American business is in its fifth decade of management fads.
In some organizations the fads have worked, in most they have
not, and in some they have even made matters worse. Many reasons
have been advanced for the failure of fads, none of them quite
complete. The fault lies not with the fads, but with our attempt
to use them to change things for which we have insufficient understanding.
Experience has taught us well to react to events and to respond to patterns of behavior. Yet, there is a deeper level of understanding possible. An understanding on the level of structure. There are underlying structures responsible for the patterns of behavior and the events. Our lack of awareness of these structures often makes us the victim of them, even though many of the structures are of our own creation. The structures are not hidden, they are simply not obvious. We have never developed a way to see and understand them. Once we become aware of structures, how to look for them, and understand them, they become readily apparent all around us.
What follows is an introduction to systems thinking and its application to understanding the structures which control much of our lives.
A system is an entity which maintains its existence through the interaction of its elements. The key point here is interaction. Atom, molecule, cell, organ, organism, group, society, the world, solar system, galaxy, and universe are all examples of systems.
We have learned well the concept of analysis, the breaking down of a problem into smaller problems, to simplify its solution. Yet, in complex systems something is lost in the process of analysis.
Characteristics emerge from the interaction of the elements within a system. Characteristics which are not evident when analyzing the individual elements. Consider water. By studying hydrogen and oxygen one will never perceive the characteristic of wetness. Only in studying the interaction of these elements, the system, will this property become evident. Other examples are: music from the notes on a staff, art from the paint on a canvas, meaning from the words in a sentence. In biological and mechanical systems what emerges is organization. In systems of human interaction what emerges is culture.
Systems may be described using two building blocks; reinforcing loops and balancing loops. This may appear deceptively simplistic, yet the depth of understanding gained through their use can be rather astonishing.
There are a few conventions for reading system diagrams. First, an arrow indicates the direction of influence from one element to another. Associated with the arrow will be an "S" indicating a change in the same direction, or an "O" indicating a change in the opposite direction. The center of the diagram contains either a "B" for balancing loop, or an "R" for reinforcing loop.
In the balancing loop the difference between the desired state and the actual state produces a gap. This gap influences adjustment changing the actual state in the direction of the desired state, making the gap smaller. This continues until the adjustment changes the actual state to the desired state and the gap is reduced to zero. Balancing loops seek equilibrium.
Consider the interaction between the principle and the interest
in a savings account. The amount of the principle, in conjunction
with the interest rate, produces interest. The interest increases
the principle, which in turn increases the interest. Reinforcing
loops are the structures of growth.
One of the difficulties with interaction arises from time delays. Between any two elements the interaction may happen in an instant or may take years. It is this delay which often limits our ability to distinguish specific interactions. We are well programmed to look for cause and effect which are closely related in time and space. This close relationship is often not the case.
This example was selected because of its common occurrence and characteristics which may serve as parallels to organizations. In its simplest form the thermostat influences the furnace, which influences the thermostat. The system adjusts to the temperature indicated by the thermostat.
System diagrams are models, simplified representations of the
reality, with sufficient relevant detail to promote and enhance
our understanding. A system is both a subsystem of some larger
system and composed of subsystems. The question is, to what level
of detail do we model the system to help us understand it. Often
this answer comes through trial and error. Modeling the system
too narrowly has a tendency to omit some of the relevant influences.
Modeling the system too broadly may make the model too complicated
to promote understanding. There is always a trade off.
The initial example can be expanded by considering a number of subsystems that interact. These subsystems will be considered independently and then combined to depict the larger system.
This is a balancing loop. The thermostat interacts with the current temperature producing a gap. The gap influences the furnace, which influences the current temperature. Increasing the thermostat increases the gap, causing the furnace to run more, increasing the current temperature, thus reducing the gap. The system will adjust until the current temperature agrees with the thermostat, reducing the gap to zero.
My desired comfort interacts with the current temperature producing a gap. This gap influences me to increase the thermostat, influencing the furnace which influences the current temperature, thus reducing the gap. Desired comfort is an element of some other subsystem not considered here.
In heating my home I have an idea of what is an acceptable cost. The interaction of the actual cost with the acceptable cost produces a gap which influences me to turn down the thermostat. This in turn causes the furnace to run less reducing the energy usage and the resultant cost. This part of the system is not easily controlled because I don't see the cost until at least a month after the energy was used. Acceptable cost is part of another subsystem (income) not considered here.
The outside temperature interacting with the leakage factor influences the current temperature which influences the outside temperature. The leakage factor determines the rate at which this influence takes effect. Also, the degree to which the inside temperature affects the outside temperature is considered to be minimal. Leakage is part of another subsystem not considered here.
When these subsystems are integrated into a single diagram
one begins to appreciate the complexity of the system. This is
an open system because there are other factors which are not taken
into account, such as the energy usage influence on total available
energy, and the leakage being influenced over time by the internal
and external environment. The acceptable cost and desired temperature
are also elements of other subsystems.
Now that we have a relevant system there are several points of understanding we can develop.
The system exhibits a characteristic of stability. The system
has its own agenda defined by the desired comfort and acceptable
cost which affect the thermostat setting. The system will adjust
to maintain the temperature indicated by the thermostat. If the
outside temperature declines the system adjusts. If you open a
window the system adjusts. If you build a fire in the fireplace
the system adjusts. If you turn on an incandescent light near
the thermostat the system adjusts. If the thermostat or the furnace
fails, the whole system fails.
Organizations have a tendency to maintain their stability in the same way. If you attempt to change things, the system adjusts to maintain things as dictated by control variables.
This system has two goals, desired comfort and acceptable cost, which are mutually exclusive and create oscillations. If I want reduced cost I turn the thermostat down and must tolerate less comfort. If I want increased comfort I turn the thermostat up and must tolerate increased cost.
If you desire to improve the system, where do you take action? You could improve the efficiency of the furnace or you might improve the thermostat. Neither of these actions will have any major effect on the system. The concept of leverage is based on the idea that there are points within systems where small changes can have a major impact on the entire system. The real leverage in this system is the leakage. By reducing the leakage we can limit the effect the external temperature has on the internal temperature. This might be done by adding storm windows, better insulating the house, and other such actions. This action also has a cost, yet in the long run what it saves in energy costs should more than pay for the leakage reduction cost.
In a business organization there are a myriad of internal and external factors which interact to create an ultra stable system. Organizations often have conflicting goals not as easily realized as those in the heating system. Consider the differing emphasis caused by short term profits and long term growth and development. Internal factors being goals and objectives of individuals, established policies and procedures, structure of the organization, job responsibilities, appraisal systems, reward systems, management and leadership styles. External factors consist of market conditions, competition, politics, economic conditions, technological change, sociocultural factors, and imposed rules. These factors interact to create a stable system that changes its point of stability over time, yet resists being changed in any specific way. If the dynamics are not understood, attempts to change the system will be resisted by the system, subsequently frustrating the change agent. Only thorough understanding the system, and identifying leverage points, can one determine appropriate ways of influencing the system to create lasting improvement.