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 / Summer 2010 / Issue 59(originally published by Booz & Company)


Seeing Your Company as a System

Much-needed guidance on making companies more employee-centered, adaptive, and capable.

Bank failures, health insurance rate hikes, and the troubles of auto manufacturers provide recent examples of the vulnerability of big, fast-changing systems and the ways in which large organizations can careen out of control. No matter how disparate the causes of failure, there is always a common thread: somewhere, somehow, management has let its attention slip. As executives and politicians struggle with regulation and reform, now is an opportune time to reflect on the leading ideas that have shaped what we know about the management of social systems, particularly corporations, and how to stabilize and improve them.

The recognition that a company is a complex social system and a living community has been an underlying theme of leading management thinkers as far back as the early 20th century. Nevertheless, the machine continues to be the dominant metaphor for business leaders, many of whom seek to solve their problems by “pulling levers” or “pushing buttons”: making large-scale changes without a clear feeling for how those changes will affect the collective action of the company.

The speed and complexity of the global business environment calls for a new appreciation of a systems-focused view of the world, one that recognizes the interrelationships of people, processes, and decisions — and designs organizational actions accordingly. The intellectual roots of systems understanding are very diverse (as we’ll see shortly), but they converge around three interrelated assumptions. First, because many of today’s organizations are complex and ever-changing, static solutions that try to lock in any ongoing management solution are likely to become new sources of destabilization themselves. That is why organizations need to be dynamic — capable of adapting to unexpected developments. Second, organizations must have a capacity for widespread experimentation and trial-and-error learning if they are to be self-correcting. Finally, although a systems view requires an understanding of how all the parts fit together as a whole, it also depends on an intimate understanding of the parts themselves. This is because change in any part of the system or in its outside environment — including the other systems to which it is connected — can produce profound ripple effects.

Significantly, these assumptions all recognize the importance of human participation in decision making. Systems thinking isn’t just for senior executives or engineers. Everyone who works within a system — including suppliers and line workers, designers, and marketers — should learn how the system works, develop their creativity, and apply that creativity to improve the system. This is true not just for startup companies, but also for the most staid and structured organizations, including those in government. As the National Commission on Terrorist Attacks Upon the United States reported, “Imagination is not a gift usually associated with bureaucracies.... It is therefore crucial to find a way of routinizing, even bureaucratizing the exercise of imagination.”

Let us therefore take a tour of the key ideas and books that a manager in any corporation or agency could use to improve day-to-day performance, both conceptually and in practice. The books and articles in this survey all provide a fusion of hard science and soft management skills, supporting a vision of an employee-centered and systems-oriented company.

Such a company emphasizes constant learning both for the individual employee and for the organization as a whole. The most valuable expertise is understood to be held by those who are closest to any given part of the system. Management’s chief jobs are, first, to facilitate learning, adaptation, and improvement by creating a culture that is free of fear, and, second, to provide the tools and training that employees need to identify problems and opportunities for improvement. And the leaders throughout these companies also practice “mindfulness.” They establish and revise routines that constantly test current assumptions and seek to anticipate future needs, they pay attention to process, and they see continuous improvement as the best way to achieve not only step change but also innovative leaps.

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Systems Thinking Resources
Works mentioned in this review.

  1. Russell L. Ackoff, Re-creating the Corporation: A Design of Organizations for the 21st Century (Oxford University Press, 1999), 348 pages
  2. Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (Doubleday/Currency, 1990), 432 pages
  3. Michael Hammer, Dorothy Leonard, and Thomas Davenport, “Why Don’t We Know More about Knowledge?” MIT Sloan Management Review, July 15, 2004
  4. Karl E. Weick and Kathleen M. Sutcliffe, Managing the Unexpected: Resilient Performance in an Age of Uncertainty (Jossey-Bass, 2007), 206 pages
  5. Mike Rother, Toyota Kata: Managing People for Improvement, Adaptiveness, and Superior Results (McGraw-Hill, 2010), 326 pages
  6. John Shook, Managing to Learn: Using the A3 Management Process to Solve Problems, Gain Agreement, Mentor, and Lead (Lean Enterprise Institute, 2008), 138 pages
  7. W. Edwards Deming, The New Economics for Industry, Government, Education (MIT Press, 1993), 252 pages
  8. NBC News white paper, “If Japan Can...Why Can't We?” first broadcast June 24, 1980, by the National Broadcasting Company. Produced by Clare Crawford-Mason and reported by Lloyd Dobyns
  9. H. Thomas Johnson, Profit beyond Measure: Extraordinary Results through Attention to Work and People (with Anders Bröms; Free Press, 2000), 272 pages; Relevance Regained: From Top-down Control to Bottom-up Empowerment (Free Press, 1992), 240 pages; “A Systemic Path to Lean Management,” The Systems Thinker, March 2009; “Toyota’s Current Crisis:The Price of Focusing on Growth, Not Quality," The Systems Thinker, February 2010,
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