Boundary systems

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A broader concept of control
Benedict Wauters
Balancing learning and control
Safeguarding critical assets by ensuring adherence to specific rules and regulations
Belief systems
Internal control
(no arrow as does
not rely on the
content of the
strategy)
Risks to
be avoided
Core values,
mission, vision
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.
Strategic
uncertainties
Interactive control systems
Boundary systems
Strategy
(plan)
Critical
performance
variables
Diagnostic control systems
SEARCH CREATIVELY AND EXPAND OPPORTUNITY SPACE. LEARNING
dominates over constraints.
Belief systems
Boundary systems
Risks to
be avoided
Core values,
mission, vision
Strategy
(plan)
Strategic
uncertainties
Interactive control systems
Critical
performance
variables
Diagnostic control systems
CONSTRAIN SEARCH BEHAVIOUR AND ALLOCATE SCARCE ATTENTION.
Constraining dominates learning.
Boundary systems
Belief systems
Risks to
be avoided
Core values,
mission, vision
Strategy
(plan)
Strategic
uncertainties
Interactive control systems
Critical
performance
variables
Diagnostic control systems
http://www.toyota-global.com/company/vision_philosophy/toyota_global_vision_2020.html
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Belief systems
Learning
dominates constraining
• 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 wellintended) 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
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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Boundaries at Toyota
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•
•
•
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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, costcutting 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
What Really Happened to Toyota? Sloan
Management Review, Summer 2011 , R.E. Cole
10
Boundary systems-1
Constraining
dominates learning
• 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 …)
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
Now let us move to interactive control
What has
changed?
Why?
What will we do
about it?
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• 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.
What Really Happened to Toyota? Sloan
Management Review, Summer 2011 , R.E. Cole
14
Interactive control-1
Learning
dominates constraining
• 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
Diagnostic control-1
Constraining
dominates learning
• 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
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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UCL, LCL and
center are NOT
YES/NO targets
but bounds of
natural variation.
Process is under control
time
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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STRATEGY IMPLEMENTATION
For info
= influenced by what we learn
from acting incl. in daily
operations
= why there needs to be room
for contingencies
in the budget (reserve
capacity)
H. Mintzberg
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Management systems and motivation
Extrinsic: pride, glory or…
Intrinsic: desire to contribute to bigger
whole (belong) if… sure of purpose
Belief systems
Extrinsic: fear of punishment or…
Intrinsic: desire to do right (belonging)
if …no undue pressure/temptation
Boundary systems
Risks to
be avoided
Core values,
mission
Extrinsic: reward (judgemental) or…
Intrinsic: desire to innovate/create
(autonomy) if… opportunity for
dialogue /dissent without fear
Strategic
uncertainties
Interactive control systems
Strategy
(plan)
Extrinsic: reward (formula) or…
Intrinsic: desire to achieve
(mastery) and control (autonomy)
if … focus and resources
Critical
performance
variables
Diagnostic control systems
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