okuda as the company’s new president. Okuda, known for his aggressive efforts to remake Toyota, was the architect of an ambitious global growth strategy, known as the “2005 vision.”

• ….turning point at 2003; from then on, sales grew faster than the company could manage…growth had taken priority over the company’s traditional focus on quality.

• Organizational incentives, especially informal ones, became skewed toward growth. Without specific policies that preserved the traditional quality focus, key decisions affecting product development, supplier management and production became biased in favor of meeting sales, delivery, cost-cutting and profit targets.

• A high-level Toyota executive publicly acknowledged in 2010 that, facing internal manpower shortages, the company had no choice but to use a large number of new contract engineers to boost engineering capacity. In his view, that contributed to the increases in quality glitches.

• The reality is that Toyota’s problems were not caused by a faulty production system but by poor management decisions.

• NOTE: as of 2009, Akio Toyoda became president of Toyota

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What Really Happened to Toyota? Sloan Management Review, Summer 2011 , R.E. Cole

Boundaries at Toyota

Boundary systems-1

• Formally stated rules, limits and proscriptions (“no exceptions”)

• Tied to defined sanctions and credible threats (requires making

examples out of some situations) for punishment

• They are the “brakes” for the organisation, intended to stop people

from engaging in unethical and/or harmful actions

• Also provide legitimate grounds for staff to refuse conflicting

requirements from superiors

• Transgressions to be sought out and stopped actively (by

management, auditors, other colleagues …)

Constrainingdominates learning

Boundary systems-2• Two types:

Business conduct boundaries: when cost of maintaining reputation is high (e.g. protecting image, safety)

• e.g. legal constraints, codes of conduct communicating forbidden actions, to be signed and hence declared understood, to be reminded of (eg with regular training)

• management draws this up with specialist staff • relatively simple as not possible to codify every possible situation so NOT

30000 pages of guidelines Strategic boundaries: what opportunities to avoid, services not to

deliver, customers not to serve, value propositions to avoid when resources for new initiatives are limited and the organisation needs to stay focused

• e.g. simple strategy rules for opportunity selection like minimum asset utilisation rates, links with core competences, etc. as present in initiative management systems

• to be set by management

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What has changed?Why?What will we do about it?

Now let us move to interactive control

• In January 2008, Chris Tinto, Toyota’s U.S. vice president in charge of technical and regulatory affairs, further warned his fellow executives that “some of the quality issues we are experiencing are showing up in defect investigations (rear gas struts, ball joints, etc…).” These and other early warnings were ignored. In a pattern not uncommon in large organizations, politically powerful executives shrugged off early warnings of lower-ranking executives.

• Top management in Japan has been less sensitive to the expectations of regulators, culture and politics in overseas markets, and consequently, they have been slower to respond to local problems.

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What Really Happened to Toyota? Sloan Management Review, Summer 2011 , R.E. Cole

Interactive control-1• Interactive control systems: focus attention on strategic uncertainties

and provide a lever to fine-tune and alter strategy, responding to changes in the environment Search for and identify patterns of change, emerging threats and

opportunities, strengths and weaknesses that could invalidate the assumptions underpinning the strategy

Data is used to challenge the current assumptions -actively looking for surprises- and force to make sense of changing conditions behind the surprise

Not just reporting but interactive discussion on data and assumptions at ALL levels, leading to organisational learning

• Always face-to-face, direct involvement of management

This is where bottom-up action plans and experiments create emergent strategy

But not in a chaotic way, as management does guide the search for new opportunities and stimulates the experiments

R. Simons, Performance measurement and control systems, ch. 4,2000

Learningdominates constraining

Diagnostic control-1

• Diagnostic control systems: communicate what is critical in terms of the strategy and measure this with critical performance indicators Failure there would lead to failure of the organisation and its

strategy Reports are exceptions (variance) based: How much, what?

• Implies that we identify variables that can vary Warning light goes on and this triggers action to correct situation

• Implies that someone knows how to interpret variance• Implies that people who are doing the work are also interpreting this;

they should not be waiting for managers to act• Of course, some variances will have causes that cannot be tackled

just by the people doing the work on a daily basis. This should be triggering interactive control systems!

R. Simons, Performance measurement and control systems, ch. 4,2000

Constrainingdominates learning

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Diagnostic control-2

One of the key uses of diagnostic control in manufacturing is the

monitoring of reaching standards:

• specify the work in terms of process (how it is done) or output (what

is delivered)

• not meeting a specification may create problems for others involved

downstream in a wider process or with inter-operability

e.g. an output from one part of the process turns out problematic for the

next step where it is an input

• however, this becomes a problem when (over)specifying the work

for the sake of it: one should strive for minimal critical specifications

otherwise there is waste from doing more than is necessary

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Diagnostic control-3 Translating standards to service delivery is problematic:

• the key question is whether or not a service provider can respond to the customer demand and these demands (unlike specifications for manufactured outputs that are the focus of production plants) vary

• the service provider can only deal with that demand variation by matching it with its own variety in terms of response (regular demands all front line workers should be able to deal with, more exceptional demands they can pull in knowledge from someone else for)

• input control, usually in the form of people through the recruitment and training process (e.g. highly capable and integer individuals) is crucial here while YES/NO standards on the work itself lead to reducing response variety in service delivery and hence to increase variation in terms of properly serving the demands of customers

• Studying whether the process is predictably satisfying demand (end to end time, accuracy/value, one stop =szstemic measures) is what matters! NOT yes/no standards on parts of the process!

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time

UCL, LCL and center are NOT YES/NO targets but bounds of natural variation.

Process is under control

Exception reports. Can trigger interactive control if cause not random and outside control of operational teams to correct inline: this points to variation that has to do with changes in the external environment.

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H. Mintzberg

= influenced by what we learn from acting incl. in daily

operations= why there needs to be room

for contingenciesin the budget (reserve

capacity)

STRATEGY IMPLEMENTATION For info

Boundary systems

Management systems and motivation

Strategy(plan)

Core values,mission

Criticalperformance

variables

Strategicuncertainties

Risks to be avoided

Interactive control systems Diagnostic control systems

Belief systems

Extrinsic: fear of punishment or…Intrinsic: desire to do right (belonging) if …no undue pressure/temptation

Extrinsic: reward (formula) or…Intrinsic: desire to achieve(mastery) and control (autonomy) if … focus and resources

Extrinsic: pride, glory or… Intrinsic: desire to contribute to bigger whole (belong) if… sure of purpose

Extrinsic: reward (judgemental) or…Intrinsic: desire to innovate/create (autonomy) if… opportunity for dialogue /dissent without fear