strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Summer 2010 / Issue 59(originally published by Booz & Company)


Seeing Your Company as a System

Whole-systems Design

Any effort to cultivate a systems orientation could profitably begin with the work of the late Russell Ackoff, one of the field’s pioneers. Not surprisingly for a man who warned against organizational silos and fragmentation, Ackoff rejected narrow specialization in his own career. He studied architecture and philosophy and pioneered operations research before joining the Wharton School at the University of Pennsylvania in the 1960s, where he taught systems sciences and management. After leaving Wharton in 1986, Ackoff worked as an independent consultant until his death in October 2009.

Ackoff drew a clear distinction between the machine age, in which companies could assume relative stability and seek optimum solutions to discrete problems, and the systems age, beginning after World War II, a time of growing global and technological complexity. Organizations would henceforth have to deal with “sets of interacting problems” and give up the quixotic search for simple solutions that could be applied consistently. The key challenge, Ackoff said, would be designing systems that would learn and adapt. In a talk he frequently gave on “the second industrial revolution,” he said, “Experience is not the best teacher; it is not even a good teacher. It is too slow, too imprecise, and too ambiguous.” Organizations would have to learn and adapt through experimentation, which he said “is faster, more precise, and less ambiguous. We have to design systems which are managed experimentally, as opposed to experientially.” To accomplish this, he laid out a method of interactive planning, which involved an “idealized design of the organization” — a technologically feasible future that reflected how key stakeholders would redesign and rebuild a system if it were suddenly destroyed.

Clark Manufacturing Company, a unit of Clark Equipment Company, employed Ackoff’s idealized design in the early 1980s, when its market for earthmoving equipment came under assault from higher-quality, lower-cost Japanese competitors and the company’s leaders realized that they did not have the organizational capabilities needed to match the competition. But they could get them by combining forces with two other companies: Euclid (a small truck company) and Volvo. Against the prevailing advice of the time (including that of many of the firm’s managers), Clark’s leaders initiated a successful joint venture with these two companies. Among the benefits, as Ackoff told the story in his masterwork, Re-creating the Corporation: A Design of Organizations for the 21st Century, was the development of a single management group that overcame the initial skepticism “about the ability of a cross-cultural management to work effectively.”

The book is full of both conceptual tools for organizational redesign and specific practices for developing adaptive and resilient learning environments. For example, in his discussion of innovative approaches to financial and human resources planning, Ackoff describes the use of elected internal boards to give people more control over their decision making, and shows how to set up an internal market for shared services that reflects their real value (or, as he calls it, an “internal market economy”). The overriding theme is the need to avoid any particular management panacea, and instead institute an adaptive, continually evolving design process that (as Ackoff puts it) manipulates the parts of a company “with a primary focus on the performance of the whole.”

Better Thinking and Interacting

Ackoff’s focus on learning is picked up by Peter Senge, an aircraft engineer by training and the author of The Fifth Discipline: The Art and Practice of the Learning Organization, which focuses on the need for blending the “behavioral” and “technical” elements of organizations. One underlying premise of the book is that a systems orientation requires individual employees to be open to new ideas and points of view and free of conscious and subconscious prejudices.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


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,
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.