Level 2 Problem
By George Gu and Hui Ding
(Part 4 of a four-part series)
Definition of Level 2: Quantifiable deviation of drivers at the department level based on an organization’s business goals.
When decomposing strategy, many organizations will start from strategy, They will apply tools like strategic maps, balanced scorecards, and key performance indicators (KPIs) to decompose the strategic goals with the heads of each department. When KPIs and key tasks for each department are available, the KPIs and key tasks will further be translated into the annual business plan and budget, which will then be integrated into the performance review system. Even though such a process has solved the problem of how to decompose strategy from top management to department heads, there are still challenges at the staff level. It is true that when strategic goals and KPIs are clear at the organization level, tasks and KPIs for individual staff members are still blurred. More specifically, tasks and results do not have a cause-and-effect relationship at this level. Even though one staff member may complete his or her tasks and achieve good grades at KPIs, the result may not necessarily have a positive impact on organizational goal achievement.
Let’s discuss systematic thinking, driver formula, and driver and tricycle matrix. Topics like Level 2 problem design, definition, measurement, and identification will also be discussed.
In The Fifth Discipline, Peter Sengeremarked that people like to see the whole picture as a jigsaw puzzle, and such a holistic picture can always delight people. “Systems thinking is a discipline for seeing whole," he says. "It is a framework for seeing interrelationships rather than things, for seeing ‘patterns of change’ rather than static ‘snapshots.’” As a system scientist and senior lecturer at the MIT Sloan School of Management, he applies systems dynamics theory to organizational learning.
Systems thinking is the core of this book. The first discipline is personal mastery as “organizations learn only through individual who learns.” The second discipline is mental models, which consist of “ingrained assumptions, generalizations or pictures that influence how we understand the world.” Next is to build shared vision so as to “hold a shared picture of the future we seek to create.” The fourth discipline is team learning, which involves “how to recognize patterns of interaction in teams that undermine learning.” The fifth discipline is systems thinking, which integrates the other four. As systems thinking is the core, attention should not only be rendered on individual events but also on the interrelationships of events. The organization is a system that is composed of interrelated things interacting with each other. For the sake of increasing operation and management efficiency of the organization, study and research have to be applied to the system of the organization. This is why systems thinking is indispensable in the process.
Mathematical management and non-mathematical management discussed earlier alert readers not to jump from goal to plan and budget due to insufficient consideration of numbers in management. The consequence is that process management has been simplified as task management, which can hardly promise results due to a non-quantified, uncontrollable, and unstable process. Drivers have to be identified to transit from goal and task. The formula that design drivers use is called the “driver formula.”
What is the driver formula? This formula can be depicted to link multiple drivers by addition, subtraction, multiplication, and division on one page.
How This Formula Reflects System Thinking?
How can systems thinking be applied in management results improvement? How can problems be effectively resolved? Many managers are perplexed by such problems. Drivers and the driver formula can help managers to think through the perspective of systems thinking so as to increase the organization’s performance.
If an organization is compared to an automobile, the automobile has several key systems, namely, steering system, drive system, braking system, suspension system, and so on. Components and parts within the system are delicately combined together to drive the system to fulfill its functions. The same logic can also be applied to management. As each department has its own functions to fulfill，several business models can be found in each department. To achieve business results, elements must be found in the formula to represent their systematic relationships.
The logic behind this is that value created by functions can be represented in four dimensions: scale that is featured by size increase, efficiency by quick speed, quality by soundness, and cost by reduction. To facilitate memory, scale, efficiency, quality, and cost can be matched with multiplication, subtraction, division, and addition, respectively.
Figure 3 hows an example of the driver formula applied to a hotel sales department.
The Four Characteristics of Drivers
Compared with influencers, drivers are featured by stable, controllable, results-driven, and measurable qualities. The acronym is SCRM.
As long as the hotel sales department’s main business has not yet been changed, event sales had to focus on six drivers 10 years ago, and it will continue to focus on six drivers for the next 10 years . The work focus will not change despite management change or environmental change. No matter how many staff members may have been changed, drivers are still drivers.
The performance of drivers can be improved if the sales team renders sufficient efforts. Once the number of potential customers is listed as drivers, for example, the sales team has to make a plan and strategy around the number of potential customer so as to increase its targets.
Once drivers are improved, the result will be positively affected accordingly. As long as three drivers (buying customers, average number of purchases, and average purchase amounts) can be improved, the results will also be better. However, if attention is given to an influencer, it may change the final result.
Drivers are quantifiable, but influencers are not (or quantifiable data are meaningless for influencers). Because quantifiable data have to satisfy dimensions like consistence, activation and comparability at the same time, as long as drivers are decided, stability can ensure consistency, controllability, and promise vitality; and results-driven logic affects comparability, but influencers cannot have any impacts.
About the Authors
George Gu, CPT, ISPI Director, is an established management improvement consultant and learning and performance technologist. He has been the lead on a variety of projects with numerous responsibilities in both China and the United States. He has a solid track record of creating proven results. He can be reached at email@example.com.
Hui Ding, CPT, has more than 20 years of experience in management consulting, including learning and development. His powerful innovative thinking and pragmatic application have made him one of the most recognized rising management thinkers in China.