Levels of Action
July, 2022
Here we present a three-tiered framework that classifies actions based on their directness of impact on business success.
- Level 1 Actions (Direct Product Improvements): These are the most immediate and concrete actions impacting the end product or service. In the context of a product-based business, it could include adding new features, enhancing the user interface, or improving product performance. In a service-based business like consulting, it refers to billable activities that deliver direct value to the client. The impact of these actions is easily observable and measurable.
- Level 2 Actions (Process Improvements): These actions aim to enhance the efficiency, effectiveness, or quality of the processes that lead to the creation or delivery of one or more products or services. This could include implementing new project management tools, introducing automation in the workflow, or revising the development life cycle for better productivity. The primary purpose of Level 2 actions is to improve the quality of Level 1 actions. The impact may not be immediately visible to the client but contributes significantly to the end value.
- Level 3 Actions (Capability Building): These are more strategic and long-term actions aimed at enhancing the overall capabilities of the organization. This could include investment in new technology, research into emerging trends, or staff training and development. The idea is to boost the efficiency and effectiveness of both Level 1 and Level 2 actions indirectly. The return on these actions is often realized over an extended period, and their impact can be diffuse, but they contribute to the growth and adaptability of the organization.
In essence, this model gives a holistic view of the actions a business can take to improve itself, in a hierarchy from most direct and immediate impact (Level 1) to more strategic and long-term impact (Level 3).
The idea of levels of actions or investments and their impacts on business growth is indeed a topic of discussion in management literature, although the exact terminology or categories might differ. There is no one universally agreed upon model, but several frameworks bear resemblance to our three-tiered framework.
- Value Chain Analysis: Introduced by Michael Porter in his 1985 book "Competitive Advantage", this model breaks down the activities of a company into primary (e.g., operations, marketing, sales) and support activities (e.g., HR, infrastructure). This resembles our Level 1 and Level 2 actions. Although Porter's value chain does not explicitly involve a third level like our model, the framework still indirectly relates to Level 3 through elements like "firm infrastructure", which could include strategic investments and capability building.
- Resource-Based View (RBV): This strategic management perspective posits that companies should invest in unique resources and capabilities to gain a competitive advantage. RBV relates to Level 2 and Level 3 actions, emphasizing the importance of enhancing organizational capabilities and investing in unique resources.
- Balanced Scorecard: Developed by Robert Kaplan and David Norton, this strategic planning and management system helps organizations balance their short-term and long-term goals (akin to our Level 1, 2, and 3 actions). It involves financial measures, customer knowledge, internal business processes, and learning and growth.
- The Three Horizons Model: Proposed by McKinsey & Company, this framework focuses on balancing short, medium, and long-term goals, somewhat mirroring our 3 level action model. Horizon 1 (core business), Horizon 2 (emerging opportunities), and Horizon 3 (long-term innovations) can correspond to Level 1, 2, and 3 actions, respectively.
- Three Levels of Strategy: In business literature, strategies are often divided into corporate, business, and functional levels. These levels don't perfectly align with our three-tier model but can provide some inspiration. The functional level strategy involves improving specific operations or processes, similar to Level 1 and 2 actions. The corporate and business-level strategies involve the broader organization, akin to Level 3.
- Lean and Agile Methodologies: These frameworks, widely used in software development and project management, focus on continuous improvement of the product (Level 1) and processes (Level 2), as well as the overall capabilities and adaptability of the organization (Level 3). Literature on Lean and Agile could provide valuable insights into effective management of these different levels of action.
Here's a simplified view on how these existing concepts align with our L1, L2, L3 framework.
| Level 1 Actions | Level 2 Actions | Level 3 Actions | |
|---|---|---|---|
| Value Chain Analysis | Primary Activities (Operations, Marketing, Sales) | Support Activities (HR, Infrastructure) | Not Explicitly Covered |
| Resource-Based View (RBV) | Not Explicitly Covered | Enhancing Specific Capabilities | Investing in Unique Resources |
| Balanced Scorecard | Financial Measures, Customer Knowledge | Internal Business Processes | Learning and Growth |
| Three Horizons Model | Horizon 1 (Core Business) | Horizon 2 (Emerging Opportunities) | Horizon 3 (Long-Term Innovations) |
| Three Levels of Strategy | Functional Level Strategy (Operations, Processes) | Business Level Strategy (Competitive Position) | Corporate Level Strategy (Organizational Scope, M&A) |
| Lean and Agile Methodologies | Continuous Product Improvement | Process Improvement (Efficiency, Speed) | Organizational Adaptability, Learning |
Do note that these categories are not one-to-one matches, and there is some overlap between categories. This table is a simplified representation and actual application of these models might not fit neatly into L1, L2, L3 categorizations. They are complex and multifaceted frameworks, with elements that could potentially fall into different levels depending on the specific context and interpretation.
Speed, Acceleration, and Jerk
Using physics terminology can make a compelling analogy for our concept of levels of actions.
- Level 1 Actions - Speed: Speed refers to how fast an object is moving or the rate at which an object covers distance. The analog in a business context is the direct work or improvements made to the product or service. Just as speed signifies how quickly you are covering ground, Level 1 actions represent the work that directly adds value to the product or service (e.g., implementing a new feature, improving the UI, etc.). These are actions that move the product or service forward and provide direct, immediate value.
- Level 2 Actions - Acceleration: Acceleration is a measure of how speed changes over time. It's not just about going fast, but about getting faster. In a business context, this can be likened to the improvements made to processes or capabilities that make Level 1 actions more efficient or effective. Acceleration doesn't directly translate to movement, but it greatly enhances the speed at which movement can occur. Similarly, Level 2 actions may not directly add to the product or service, but they improve the rate at which Level 1 actions can deliver value.
- Level 3 Actions - Jerk: Jerk in physics refers to the rate of change of acceleration. It's a higher order concept that doesn't directly influence speed or acceleration, but it's about how the acceleration itself is changing. In a business context, this could refer to the strategic actions that indirectly improve the capabilities used in Level 1 and Level 2 activities (e.g., investing in new tech, learning, research). Like jerk, these actions are a step removed from the direct creation of value (Level 1 actions) and the improvements to that creation process (Level 2 actions), but they are nonetheless crucial for ensuring the adaptability and future readiness of the organization.
This analogy supports the conceptual understanding of the levels rather than provides a rigorous definition. But it nicely captures the idea of each level operating at a different level of abstraction and having a different kind of impact on the end product or service.
Hiring: A Cross-Level Activity
The act of hiring itself is typically seen as a Level 2 Action, as it is a fundamental process within a company that directly affects the quality of Level 1 actions (i.e., the work done by the employees who are hired).
On the other hand, the role that is being hired for can fall under multiple levels of the three-tier framework, depending on the context and the strategic importance of the role.
- Level 1 Actions: If the hiring is intended for roles that directly contribute to the product/service or are billable in a service-based business, such as hiring more software programmers in a tech company or more junior consultants in a consulting firm, then it can be considered as hiring for a Level 1 role.
- Level 2 Actions: If you're hiring with the intention to improve or augment the processes within your company, such as hiring a Project Manager to enhance project execution, or a Quality Assurance Analyst to improve the product/service quality, it falls under Level 2.
- Level 3 Actions: If hiring is for strategic roles that are aimed at enhancing the overall capability and future readiness of the organization, it falls under Level 3. This includes roles like a Chief Technology Officer (CTO) who could guide technological investments, a Learning and Development Manager who might establish employee training programs, or a Research Analyst who could help explore new market opportunities.
Hiring is a process that needs continuous improvement. This is because the efficiency, effectiveness, and fairness of the hiring process can significantly influence the quality of the team and the work they produce. Actions to improve the hiring process, such as implementing a new recruitment software or developing a structured interviewing approach, would also fall under Level 2.
From a broader perspective, hiring could also be seen as a Level 3 Action if it is part of a long-term strategic initiative to change or upgrade the skillsets or capabilities within the organization. For example, if a company decides to invest heavily in AI and starts hiring a lot of AI specialists, this would be a Level 3 Action as it is about enhancing the organization's capabilities to better prepare for future market demands.
Remember, these classifications are not rigid, and a single hiring action could potentially span multiple levels based on its expected impact on the organization.