The purpose of this assignment is to examine the relationship between systems thinking, projects, and corporate strategy. Reflect upon the relationship between corporate strategy, proje

System. We hear and use the word all the time. “There’s no sense in trying to buck the system,” we might say. Or, “Mary, she’s a systems analyst.” Or, “This job’s getting out of control; I’ve got to establish a system.” Whether you are aware of it or not, you are a member of many systems—a family, a commu- nity, a church, a company. You yourself are a complex biological system comprising many smaller systems. And every day, you probably interact with dozens of systems, such as automobiles, ATM machines, retail stores, the organization you work for, etc. But what exactly is a system? How would we know one if we saw one, and why is it important to understand systems? Most important, how can we manage our organizations more effec- tively by understanding systems?

This volume explores these questions and introduces the princi- ples and practice of a quietly growing field: systems thinking. With roots in disciplines as varied as biology, cybernetics, and ecology, systems thinking provides a way of looking at how the world works that differs markedly from the traditional reduc- tionistic, analytic view. But this is not an either-or distinction we are making here. Because some problems are best solved through analytic thinking and others through a systemic per- spective, we need both to better understand and manage the world around us.

Why is a systemic perspective an important complement to ana- lytic thinking? One reason is that understanding how systems work—and how we play a role in them—lets us function more effectively and proactively within them. The more we under- stand systemic behavior, the more we can anticipate that behav- ior and work with systems (rather than being controlled by them) to shape the quality of our lives.

It’s been said that systems thinking is one of the key manage- ment competencies for the 21st century. As our world becomes ever more tightly interwoven globally and as the pace of change continues to increase, we will all need to become increasingly “system-wise.” This volume gives you the language and tools you need to start applying systems thinking principles and prac- tices in your own organization.

IMS0013E

Contents What Is Systems Thinking? ……………………………………… 2

What Is a System? ………………………………………………….. 2

Collections Versus Systems

Defining Characteristics of Systems

The Importance of Purpose

Putting Systems in Context: “The Iceberg” …………….. 4

What Do Systems Do? A Close Look at Systemic Behavior…………………………………………………… 5

Fun with Feedback

The Building Blocks of Systemic Behavior: Reinforcing and Balancing Processes

Looking for a Sign: Loops and Labels

The Good, the Bad, and the Ugly: A Closer Look at Balancing Loops

Delays: The Hidden Troublemakers

Putting It All Together: Two Examples of How to Manage Systems ………………………………………………….. 12

Managing Product Quality at FitCo

Fixes That Backfire at DevWare Corp.

Working on the System, Not in the System………………. 16

Appendix: “Acting” in Different Modes …………………… 17

A Glossary of Systems Thinking Terms…………………….. 19

Introduction to Systems Thinking Daniel H. Kim

Introduction to Systems Thinking @1999 by Pegasus Communications, Inc.

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying

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What Is Systems Thinking?

What exactly is systems thinking? In simplest terms, systems thinking is a way of seeing and talking about reality that helps us better understand and work with systems to influence the quality of our lives. In this sense, systems thinking can be seen as a perspective. It also involves a unique vocabulary for describing systemic behavior, and so can be thought of as a language as well. And, because it offers a range of techniques and devices for visually capturing and communicating about systems, it is a set of tools.

For anyone who is new to systems thinking, the best way to “get your feet wet” is to first learn about the defining characteristics of systems; in short, what is a system? But to be a true sys- tems thinker, you also need to know how systems fit into the larger context of day-to-day life, how they behave, and how to manage them. The final three sections of this volume tackle those issues.

What Is a System?

In the most basic sense, a system is any group of interacting, interrelated, or interdependent parts that form a com- plex and unified whole that has a specific purpose. The key thing to remember is that all the parts are inter- related and interdependent in some way. Without such interdependencies, we have just a collection of parts, not a system.

Collections Versus Systems

Let’s illustrate this point with the follow- ing exercise. Take a look at the list of items below and determine for yourself

which ones are systems and which ones are just collections of parts. Ready, set, go! • Bowl of fruit • Football team • Toaster • Kitchen • Database of customer names • Tools in a toolbox • A marriage

So, which ones are systems and which are merely collections? This ques- tion isn’t as easy to answer as it might seem at first. Your responses depend on what assumptions you are making about the item in question. Let’s walk through each example (starting with the simpler ones first) and make our assumptions as explicit as we can.

Kitchen, database of customer names, and tools in a toolbox. These are all collections, because none of them meets our original cri- teria of inter- relatedness and interdependence. Even though the kitchen itself is full of sys- tems (refrigerator, microwave, dishwasher), it is still just a place that has a collection of sys- tems and other elements in it. None of those things interrelate or interact in an interdependent way. (Note, though, that once humans enter a kitchen, they, together with the other elements, form a system. It’s a curious fact, but when- ever you add people to a collection, you almost always transform a collection into a system!)

Football team and toaster. Both are systems. Notice that in addition to our criteria of interrelatedness and interde- pendence, a team and a toaster are each put together for a specific purpose. Indeed, purpose acts as the predomi-

nant organizing force in any system. If you want to understand why a system is organized in a particular way, find out the system’s purpose.

Bowl of fruit. Most people would classify this as an obvious collection, because the pieces of fruit are not inter- related in any way and do not interact with each other. In truth, however, they are interacting—at a microscopic level. For instance, if you put certain fruits together, they are apt to decay faster because they interact at a molecular level. Someone for whom these interac- tions are important (a fruitologist?) might even consider this bowl of fruit to be a very interesting system—one whose purpose is to maximize the biodegrading process.

Marriage. For any of you who saw this one as a collection, please seek mar-

riage counseling immedi- ately! All kidding

aside, the question of whether one has a healthy

marriage has a lot to do with whether the relationship more

resembles a collec- tion or a system.

Marriage is essen- tially a voluntarily

chosen state of interde- pendence with another

person (not codependence, which is something altogether different). This state actually characterizes any long- term relationship, including friendships. Is there anybody among us who has not been reminded by someone that our actions have an impact on him or her? Sometimes, that is how we first encounter systems, and how we learn (often painfully) that we are part of a larger system than we may have realized.

Well, that was quite an excursion. I hope this tour has revealed that systems

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Honey, are we a collection or a system?

I hope we're a system!

are indeed all around us and that they take many different forms. In spite of these differences, though, all systems share several defining characteristics. It may be helpful at this point to summa- rize those characteristics.

Defining Characteristics of Systems

Systems have purpose. As we saw in the examples above, every system has some purpose that defines it as a discrete entity and that provides a kind of integrity that holds it together. The pur- pose, however, is a property of the sys- tem as a whole and not of any of the parts. For example, the purpose of an automobile is to provide a means to take people and things from one place to another. This purpose is a property of the automobile as a whole and can- not be detected in just the wheels, the engine, or any other part.

All parts must be present for a sys- tem to carry out its purpose optimally. If you can take pieces away from some- thing without affecting its functioning, then you have a collection of parts, not a system. In the toolbox example, if you remove a wrench, you have fewer tools, but you have not changed the nature of what is in the box. Likewise, if you can add pieces to a collection without affecting its functioning, it’s still just a collection.

The order in which the parts are arranged affects the performance of a system. If the components of a collec- tion can be combined in any random order, then they do not make up a sys- tem. In our toolbox, it doesn’t matter whether the screwdrivers are piled on top or buried at the bottom of the box (unless, of course, you really need a screwdriver now!). In a system, how- ever, the arrangement of all the parts matters a great deal. (Imagine trying to

randomly rearrange the parts in your automobile!)

Systems attempt to maintain sta- bility through feedback. In simplest terms, feedback is the transmission and return of information. The most important feature of feedback is that it provides information to the system that lets it know how it is doing relative to some desired state. For example, the normal human body temperature is 98.6 degrees Fahrenheit. If you go for a run, the exertion warms your body beyond that desired temperature. This change activates your sweat glands until the cooling effect of the perspiration readjusts your temperature back to the norm. Or, in our car example, imagine that you are steering your car into a curve. If you turn too sharply, you receive feedback in the form of visual cues and internal sensations that you are turning too much for the speed at which you’re traveling. You then make adjustments to correct the degree of your turn or alter your speed, or some combination of both. If you are a pas- senger in a car driven by someone who is not paying attention to such feed- back, you might be better off getting a ride with someone else!

The Importance of Purpose

We talked about systemic purpose a bit, but let’s take a closer look at it. A key to understanding any system is knowing its purpose, either as a separate entity or in relation to a larger system of which it is a part. In human-made (or

mechanical) systems, the intended pur- pose is usually explicit and reasonably clear, at least at the outset. The purpose of a washing machine, for example, is to wash clothes. The washing system is designed so that all the components work together to accomplish that pur- pose as effectively as possible.1 In mechanical systems, the purpose is usu- ally “hard-wired” into the design and therefore does not evolve over time. Your car, for example, was designed to take you places and will continue to operate with that purpose (provided you do your part in taking regular care of it). You’ll never encounter a situation where you wake up one morning and your car has changed its purpose to be a lawnmower (though it may turn into a big, heavy, unmoving paperweight!).

Living (or natural) systems, on the other hand, are continually evolving and have the capacity to change their purpose, temporarily or permanently. For example, one of the most basic assumptions people make about ani- mals is that they are driven only by sur- vival instincts and the need to pass on their genes. As we deepen our under- standing of nature, however, scientists are discovering that many animals seem to have much more complex set of pur- poses—some of them quite social—that govern their behavior. (Of course, we humans take it for granted that we have higher purposes beyond survival.)

Natural and social systems can be far more difficult to understand than nonliving systems, because we can never know for sure what their purpose

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1 Beware: Customers who buy these systems may use them for other purposes that fit their own needs. In such situations, where a system is used for a purpose different from the one for which it was orig- inally designed, the system is likely to degrade or fail. An unexpected use of washing machines actu- ally occurred in Japan, where farmers employed the machines to wash their potatoes—and then complained to the manufacturer about the frequent breakdowns! The company had the option of trying to redesign the machine to accomplish both purposes effectively or to persuade the farmers not to wash their potatoes in them. In this case, the company chose to change the design and tout the machine’s ruggedness as an extra feature.

or design is. As a result of this inability to truly know their purpose and design, we tend to take actions in these systems without really understanding the impact of our actions on the system. Whenever we do this, we risk causing a breakdown of the system. For example, people smoked tobacco for years before it was discovered that one of smoking’s long-term consequences is lung cancer. Even though we had a fairly good understanding of the purpose of our lungs, we did not have a sufficient understanding of how the lungs worked and what impact smoking would have on them—and us—over a long period of time. Since we aren’t the designers of the human body, we have to learn about how it works as a system largely by trial and error. Similarly, farmers have had to learn about ecological systems in much the same way, and managers struggle with organizational behavior for the same reasons. Like the human body, nature and human social systems don’t come with an owner’s manual.

Despite our ignorance about natu- ral and social systems, we still can’t seem to resist attributing some purpose to them. We even tend to impose a pur- pose on natural systems and then behave toward them in a way that is consistent with that purpose. For exam- ple, in some countries, people view dogs as pets for families to enjoy. In such regions, people might treat dogs almost as members of the family. In other parts of the world, dogs are seen as a source of food, and people treat them accordingly. In both situations, the practices toward dogs are consistent with each different, perceived purpose. Neither viewpoint is intrinsically right or wrong, although each may seem wrong when viewed through the “lens” of the other.

Clearly, there are lots of systems to choose from if you want to study sys-

temic behavior. But as we will see, social systems make up the most complex class of systems—which you probably already know from direct experience in trying to manage some of them!

Putting Systems in Context:

“The Iceberg”

Before we dive more deeply into the world of systems, it’s helpful to see how systems fit into a broader context. We can actually view reality from the fol- lowing multiple levels of perspective: events, patterns, and systemic structures (see “The Iceberg”). As we’ll see below, systems occupy a key position in this framework. But what do these levels mean? Some basic definitions and a few examples might help:

Events are the occur- rences we encounter on a day-to-day basis. For example, we catch a cold, a fire breaks out, or a defective product comes off the assembly line at our company.

Patterns are the accumulated “memories” of events. When strung together as a series over time, they can reveal recurring trends. For example, we catch colds more often when we’re tired, fires break out more frequently in cer- tain neighborhoods, or we notice a higher num- ber of product defects during shift changes.

Systemic structures are the ways in which the parts of a system are organized. These struc- tures actually generate

the patterns and events we observe. In the example above about defective products, perhaps shifts are scheduled such that there is no overlap between the outgoing and incoming work crews—hence, there’s a greater likeli- hood of defects during these times. Note that systemic structures can be physical (such as the way a workspace is organized, or the way a machine is built) as well as intangible (such as ways employees are rewarded, or the way shift changes are timed).

A key thing to notice about the three different levels of perspective is that we live in an event-oriented world, and our language is rooted at the level of events. Indeed, we usually notice events much more easily than we notice patterns and systemic structures even though it is systems that are actually

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Events

Patterns

Systemic Structures

THE ICEBERG

Because systemic structures generate patterns and events—but are very difficult to see—we can imagine these three levels as a kind of iceberg, of which events are only the tip. Because we only see the tip of the iceberg, the events, we often let those drive our decision-making. In reality, however, the events are the results of deeper patterns and systemic structures. Source: Innovation Associates

driving the events we do see. This ten- dency to only see events is consistent with our evolutionary history, which was geared toward responding to any- thing that posed an immediate danger to our well-being. As we’ll see later in this volume, it’s redesigning things at the systemic level that offers us far more leverage to shape our future than sim- ply reacting to events does.

What Do Systems Do? A Close Look

at Systemic Behavior

We’ve explored what defines systems and how systems generate the patterns and events we see around us. But how do we actually start looking at reality from this intriguing viewpoint? We need to do two things: deepen our understanding of how systems behave, and gain familiarity with some terms and tools of systems

thinking in order to communicate our understanding of that behavior. This sec- tion “walks” you through some basic sys- tem behaviors and uses two powerful systems thinking tools—causal loop dia- grams and behavior over time graphs— to illustrate the concepts.

Fun with Feedback

To hone our systems thinking perspec- tive, let’s look again at feedback. As we saw earlier, feedback is the transmission and return of information. The key word here is return—it is this very char- acteristic that makes the feedback per- spective different from the more common perspective: the linear cause- and-effect way of viewing the world. The linear view sees the world as a series of unidirectional cause-and-effect relationships: A causes B causes C causes D, etc.

The feedback loop perspective, on the other hand, sees the world as an interconnected set of circular relation- ships, where something affects some- thing else and is in turn affected by it: A causes B causes C causes A, etc.

As trivial as this distinction between these two views may seem, it has pro- found implications for the way we see the world and for how we manage our daily lives. When we take the linear view, we tend to see the world as a series of events that flow one after the other. For example, if sales go down (event A), I take action by launching a promotions campaign (event B). I then see orders increase (event C), sales rise (event D), and backlogs increase (event E). Then I notice sales decreasing again (event F), to which I respond with another promotional campaign (event G) . . . and so on. Through the “lens” of this linear perspective, I see the world as a series of events that trigger other events. Even though events B and G are repeating events, I see them as separate and unrelated.

From a feedback loop perspective (see “Thinking in Loops” on p. 6), I would be continually asking myself “How do the consequences of my actions feed back to affect the system?” So, when I see sales go down (event A), I launch a promotions campaign (event B). I see orders increase (event C) and sales rise (change in event A). But I also notice that backlogs increase (event D) (another eventual effect of event B), which affects orders and sales (change in

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A B C D

A B C D

We can gain even richer insights into systems by adding two more levels of per- spective to the events/patterns/structure model. The two additional levels are mental models and vision.

Mental models are the beliefs and assumptions we hold about how the world works. We can view these assumptions as “systemic structure generators,” because they provide the “blueprints” for those structures. In our example about defective parts, maybe the production-line folks believe that they are responsible only for what they produce, not what the shift after them produces. This mental model may have led the company to create a structure whereby there is no over- lap of staff during shift changes.

Vision is our picture of what we want for our future. It is the guiding force that determines the mental models we hold as important as we pursue our goals. For example, perhaps the people on each assembly-line shift hold a vision of compe- tition—of striving to produce higher-quality products than any other shift. This vision would drive the mental model that says that each line is responsible only for what it produces.

See the “‘Acting’ in Different Modes” appendix on p. 17 for how to incorporate mental models and vision into the events/patterns/structure framework and take high-leverage actions to address a problem.

MENTAL MODELS AND VISION: MORE LEVELS OF PERSPECTIVE

events C and A), which leads me to repeat my original action (event B).

After looking at both the linear and feedback represen- tations, you might be saying to your- self, “So what? I’m too busy to draw pretty pictures about my actions. My job is to pro- duce results—so I have to take actions now. Describing what has happened in two different ways still doesn’t change what actually happens, so why do the two perspectives matter?” But here’s a key insight in systems thinking: How we describe our actions in the world affects the kinds of actions we take in the world. So, let’s reexamine the lin- ear and feedback perspectives. Notice how the feedback view draws your attention to the interrelationships among all the events, whereas in the

linear view, you are probably drawn to each cause-and-effect event pair. By becoming aware of all the interrelation-

ships involved in a problem, you’re in a

much better position to address the prob-

lem than if you only saw separate cause-

and-effect pairs. The point here isn’t to

“wax philosophical” about the intrinsic merits of two perspectives, but to identify one that will help us understand the behavior of complex sys-

tems so that we can better manage those systems. The main prob- lem with the linear view is that although it may be a technically accurate way of describing what happened when, it pro- vides very little insight into how things happened and why. The primary pur- pose of the feedback view, on the other hand, is to gain a better understanding of all the forces that are producing the behaviors we are experiencing.

The Building Blocks of Systemic Behavior: Reinforcing and Balancing Processes

Feedback is just one piece of the picture when we’re thinking about how systems behave. To fill out the picture, let’s con- sider some examples of systemic behav- ior that we’ve all experienced. For instance, maybe you’ve worked in a company that was initially growing exponentially in sales, only to collapse a few years later. Or, maybe you’ve engaged in one of America’s favorite pastimes—dieting—where you kept losing the same 15 pounds over and over again. Or, you may recall that, when you were first learning to ride a bicycle, you wobbled down the street trying to stabilize yourself and eventu- ally fell down (wondering what was wrong with three wheels anyhow).

All of these examples might seem completely unrelated on the surface; however, if we take a closer look at them, we can identify some very basic things that they have in common. In fact, all systemic behavior can be described through just two basic processes—called reinforcing and bal- ancing processes. Both of these “build- ing blocks” of systemic behavior involve distinctly different feedback. And, it’s the combinations of these processes that give rise to the vast variety of dynamic behavior in the systems we see all around us.

Reinforcing Processes: The Engines of Growth and Collapse. Reinforcing processes arise from what’s known as positive feedback. No, this isn’t praise for a job well done. In systems termi- nology, it means information that com- pounds change in one direction with even more change in that direction. In other words, successive changes add to the previous changes and keep the change going in the same direction.

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Sales Are

Down Marketing

Promotions Orders

Increase

Sales Are Up

Sales Are

Down Backlogs Marketing

Promotions

Orders Increase/Decrease Backlogs

Sales Are Down/Up

Marketing Promotions

(B)

(A)

(C) (D)

Thinking in loops helps us see the interrelationships among all the variables in the system.

THINKING IN LOOPS

Those were excellent slides you used in your

presentation.

Why, thank you! But that wasn't

what I meant by feedback.

Let’s take a simple example of a sav- ings account. If you have a positive bal- ance, each time there is an interest payment calculation, the amount will be slightly bigger than the preceding payment period. This is because the balance has grown since the previous calculation. The time period after that, the interest amount will be bigger still, because the balance has grown a little more since the time before. Of course, all this is assuming that you are not making withdrawals during this time (which may be a big assumption for many of us!).

Another example is the wonderful growth engine that every marketer knows about: the word-of-mouth effect. As you increase the number of cus- tomers using your products, there are more “mouths” to tell others about your products. The resulting awareness leads

to more sales, which leads to even more happy customers telling others. (Of course, this scenario is based on the assumption that your customers have nice things to say about your product!)

In the bank-account and word-of- mouth scenarios, a reinforcing dynamic drives change in one direction with even more change in the same direc- tion. You can detect this kind of loop at work simply by sensing exponential growth or collapse (such as the rapid spread of an exciting new idea, or a company that suddenly goes out of business).

You can also think of reinforcing processes as “virtuous circles” when they produce desirable behavior. Yo

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