The Paradox of KSFs

Most of us approach a large, complex issue by breaking it down into manageable parts. By focusing on a few aspects at a time, we sometimes succeed in improving the parts, but we often fail to address the problem as a whole. In the long run, this approach robs us of resources that we could have used to look at an issue from a systemic perspective.

We can find ample evidence of the limits to a factors approach in medical literature. In Sweden, for example, researchers tried to reduce cardiovascular risk factors in 3,490 business executives. After five years of intervention and 11 years of follow-up, the executives had reduced their risk factors by an average of 46 percent, yet they had a higher death rate than members of a control group. A similar study in the U.S. produced comparable results.

We might dismiss these studies as statistical flukes if the consequences weren’t so serious. The sad reality is that these results probably reflect many of our efforts, not just in healthcare but in virtually every facet of our organizations. Although we focus time and again on improving single factors, we fail to acknowledge that the health of most individuals—and most systems—is greatly determined by the relationships among critical loops. The line “the operation was successful, but the patient died” sums up the pitfalls of the factors approach to complex systems.

Beyond Factors to Loops

To create long-lasting success, we need to extend our factors approach and identify the interrelationships among the factors that drive the dynamics of the system—in short, to identify the Key Success Loops (KSLs).When we take a systemic approach, we realize that the lowest meaningful units of analysis are loops, not individual factors—and we no longer initiate actions on any factors until we distinguish the critical loop or loops involved.

Now, imagine being given the same charge as before from corporate (see “Key Success Loop Approach”). We begin in the same way, by brainstorming and then prioritizing KSFs (Step 1). But instead of leaping into action by assigning the factors to teams, we take each of the high-priority factors and identify at least one reinforcing loop that will make the factor self-sustaining without continued external investments (Steps 2 and 3). We integrate all of the loops into a single diagram, in which the individual loops are connected by the factors they have in common (for example, B and D in Step 4).We then look at the diagram as a whole and decide where to make the investments that would help support the success of the entire system (Step 5). Only after we have developed a sufficient understanding of the system will we assign teams to implement specific success loops. Each team then collaborate closely with those teams whose loops are directly connected to theirs (Step 6).

Launching a New Venture

Let’s walk through a simplified example of a Key Success Loop approach. Suppose we want to launch a new business venture in our organization (see “New Business Venture Success Loops”).We begin by brainstorming a list of KSFs that we believe are important to our success, such as number of new products, skilled people, profit, and ability to meet customer needs (Step 1).

We then focus on the first factor and try to identify a key loop that would make it self-reinforcing. We can ask either “What would an increase in the number of new products cause?” or “What would be an important driver of growth in the number of new products? ”The first question leads us downstream in the arrow flow to “Revenues,” while the second takes us in the upstream direction to “Acquisitions.” Either way, we try to create a reinforcing loop around the original factor (Step 2).We then repeat the process with the remaining factors (Step 3).

After we have created a loop for each KSF, we look for common variables in the individual loops. In this example, loops R1 and R2 can be linked through “Revenues” and “# of New Products” (Step 4). Once we have a diagram that maps the key linkages, we can begin to identify the best places to make high-leverage investments (Step 5). Now we are ready to assign teams to focus on each of the loops through a collaborative effort in which each team understands its loop in the context of the larger system (Step 6).

Benefits of KSLs

Moving beyond Key Success Factors to Key Success Loops offers a number of advantages. First, because the loop approach links you to a broader set of variables, you reduce the risk of focusing on the wrong factors. Even if you initially pick the wrong factors, the process of mapping the loops increases the likelihood that you will include the most important ones. Also, identifying the loops decreases competition for limited resources. When everyone can see the interconnections, teams are less likely to “pump up” their own factors without regard for the effect on others. Loops can also provide a clearer picture of where investing in one point could positively affect multiple factors. Finally, rather than being stuck in the “Ready, Fire, Aim” syndrome that many organizations experience, emphasizing KSLs can actually give you a viable “Ready, Aim, Fire” approach.

Daniel H. Kim is a co-founder of Pegasus Communications, Inc., and publisher of The Systems Thinker.

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A shared commitment to act toward a compelling goal.

Why do I like it?

• First, it emphasizes that strategy is about action – not about analyzing, forecasting, writing papers, filling out forms, compiling spreadsheets, but about action.
• Second, it speaks of a shared commitment – the kind of commitment that management needs so that they continue to act as a team, even when things get tough.
• Third, it recognizes the importance of a compelling goal – the objective, that, when realized, brings vision into reality.

I recognize that the statement makes no declaration about what the goal should be or about what actions should be taken, but I ask that you ride with that gap for the moment — all will be revealed in due course. I also recognize that are many ways of building a shared commitment to act and of defining a good strategy. Scenario planning, which I will focus on, is just one of them.

Gods, Gamblers, Grinders, and Guides

All organizations have their own dominant beliefs, and top managers have their own styles. Some people believe, for example, that it is possible to predict the future (if not in general, then at least as far as their own organizations are concerned); others prefer to believe that the future is uncertain and that the journey into the future is one of exploration. As regards style, some leaders exercise very strong control, while others seek to empower those in their organizations (see “Four Leadership Styles”).

Strong, controlling leaders who believe they can predict the future are much like gods: Not only do they know what they want, they know best, too. You don’t have to read Homer to learn that any mortal who incites the wrath of an angry god soon has an uncomfortable time. Such leaders need no tools and techniques to formulate a strategy: They know. From time to time, they might actually be right.

Strong, controlling leaders who are less certain of their powers of prediction often behave like gamblers: They place a bet that the future will evolve in a certain way and, if it does, fine; if it doesn’t, well, let’s throw the dice again and see what happens a second time. Gamblers, too, need few tools and techniques, but they might like some financial analyses to give them a feel for the odds.

Empowerers who believe they can predict the future are convinced that, somewhere out there, the “right” strategic answer exists, if only they can find it. These are the grinders, managers who are forever grinding away on more analyses, more research, more numbers. These people love tools and techniques, with their five forces, their value chains, their PERTS, and their SWOTS.

In many cases, the most successful leaders may be those empowerers who choose to serve as guides: They seek to carefully steer their organizations through the uncertainties that the future will inevitably bring. How can they steer the safest course? Well, to do so, they need a map. The problem is that no such map can be found, for maps exist in space, not in time.

It is in this last arena that scenarios can help, for scenarios are stories describing how the future might evolve. Scenarios therefore do a similar job in time to that done by maps in space. But because the future might evolve in many ways, there are many possible scenarios, each of which represents one possible view of what might happen over the next five, 10, or 20 years. Importantly, the emphasis within each scenario is not on the internal aspects of the business, but rather on the external context in which the business might operate; robust scenarios depict the future in terms of politics, economics, sociology, demography, technology, and industrial structures.

By imagining what such a future might be, you can test whether or not a particular strategy for your own business will be beneficial, should that future indeed come to pass. And by explicitly recognizing that there might be several different futures, any one of which might happen, you can test your strategy against each and see if some strategies are more robust than others. In essence, scenario planning is a form of simulation: It is the business manager’s equivalent of the jet pilot’s flight simulator. The scenarios project you and your organization into the future, and provide a realistic, rich context in which you can examine whether or not particular strategies – the development of new products, the entry into new markets, or whatever – are likely to be successful.

Scenarios also serve to heighten your understanding of risk, so that when you put your strategy into action, you will be much more aware of how changes in the external environment are likely to impact your business. Then if you notice that the world is in fact evolving in a direction for which your strategy is less appropriate, you will be able to change course easily and quickly, far more so than your competitors, who may not have noticed what is going on, or, if they have, may continue for some time in a state of denial.

But how does scenario-based strategic planning – to give it its full name – actually work?

Scenario-Based Strategic Planning

Scenario-based strategic planning comprises two principal activities:

• First, the development of a small number of scenarios – say, up to five – each of which describes a different view of how a future world might look.
• Second, the agreement on a strategy – a set of actions that the organization is committed to take.

As indicated by “Scenario Development and Strategy Formation,” the process of scenario development is divergent and strives to embrace as broad as possible a view of how the future might evolve, in order to encompass the future’s inevitable uncertainties. This is done through a series of group workshops, supported by research, and the gathering of expert opinions. The purpose of the scenarios is to provide a series of backdrops against which different strategies can be assessed. Questions such as “Should we enter the [whatever] market?”, “What are the risks of making [whatever] investment?” and the like are tested against each of the scenarios. Participants assume that, yes, they do enter that market, and that, yes, they do make that investment, and then imagine that they and their organization are projected into each scenario 10 years into the future. They can then assess, using “projected hindsight,” whether or not those decisions were “good” or “bad.” By exploring various decisions against each scenario in this way, team members can then determine that set of decisions that they collectively feel most comfortable taking now and therefore converge upon an agreed strategy.

The following pages describe the process in more detail. First, we need to introduce and define three terms that have a special role in scenario planning: worlds, levers, and outcomes.

Worlds. A world is a comprehensive description of the context in which a business operates. Worlds are therefore described in terms of (often long!) lists of adjectives and adjectival phrases, describing all aspects of the world of interest, including the political, social, economic and regulatory structures, nature of market competition, technology, and all the rest.

SCENARIO DEVELOPMENT AND STRATEGY FORMATION

The process of scenario development is divergent and strives to embrace as broad as possible a view of how the future might evolve, in order to encompass the future’s inevitable uncertainties. The purpose of the scenarios is to provide a series of backdrops against which different strategies can be assessed. By exploring various decisions against each scenario in this way, team members can then determine that set of decisions that they collectively feel most comfortable taking now and therefore converge upon an agreed strategy.

The most familiar world is today’s world, and an important part of the scenario planning process is to come to a shared view of just what it is. Different people see different things, and some lively workshops can be run focused on describing today’s world. Ultimately, any description of today’s world must pass the Martian Test: If the description were e-mailed to a group of Martians approaching Earth, on stepping out of their saucer, they must be able to recognize where they have landed.

If today’s world is defined in terms of a long list of descriptive phrases, then, by definition, a different world must have a different list. A major milestone in scenario planning is to generate a small number of different worlds – three to five is usually sufficient – that have self-consistent descriptions. These worlds should be significantly different from one another, and from today’s world.

Some of the different worlds might appear favorable, others harsh; some may appear to be relatively likely, other less so; some might be desirable, others positively repulsive. At the moment, though, such issues aren’t important; all that matters is that any different world must be believed to be, in principle, possible.

Levers and Outcomes. Levers represent the actions and decisions that managers can take. For example, managers can determine product range, target markets, staffing levels, skills, investments in infrastructure, level of R&D, location of manufacturing sites, amount spent on advertising, and so on. At any time, each lever has a setting – the numeric amount associated with that lever.

Outcomes represent the commercial results of the organization: levels of sales and profit, reputation, share price, market share, staff morale, and so on. At any time, each outcome has a numeric value.

Fundamentally, the job of strategic management is to determine the levers and assign their settings, so as to generate desirable outcomes. As every manager soon learns, however, levers are not directly connected to outcomes; there simply is no lever to allow managers to directly control profit, market share, or share price. Rather, the levers that managers can actually pull are only indirectly, and sometimes rather loosely, coupled to the outcomes, and managers act in the belief – or hope – that by cutting costs here and increasing staff there, shareholder value will be increased. To make matters worse, time delays occur before any change in a lever setting begins to take effect.

This process is, as we all know too well, very complex. A powerful tool in taming this complexity is system dynamics modeling. This kind of simulation goes far beyond the typical spreadsheet and can handle loosely coupled variables, time lags, and feedback loops. (For a more complete definition of system dynamics, go to http://www.systemdynamics.org.)

The Rules of Innovation

Many people feel that inventing new worlds is difficult, fearing not only that they lack the expert knowledge, but also – and far worse – that they just don’t have the imagination. In fact, inventing new worlds is easy and a lot of fun, provided, of course, that you do it in the easy, fun way – and that is to borrow from the techniques of innovation.

Briefly, two of the key rules that make innovation deliberate, systematic, and safe are:

• Rule No. 1: Don’t try to leap directly into the unknown – start from something or somewhere you know well.
• Rule No. 2: New ideas are best generated not by waiting for lightning to strike, but by challenging assumptions and asking, “How might this be different?”

A simple but nonetheless startling example of these rules in action is the familiar nine dots puzzle (see “Nine Dots Puzzle”). There are two questions:

• How can you join all nine dots with four straight lines, without taking your pencil off the page?
• And if that is too easy, how many different ways can you find of joining all the dots with just one line?

Most people tackle the first question by picking up a pen and drawing various alternatives; they usually don’t even know where to start with the second question. But then most people don’t know the two rules of innovation. Picking up a pen, drawing, and trying to solve the puzzle by trial and error breaks the first rule – you’re leaping into the dark. The first rule says “Let’s understand all we can about the nine dots.” There are nine, they are in a square array, they are an inch or so apart, and they are about a quarter-inch square. The second rule says, “Challenge the assumptions.” Is the shape the dots form a square? What would happen if the dots weren’t an inch apart? They might be a mile apart or close together. But if they were close, I could wipe a felt-tip pen across all nine at once. So, if they’re an inch apart, I need a thick pen – maybe a paint roller. Ah yes, that’s it, a paint roller. And the puzzle is instantly solved.

Inventing New Worlds

The easiest way of inventing new worlds is therefore to apply the two key rules of innovation defined above. In the context of scenario planning, if we follow Rule No. 1, our starting point is something we all know well indeed, namely, today’s world. In fact, we take the time to define today’s world not only to build a genuine, deeply shared view of where we are, but also as a springboard to innovation.

One observation about today’s world might be that “the current industrial structure is consolidating.” Rule No. 2 requires us to challenge assumptions and ask, “How might this be different?” How might the industrial structure be different? Well, perhaps it will concentrate even further into a global monopoly; perhaps it will fragment as a result of government intervention; perhaps new entrants will come in on the back of a new technology.

Applying Rule No. 2 thus results in many alternative possibilities. As a group begins to list these potential futures, people start associating characteristics together, so that a small number of self-consistent worlds emerge, each with its appropriate set of descriptions. Created by a process of deliberate challenge and deliberate and systematic innovation, these descriptions will be very different from today’s world. When you are in the middle of the process, it can appear to be something of a muddle, with hundreds of post-its all over the walls. But rest assured that it works: The human mind is quite adept at seeing patterns. Just as the solution to the nine dots puzzle emerged, seemingly out of nowhere, so the process of challenge, coupled with the interactions of a group and the human ability to see patterns, will create a compelling series of new worlds.

“Scenario Planning Summary” forms the heart of a scenario planning exercise. Each column represents a different world, the first being today’s world. The often extensive descriptions of each world are incorporated in the first row. The levers are named in the title box of the second row, and the corresponding lever settings are identified in the appropriate column. Similarly, the outcomes are named in the title box of the third row, and the outcome values, for the defined lever settings in each world, are assessed and entered into each column.

The question then becomes, What are the lever settings and what new levers might be required to give favorable outcomes in as many of the worlds as possible? Once the most favorable set of levers and lever settings have been determined, then your strategy is that set of managerial actions required to move the levers from their current settings to the desired ones.

Testing the Levers

By now, you will have:

• Defined today’s world.
• Defined up to five alternative worlds.
• Defined the levers and the outcomes.
• Seen how the lever settings in today’s world generate today’s outcome values.

It is at this point that the scenarios themselves are written, each scenario being a vivid story describing how each of the alternative new worlds evolved, in its own particular way, from today’s world. Well-written scenarios capture your imagination and are powerful vehicles for communication and training. Immersing yourself in the scenarios builds “a memory of the future,” so that as time passes and the future becomes reality, you recognize what you see. But the scenarios themselves are not the end of the exercise: The purpose of the scenarios, and the alternative worlds they describe, is to form a context in which your business might operate in the future.

To test out this method:

• Imagine that the levers and their settings are the same as in today’s world. What will the outcome values be in the different worlds? Are they favorable or unfavorable?
• If the outcome values in any alternative world are unfavorable, what would the lever settings have be to give rise to favorable outcomes? Do you need to invoke any new levers?

This process is best carried out through group discussion; it can also be supported by modeling and specific, well-focused analysis. The objective is to examine how robust different lever settings are to future uncertainty. Suppose, for example, you decide that the current lever settings give favorable outcome values in just one of the alternative future worlds. That analysis implies that, if you leave the lever settings as they are and that particular future does indeed come to pass, your business is likely to be successful. But if the future were to evolve toward any of the other worlds, things might not be so rosy.

Turning Scenarios into Strategy

As a result of the exploration of the lever settings in the various worlds, you will discover one of a number of things, for example, that:

• The current levers, and their settings, are indeed robust under future worlds, or
• The current levers, and their settings, are not robust under future worlds, or
• Some different lever settings are robust under many of the future worlds, including today’s world; or there are no lever settings that work well under many worlds, but several clusters of settings that work well in some worlds but not others; or there are no generally safe lever settings – each world has its own.

These insights are guides to strategy. How so? Let’s go back to our definition of strategy: a shared commitment to act toward a compelling goal.

A shared commitment to take what specific actions, toward which particular goal? Well:

• The goal must be defined in relation to one or more of the worlds, and
• The actions must be to move existing levers to new settings or to deploy new levers.

The process of strategy development is therefore that of deciding which levers need to be placed at what settings. And the strategy itself is the set of actions you decide to take to move the levers from their current settings to their new ones.

Scenario-based strategic planning has the objective of providing a framework to enable managers to make strategic decisions (see “The Scenario-Based Strategic Planning Process”). These decisions can relate only to levers and their settings; managers, quite literally, can do little else. As we all know, the problem with resetting the levers is that some of them are difficult to reset; some, once reset, cannot be reversed to their original settings; many require a long time to reset; and, once settings have been reset, it may be a long time before the results are actually achieved—time during which the world is fast evolving, often in such a way as to make the new settings no longer fit for their originally conceived purpose.

THE SCENARIO-BASED STRATEGIC PLANNING PROCESS

Scenario-based strategic planning has the objective of providing a framework to enable managers to make strategic decisions. As such, it comprises a number of activities, beginning with defining today’s world and the range of actions that managers can take to creating scenarios of different possible worlds to testing levers in different settings and, finally, identifying effective actions.

But the levers must be reset from time to time. Doing nothing, and so betting that the world will stay still, is often a worse bet than taking a gamble on one particular future. The process is exciting, challenging, stimulating, exhausting, amazing – and, most importantly, it works.

Dennis Sherwood is the author of nine books, including Seeing the Forest for the Trees: A Manager’s Guide to Applying Systems Thinking, Smart Things to Know About Innovation, and Unlock Your Mind. For 12 years, he was a consulting partner with Coopers & Lybrand and was subsequently an executive director at Goldman Sachs in London, a partner in Bossard Consultants, and vice president of SRI Consulting. He is currently with the Silver Bullet Machine Manufacturing Company. Dennis was educated at the Universities of Cambridge, Yale, and California, and is a Sloan Fellow, with distinction, of the London Business School. He is a well-known speaker at conferences, has written many journal articles, and has appeared on BBC Radio 4’s programs In Business, Shoptalk, and Nice Work.

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At Boeing, a major aerospace company, a team leader and his R&D group recently found themselves in uncharted territory as they faced a new project. They needed to create a leadership infrastructure to bridge the learning that happens in the workplace with more structured classroom learning. The framework would span multiple organizations, missions, locations, and personnel. The temptation to leap into action was hard to resist. But the project team realized that taking the time to develop an implementation strategy would help them to be more effective in the long run. In order to do so in a systematic way, they chose to develop an Operational Strategy Map to guide their efforts.

The Operational Mapping Methodology

Developing a map of strategy isn’t a new idea. Most organizational improvement methodologies (such as total quality management, reengineering, and the balanced scorecard) recommend some form of mapping in order to facilitate understanding of an organization and its processes. All mapping methodologies have benefits as well as limitations. Because maps are necessarily a representation of reality — and not the reality itself — it’s important to choose a framework that captures the essence of the system in a way that helps the organization most effectively navigate through the unfolding strategy.

The Operational Strategy Mapping (OSM) framework synthesizes elements from three disciplines — system dynamics, skilled facilitation, and balanced scorecard—to create a process and product that can enhance the creation and implementation of organizational change efforts (see “Operational Strategy Mapping”). Using OSM, a strategic planning and implementation team clearly articulates what the strategy should accomplish, how it works, and what unintended consequences might result. In the process of developing the map, team members generate understanding of, and commitment to, the overall plan.

System Dynamics. OSM uses system dynamics mapping and its underlying paradigm of the world. System dynamics incorporates two different visual languages: causal loop diagrams and stock and flow maps. In order to quickly get up to speed on the terminology and launch into the mapping process, groups may begin with causal loop diagrams. Causal loops can be extremely useful for eliciting important interdependencies that will impact and be impacted by the strategy.

Because OSM requires exploring questions such as “How does/will it work?” the strategy team will eventually need to build stock and flow maps to generate this “operational” focus. Although doing so may initially require a little more effort than creating causal loops, the value derived from this additional effort of differentiating between conditions and activities that change those conditions will dramatically increase the rigor and quality of any strategy discussions. Using stock and flow maps, groups can look at the factors inherent in the strategy that may contribute to unintended consequences during implementation.

OPERATIONAL STRATEGY MAPPING

The Operational Strategy Mapping (OSM) framework synthesizes elements from three disciplines — system dynamics, skilled facilitation, and balanced scorecard—to create a process and product that can enhance the creation and implementation of organizational change efforts.

The paradigm of system dynamics asks us to move from thinking about our organizations in terms of one-time events and isolated functions to considering them in terms of continuous, dynamic, integrated processes. To implement OSM, a team needs to look at the strategy as something that will unfold over time, with natural ebbs and flows, and will likely require adjusting in terms of the magnitude and timing of different elements. The system dynamics approach also suggests the need to identify forces that might slow or impede implementation. It offers guidance in predicting natural delays in the system; knowing about these delays is vital to generating an effective implementation plan.

Skilled Facilitation. Skilled facilitation, based on the work of Roger Schwarz, provides the framework for the process of building OSMs. It offers tools for assessing if the appropriate stakeholders are involved, how effective the group dynamics are, and how to facilitate conversations around building and testing the usefulness of the map. Because skilled facilitation applies an explicit approach to developing shared mental models (both about the content of the project and the group’s process), it is a natural fit with the system dynamics approach to mapping.

The Balanced Scorecard. The third discipline built into the OSM methodology, Kaplan and Norton’s Balanced Scorecard (BSC), has become popular for helping businesses and public-policy organizations build and revise visual strategic “bubble maps” as part of an ongoing, iterative learning process. The BSC’s four quadrant perspective — Financial, Customer, Internal Processes, and Learning — provides a useful guide for ensuring that the strategy map covers the organization’s different facets. (Although not all OSMs cover the four quadrants, groups should be conscious about choosing to eliminate one or more quadrants from the map.) However, the stock and flow language is better able to depict how processes work than “bubble maps” and can serve as the basis for computer simulation at a point in the future if the team finds this additional step helpful.

The steps for building an OSM are the same as those described for the BSC. In their book, The Strategy Focused Organization (Harvard Business School Press, 2000), Kaplan and Norton describe strategy management as following four principles:

1. Translate the Strategy to Operational Terms
2. Align the Organization to the Strategy
3. Make Strategy Everyone’s Everyday Job
4. Make Strategy a Continual Process

As you’ll see, the distributed learning team at The Boeing Company followed these steps as they developed and used an OSM.

Building an OSM at Boeing

The Boeing Company is an organization widely distributed across geographies, business segments, and product lines; it also includes several engineering disciplines. The decision to sponsor a leadership initiative in the company reflected an understanding that, although the culture focused primarily on formal learning events, more than 80 percent of learning and leadership development occurred on the job. The “Workplace Leadership Initiative” would integrate formal and informal learning and would support participants in pursuing their individual learning agendas on their own time. In turn, employees would contribute their own content/expertise through a personalized web site and a community space that would be integrated into the leadership program’s learning experience. Putting together the various pieces of the program was a challenging opportunity. The development team decided to create an Operational Strategy Map to help them “mentally simulate” how they might execute the initiative.

Translating the Strategy to Operational Terms. The first phase of developing the OSM was to get background information on the project and develop a “strawman” map of the strategy. Getting background information usually requires phone interviews with a few stakeholders/experts. This interviewing process serves two purposes: (1) Gathering information from throughout the system of interest, and

(2) Generating understanding and commitment from the stakeholders for the process and subsequent map.

For this project, the team leader possessed the knowledge to provide enough input for the initial map.

The team leader was concerned about the following areas of execution: creating the initial workplace leadership system, generating enthusiasm among potential users, and building support among senior managers (who might not be users, but who would likely encourage or discourage the use of the system among their staff). He had several hypotheses about how the system might work, but felt that the OSM process would force him to better articulate those assumptions, integrate the team’s assumptions more effectively, test the accuracy of the combined assumptions, and ultimately communicate them to management.

Based on initial conversations, the group chose to focus the core structure of the map on the system’s end users. In this case, the core structure (often referred to as the spinal cord or main chain of the model) assumes that users can move from being Unaware of the WL (abbreviation for “Workplace Leadership System”) to being Aware of and May Use WL. (See the section labeled “Core Structure” in the diagram “A Virtuous Cycle” on p. 4.) After experiencing the Workplace Leadership System, they might become an Advocate for WL — or they might become Resistant to WL.

The stocks and flows visually represent the movement of people from one state to another. The stocks (boxes) are the accumulation of people (how many in each state at any point in time), and the flows (circles) are the processes that advance people through the various stocks. The initiative would need to carefully manage the movement from Unaware to Aware and then ensure Advocates were generated while simultaneously limiting the flow into Resistant to WL. The team spent hours further defining attributes associated with the stocks: What type of person was in each stock? Is there a better name for the stock? Is there anything missing in the main chain?

After focusing on the stocks, the team was ready to begin thinking through strategic implications by analyzing what might drive each of the flows. They quickly realized that they couldn’t directly affect the stocks — they needed to design policies directed toward the processes that move people from one state to another. The group determined that they could have a direct impact on awareness by having focus groups and other public relations-type events. People would move into the Advocates stock through word-of-mouth; their experience with the WL system would influence the level of Advocates and Resistant folks, because the more positive the experience, the faster the rate of acquiring new Advocates.

As always happens, the team identified weaknesses in the draft map’s assumptions. Foremost among these was the map’s aggregation of the learning initiative’s attributes into a single stock. The team suggested three categories of attributes: Useful Content, Features, and Ease of Use. The discussion around the development of these features was heated. Through it, the team found an appreciation for the level of precision that OSMs bring to what’s often a fuzzy process.

As a result of the conversations to improve the assumptions in the map, the team identified a virtuous cycle they wanted to set in motion. An important element of the Workplace Leadership System is users’ ability to add their own content, wisdom, and expertise—and Advocates would likely contribute the most. The greater the content that the program has to offer, the greater participants’ overall satisfaction will be (the team called this the “Wow!” effect). High levels of satisfaction in turn create more Advocates. A nice loop to get going! The team realized, however, that a limit to growth for this loop would be the ease of use. If it’s not easy to add content, then Advocates probably will not do so, making it difficult to set the cycle into motion.

The team found that the mapping process surfaced a dark side of implementation that they hadn’t consciously discussed before: the buildup of folks resistant to the initiative. At first, the group was dismayed to think about the potential for Resisters to develop in

A VIRTUOUS CYCLE

An important element of the Workplace Leadership System is users’ ability to add their own content, wisdom, and expertise. The greater the content that the program has to offer, the greater participants’ overall satisfaction will be. High levels of satisfaction in turn will create more Advocates.

the organization. But after some discussion, they realized that because they now knew the possibility existed, they could look out for it.

Further, they decided that if budding Resisters were identified early enough and were listened to, two things would happen. First, they would likely have feedback that would improve the overall system. More importantly, they might move over into the stock of Advocates. The team believed that people who cared enough to be Resisters could become strong Advocates — the energy would just be directed differently. The team referred to this as an aikido approach to resistance: Rather than push directly back against critical feedback (the natural tendency of a design team), they would redirect the energy behind the criticism — and apply it to improving the product. The team also strongly believed that the process of listening would generate Advocates.

The group developed a large wall hanging with crisp high-resolution graphics. Over the course of a couple of weeks, they used the map in their meetings and presented it to managers and other stakeholder groups within Boeing. In discussions and presentations, team members were able to walk up to the map, point directly at the area of strategy they were describing, and quickly get everyone’s reactions.

As a result of these meetings, the map was modified slightly — yet the core structure remained the same. The team found they could present the map without the aid of the project consultant. In that sense, they owned the map, its assumptions, and the implications it had for their strategy — it provided a common framework that guided their discussions.

Aligning the Organization to the Strategy. The second step in the process is to align the organization to the strategy. The team did so by using the map to develop a team project plan. They focused on the flows in the map and assigned tasks to different individuals. Although the group could have used sophisticated project planning software, for this effort they imported snapshots of map segments into Excel worksheets and added roles and responsibilities (see “The Project Plan”).

Results from the Initiative

The project is still underway, but the team has already reaped several benefits from developing the OSM. The most significant impact is that the team focused their early effort on a seven-day process to set in motion a virtuous cycle around the project. The goal of this experiment was to learn as quickly as possible about potential Advocates and Resisters. The team tested the initiative’s ease of use, features, and useful content in order to assess the “Wow!” factor, identify the number of individuals in various categories, and analyze the quality of their experience in moving to being an Advocate or a Resister.

As a result of this exploration, the team reconceptualized the project’s web interface. If they hadn’t learned from this experiment with setting a virtuous cycle in motion, they might have wasted a large portion of their 2005 budget in trying to implement a system without thoughtful consideration of Advocates and Resisters.

The team was pleased to find that the map was still valid even after the shift in emphasis. This process confirmed that the level of aggregation was sufficiently useful, that is, it allowed them to examine the implications of their implementation strategy at a high level, without becoming so specific that they needed to modify the map every time they made minor modifications to the actual program.

Making Strategy Everyone’s Everyday Job. Another result of the OSM process was that the team developed a shared language. This terminology improved the quality of conversations, because it made implicit assumptions about the strategy explicit. It created an environment for making

THE PROJECT PLAN

The team developed a project plan by focusing on the flows in the map and assigning tasks to different individuals. They imported snapshots of map segments into Excel worksheets and added roles and responsibilities.

strategy everyone’s everyday job. When people pointed to a piece of the map to describe the impact of a certain proposal, everyone understood what they were referring to. Having a shared language also had the unintended benefit of increasing camaraderie.

In most cases of strategy development, management knows the underlying assumptions, but the implementation team is left in the dark. The OSM process integrates assumptions from the entire team. The group as a whole owns the strategy, the implementation, and of course, the results. Talk about empowerment!

Another benefit of the process was that the team found it easier to be brutally honest during implementation. For example, as word of the Workplace Leadership Initiative spread during the development of the map, the team not only heard from folks with a favorable impression of the project but also from those with an unfavorable view. In other circumstances, the group might have filtered out the negative input. But because the map suggested that they pay attention to potential resisters, and that by doing so they could generate a positive trend, the team accepted the early criticism and incorporated some of the constructive comments in their implementation plan.

Making Strategy a Continual Process. As part of continual learning, the Boeing team may choose to go into more detail in some areas of the map. They are exploring the potential benefits of developing simulation models of certain aspects. Further, the group may build additional maps or revise the current one. Even so, they will continue to use the OSM they’ve developed in building and implementing strategy for months to come.

Using the Methodology in Your Organization

If you’d like to use an Operational Strategy Map to help guide your strategic planning and implementation, here are a few things we’ve learned:

• You won’t get the map perfect the first time. The process of building the map is where the learning is. Create a prototype (what we’ve called the “strawman map”) as quickly as you can. Then let the strategy development team critique, modify, and ultimately own it. The process of their owning it will make it better. Trust us!
• Identify as quickly as possible the “main chain” of the map. Use the main chain to ask questions about how the system in question works and what might be some unintended consequences of any activities.
• Focus on analyzing the major dynamics in the map. In the case described here, the team focused on the major virtuous cycle for a week. They asked questions about it, tested its usefulness and likelihood of occurrence — and in the end, they developed a whole new approach to the overall project.
• Fit the map on one page if you can. The Boeing team struggled on occasion as it tried to add nuances to the map that added complexity. The understanding generated from these incremental add-ons was usually minimal. You can always create separate maps of more detailed processes at a later date.
• Once the strawman map has been developed, modify it only in the presence of the whole team. Otherwise, you will not have the buy in needed to implement any new insights. Plus, you’ll likely miss something important when making the change.
• Develop simulation models only to the point where doing so provides an adequate return for the time and money invested. The process of simulation modeling is often a laborious one; it may take months to develop a reasonably sophisticated computer model of the strategy. The siren call of “We’ll find the answer” often tempts teams to try to develop the Mother of All Models. But this quest can become a journey of diminishing returns, in that simulation modeling may not generate enough additional insight to be worth the investment. The team in this article will develop a few small models to deepen and refine their understanding of implementation dynamics.

The OSM methodology holds potential for all organizations. The process of developing a simple, one page stock and flow map of the organization’s strategy generates strategic insight and commitment to implementation. If your organization has been struggling to execute its strategy — or even to develop a good one — you will find building an OSM useful. It’s a perfect tool to get everyone on the same page so that when you come to a fork in the road, you’ll be more likely to take the better path.

Chris Soderquist (chris.soderquist@pontifexconsulting.com) is the founder of Pontifex Consulting. He consults to organizations and communities in order to build their capacity to create and implement sustainable, high-leverage solutions to their most strategic challenges. Mark Shimada (mark.s.shimada@boeing.com) is a program manager in The Boeing Company’s Leadership Development and Functional Excellence Group. He supports his peers to accelerate business results through extraordinary leadership development programs.

The post Operational Strategy Mapping: Learning and Executing at The Boeing Company appeared first on The Systems Thinker.

When I first studied lean in the mid-nineties, I assumed, like many others, that performance improvement stemmed from process improvement. The idea at the time was that repeated “kaizen” (“change for the better”) workshops would lead to the elimination of waste and better-performing processes at lower costs. To someone with my systems thinking background, it made perfect sense to fix broken processes. It took me a while to accept the evidence that although most workshops were successful in the moment, the results rarely showed at the P&L level, and improvements were almost never sustained.

By studying how Toyota taught its suppliers to do kaizen and working with Toyota veterans, I came to accept that the lean challenge was not to apply lean tools to every process, but to develop the kaizen spirit in every person (for more details, see “The Thinking Production System,” by Michael Ballé, Godefroy Beauvallet, Art Smalley, and Durward Sobek, Reflections, Volume 7 Number 2). It turned out that kaizen was a methodology to teach employees on-the-job problem solving. Somehow, systematically developing each person’s problem-spotting and problem-solving capability led to significant overall results. This was consistent with what I’d been told by Toyota veterans about their golden rule of “making people before making parts.”

A Leap of Faith

I was taught repeatedly that lean is a practice, not a theory, or in the words of Taiichi Ohno, one of the founders of lean thinking, “practice over theory.” The general idea is to practice and practice and not worry about theory — and results will come. As a systems thinker, I was uneasy with this leap of faith, but I was forced to admit that managers who adopted this posture had better and more sustainable results than those with staff-driven process improvement programs.

As I continued to puzzle over this conundrum, I was shown a second part of the answer by Orest Fiume, of Wiremold fame. Wiremold’s value grew from $30 million in 1990 to a staggering $770 million in 2000 in a mature industry without any major technological disruption. As its CFO, Orry Fiume had been a key architect of the company’s growth, along with CEO Art Byrne. As Orry expressed in a personal communication, their leitmotiv was that “lean is a business strategy, not a manufacturing tactic.” From many discussions with Orry, it dawned on me that the leader’s role in kaizen step-by-step improvement was the key to overall results. In effect, leaders who use lean as a business strategy learn to

1. 1. visualize processes,
   2. so that employees can practice “problems first” and formulate their problems, and
   3. learn to solve them one by one,
   4. so that senior executives can study proposed solutions and progressively improve the company’s overall policies.

With this framework in mind, I could see a few typical learning areas that are central to lean success:

1. • Products: Toyota did not come to dominate its industry by reducing costs, but by designing and building cars that people bought — mainly through “built-in” superior quality.
   • People: Toyota has a fundamental commitment to developing mutual trust by involving employees in improving their own workplaces, and teaching problem solving at every opportunity by stopping and solving problems rather than working around issues.
   • Lead Time: Systematically accelerating workflows leads to better customer service and surfaces all wasteful operations in processes. Thus, along with product quality, it serves as a natural compass for identifying waste.
   • True Cost: Costs can be separated into the unavoidable cost of doing anything (price of materials, labor, equipment, and so on) and the added cost resulting from the chosen method of operation.

Furthermore, Toyota veterans kept insisting on “teamwork,” by which they meant individual responsibility to solve problems with colleagues across hierarchical and functional barriers. Indeed, according to Toyota’s own history, “just-in-time” was born from its founder’s belief that “the ideal conditions for making things are created when machines, facilities, and people work together to add value without generating any waste.” Kiichiro Toyoda then conceived methodologies and techniques for eliminating waste between operations, both lines and processes, which led to his just-in-time concept.

Three Loops

Discussing these elements with Jacques Chaize, with whom I coauthored “The Lean Leap” (Reflections, Volume 10 Number 3), I finally grasped the system-level explanation for why a relentless focus on individual development leads to overall performance improvement. Firms that do well in lean are those where the CEO gets engineers to do their utmost to really understand customer preferences (“seeking the customer’s smile,” in Toyota parlance), where engineering and manufacturing are taught to work together and come up with workable solutions to technical problems, and where win-win relationships are developed with suppliers. These firms see suppliers as a source of innovation and ideas for higher productivity, not just a resource to be squeezed.

In this sense, the firm can be described as three fundamental feedback loops (see “Three-Loop View”).

The feedback loop between customers and products is essential so that organizations design products that people like and want. The sales growth engine is based on market share and reputation (e.g., what existing customers say about the product). As long as the product is kept in constant sync with customers’ tastes, the top line grows. The second loop is about creating value streams that will consistently deliver good products at an acceptable cost to satisfy both market price and profitability objectives. The key to this second loop is getting engineering and manufacturing to work together to create easy-to-build designs that still fit customers’ preferences. The final loop, the manufacturing/supply chain loop, consists of involving suppliers as partners in order to improve the product’s quality and costs.

In systems thinking terms, we’re filling four stocks:

• Customer Satisfaction: This is the stock of goodwill from customers that will ensure sales, as customers replace their existing products with the newer version and encourage their friends and family to do the same. Customer satisfaction can be increased through better product fit or decreased through poor design, quality defects, slow service, cost of ownership, and so on.
• Engineering Expertise: This stock represents the capability of engineers to understand customer preferences and translate them in design parameters. Again, we can either “get” the customers or miss what they want, and we can either come up with designs that deliver this value or not.
• Shop-Floor Craftsmanship: This stock represents the hands-on know how to build the product safely with minimal waste. This skill grows out of a mixture of engineering astuteness and operator practice through kaizen in order to define working standards.
• Supplier Relationships: This is the stock of relationships that leads to cost-efficient supply chains. This stock is increased when the relationship is strengthened and decreased when it is broken.

Three Implications

There are three broad implications of such a model on our understanding of business management. First, this way of looking at firms goes beyond Toyota’s “lean” model; it also applies to the “German” product culture/family-owned business model, as exemplified by the equally successful Volkswagen, where strong product leadership is the main growth engine. The model also applies to technology-driven companies such as Apple and Google that capitalize on a transformative technology to create “killer apps.” Conversely, the model explains why cost-focused companies constantly lose ground by squandering customer confidence, which leads to lower sales, further cost reductions, lower margins, less investment capacity, lower customer satisfaction, and so on.

Second, this model makes it clear that continuous improvement is a “one mind at a time” problem. All four critical stocks in this framework have to be increased at the individual level: every customer matters, every engineer counts, every operator has to be involved, and every supplier needs to be developed. On the management front, this fact argues against sweeping motions and across-the-board policies, and for a deeper case-by-case management style where the leader’s role is to point toward ideal conditions and support every person on his or her way there.

Finally, the overall conclusion of this three-loop view of the firm is that a leader’s role is not to manage performance directly, but to create the right conditions for performance. Although the “I say-you do” style is more reassuring, a teaching approach turns out to be both quicker and more effective. By distinguishing conditions from day-to-day events, one can determine the broader challenges and then get the full benefit of small-step kaizen. Rather than set task-level objectives, business leaders can thus determine overall dimensions and support their personnel in progressing by repeated practice — putting learning at the heart of day-to-day work.

The overall conclusion of this three-loop view of the firm is that a leader’s role is not to manage performance directly, but to create the right conditions for performance.

The Three Knowledge Wheels

One of the enduring mysteries of lean is that when companies practice it effectively, their costs go down — although they never directly address expenses. The lean CEO safeguards her people and protects her customer, controls and reduces lead time, and relentlessly teaches problem solving — and costs go down! Actually, sales go up, costs go down, and profitability increases. Yet, despite this inevitable truth, it’s difficult to articulate a system level story to argue against the standard cost logic of financiers and accountants.

This problem is as true now as it was in Taiichi Ohno’s times, as he railed about the real-world costs of narrow-sighted cost-based logic. The Three Loop view proposes a framework to help business leaders base their long-term perspective on the experience of, each and every day, turning the three knowledge wheels of following customers, building teamwork between engineering and manufacturing, and developing win-win relationships across the supply chain.

Michael Ballé, PhD, is cofounder of the Institut Lean France and associate researcher at Télécom Paristech. He is the author of Managing with Systems Thinking and coauthor of The Lean Manager and The Gold Mine, for which he received the Shingo Prize in 2006 and 2011. Michael writes the weekly Gemba Coach column for the Lean Enterprise Institute. m.balle@orange.fr

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We live in an age of paradox, with every trend seemingly matched by a counter-trend.

These dynamics have helped to reshape the world well beyond the sphere of commerce alone. Our newspapers today are filled with momentous and as yet unanswered questions. Are we facing a terrifying “clash of civilizations”? Can China maintain its extraordinary growth as a major global power or will its internal political, social, economic, and environmental tensions lead to implosion? Is aging, polarizing Europe in terminal decline or on the brink of its next renaissance? Will technology standards globalize and converge, or regionalize and fragment? Will free trade continue to override growing protectionist instincts? Are we on the brink of a new flu pandemic and, if so, how severe will it be? How fast, and how dramatic, will climate change prove? With entirely new business models being forged by mighty upstarts like Google and eBay, do we even know where our competition lies? There are two additional twists that can be thrown into this mix. First, we live in an age of paradox, with every trend seemingly matched by a counter-trend. For example, the economy is becoming increasingly intangible as we sharpen our focus on services, experiences, and virtualization, yet the physical economy matters more and more with the need to update critical infrastructure. The Nobel prize-winning physicist Niels Bohr summed up this tension well when he wrote:, “The opposite of a correct statement is a false statement. The opposite of a profound truth may well be another profound truth.”

Second, information is ubiquitous and instantaneous. What is “known” is a diminishing source of competitive advantage, so successful futures will increasingly be forged through mastery of the unknown.

Yet paradox and the unknown are uncomfortable. Most of us have learned to present our bosses with answers and solutions, not questions and problems. But by adopting this approach and sticking to certain tried and tested strategies, we run the risk of using counterproductive coping mechanisms and ultimately moving backwards, rather than forwards. For example, we might try to:

• • Increase Control Through Centralization and Bureaucracy. Yet, was it really hard to predict that the formation of the U. S. Department of Homeland Security was unlikely to improve the effectiveness of any of the agencies swept under its monolithic umbrella?
  • Escape into “Busyness.”Are we becoming addicted to endless, relentless activity – empowered by the ubiquitous “Crackberries” and reinforced through constant, often unproductive meetings?All this motion seems to stem, at least in part, from a subconscious desire to avoid the discomfort of sitting in the mess and ambiguity of our times.
  • Rely on Metrics.But does boiling down the complexity of business realities into a few key numbers sometimes end up driving rather than measuring performance? As Einstein observed:, “Not everything that can be counted counts, and not everything that counts can be counted.”

• Look for Scapegoats. Do we too often apportion blame and punish others for failures that may have been inevitable?The highest-level victims of this syndrome have been CEOs – turnover at the top has never been higher as executives face intense pressure to achieve guaranteed short-term results in a volatile, uncertain world.

  The effect of all this is that uncertainty can prevent the very learning that it so profoundly requires. The western ideals of secular modernity are based upon core concepts of certainty, such as empiricism, rationality, objectivity, analysis, and measurement. These remain critical values, but they are only part of our future and must be integrated with ways of thinking that rely as heavily on intuition, collective insight, emotional and spiritual intelligence, morality, and wisdom. This will be a difficult journey, especially for the traditionally hard-headed world of business. But, provided they can embrace and understand uncertainty, corporations are well positioned to establish new paradigms of human organization and learning.

How might we proceed? Following are six concepts that every business should consider. Each requires consistent effort and commitment, but none involves rocket science or prohibitive expense.

Create a Dialogue Between Risk and Opportunity

Thirty years ago, it was commonplace for a company’s product development activity to be housed in silos that were insulated from sales and marketing groups. How could we have been so misguided? Yet most businesses replicate this error today by separating the functions of risk management from business innovation and development. Both activities are at the forefront of exploring uncertainty. Great opportunity can be found in the most “risky” areas, while new risks emerge from every innovative corporate endeavor. Bringing together the skills and focus of each of these disciplines in a new dialogue can help turn risk and uncertainty into a powerful source of advantage.

Forge External Networks and Internal Communities of Practice

Most companies acknowledge the need for better processes to make sense of situations and more powerful antennae extracting critical signals from external noise. It is difficult, however, to develop such a function inhouse because we quickly become captives of our organization’s acceptable boundaries.” To achieve the necessary multiplicity of perspectives and insights, organizations are increasingly nurturing external networks of thought partners and sensors – people who are attuned to the deep trends they see in the world around them and can help translate them for specific organizations.

Informal, self-organizing “communities of practice” housed within organizations can also be powerful sources of knowledge and learning in the face of uncertainty. These communities perform much the same function as guilds did for craftsmen 500 years ago or open source communities do for software developers today. Provided the organization can support, nurture, and empower these “communities of practice” without destroying their vitality and integrity by over-formalizing them, these communities can help to ensure that unexpected issues encountered (and successful adaptations made) are socialized and adopted as widely and quickly as possible.

Test Strategies and Decisions Against Critical Uncertainties

Whenever we develop a strategy or make big decisions, we habitually reference our “official future” – an implicit set of beliefs about how the world works today and should in the future. Mounting uncertainty renders this approach increasingly hazardous. There is proven merit in stepping back and considering the critical uncertainties surrounding our choices. One very well established method is to develop a set of alternative “scenarios” of the future – coherent logical stories that set out credible and very different alternative. Through these, we systematically “stress-test” and, hence, improve our decisions. Additionally, we can develop a deeper understanding of critical uncertainties by improving our appreciation of interrelationships, causalities, and potential outcomes, and then contrasting and comparing these against our most important options and choices.

Develop “Masters of Uncertainty”

In the past decade, practitioners of quality management programs, such as Six Sigma, have become acknowledged enablers of the drive toward excellence. In the coming decade, they will be joined by a new and arguably even more powerful force let us call them “masters of uncertainty.” These will be leaders and talented contributors in our organizations who manifest a range of increasingly essential capabilities, which include the ability to:

• Stay relaxed in the face of overwhelming disorder, confusion, and ambiguity
• Seek out multiple and conflicting views, while being aware of one’s biases and blind spots
• Focus on the future, the emergent as well as the planned
• Embrace risk taking
• Learn rapidly from failure
• Be open, flexible, and even, on occasion, playful

These are not necessarily the attributes we associate with our current generation of leaders – but they will characterize the next generation. The good news is that the capabilities required for these leaders can be developed in our existing high-potential talent using a range of tools and techniques, such as learning journeys, simulations, scenario and systems training, job rotations, cross functional and even cross-company mentoring, storytelling experiences, and uncertainty coaching. Uncertain times will demand and reward untraditional talents – and we must invest in the next generation as soon as possible.

Intentionally Evolve As an Adaptive Organization Just like the elusive “learning organization,” no one has ever seen a truly “adaptive organization” in the wild. But we can certainly identify the hazy outlines of some vital characteristics of the responsive, enduring, and evolving business of the future. It should be:

• Externally oriented
• Flexible and nimble
• Patient but opportunistic
• Capable of balancing exploitation of the known with exploration of the unknown
• Visionary but open to corrective feedback
• Attentive to stakeholders
• Capable of balancing both economic and moral wisdom

The question today is not whether we can see this vision on the horizon – we all can – but whether we decide to move toward it with conviction and sustained attention, or hold back in fear that we may only be glimpsing a mirage.

Add an “Uncertainty Mapping” Dimension to Strategic Decision-Making

We should also learn to explicitly acknowledge uncertainty as a matter of habit. In every conversation of consequence, we should acquire the discipline of asking what important uncertainties are in play and challenge our beliefs and default positions.

Over time, we can also learn about our deeply embedded assumptions, and come to understand better and improve our decision-making habits. This is a readily achievable and remarkably important tool; indeed, there is probably no single greater contribution to the mastery of uncertainty. Finally, we must appreciate that there are very different forms and sources of uncertainty. In business, as in life, every important decision is actually a bet that we understand the context of our choice and that our sense of the future is reasonably accurate. In an increasingly uncertain world, the odds are lengthening against each and every bet, and the need for new thinking and better decision-making processes is growing. The ability to rise to this challenge will be the defining characteristic of the successful, adaptive organization of the future.

Eamonn Kelly is the CEO of Global Business Network (GBN) and a partner in the Monitor Group. He is also the author of Powerful Times: Rising to the Challenge of our Uncertain World (Wharton School Publishing, 2005). Eamonn will be a keynote speaker at this year’s Pegasus Conference.

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TEAM TIP

When reflecting on why certain systems behave the way they do, we regularly look for patterns of conflict among strategic resources within the organization. Strategic resources are those resources that management knows are important to the survival and long-term health of the organization. This conflict among strategic resources often seems to be due in great measure to what we call the “global to local paradox” of management practices.

Management and operations rarely communicate effectively because they are seeking opposite results from the same organization.

The global to local paradox reflects the impact of the difference in philosophy in various levels of the organization as to what to do with strategic resources. The global perspective refers to management’s goals and incentives, as defined by their role in getting the overall organization to achieve the goals and incentives of its shareholders. The local perspective refers to the goals and incentives that motivate people within the different areas to do what they do every day in performing the work of the organization.

The Paradox

The global to local paradox is the difference between management’s desire to continually grow global output at increasing rates for the shareholders over time versus operation’s need for local stability to maximize asset use, provide predictable returns from investor’s capital, and continually satisfy worker’s personal needs. Some implications of this unintended conflict are clear.

Management and operations rarely communicate effectively because they are seeking opposite results from the same organization. In response to shareholders’ demands, management pushes operations to take advantage of market opportunities and to grow output exponentially. This is what management gets paid to do. Operations strives to address growth within their capacity and cost constraints, mainly by boosting productivity. This is what they get paid to do. In essence, management is paid to focus on bringing tomorrow to reality, and operations is paid to focus on optimizing today’s reality.

Much focus in current management practice is placed on identifying and implementing methodologies for aligning the global and local goals toward satisfying shareholders. If the organization is not achieving its goals, it is assumed that something is not aligned. Since management’s goals and incentives tend to be identified more directly with those of shareholders, then, by definition, what we are really saying is that the local goals are not aligned with the global goal. This assumption leads to the conclusion that local goals need to be modified and shifted in the global, or shareholder, direction.

GLOBAL TO LOCAL PARADOX

In this example of the “Accidental Adversaries” archetypal structure, managements’ focus on growth (the global perspective) unintentionally undermines operations’ ability to optimize performance (the local perspective). The solution is to map out the organizational dynamics to develop a sustainable set of expectations for the firm as a whole.

In response, management places growth and flexibility demands on operations, requiring much faster turnaround times and internal growth rates than the typical productivity gains operations can deliver from optimization efforts. To solve the problem, management searches for additional capacity, internally or externally. Operations, in turn, is subjected to a constant stream of criticism regarding their inability to keep up the pace. This conflict not only stresses the relationship among the individuals in the firm, but also reduces the potential for achieving results — people spend more and more energy defending themselves from attack. We see this pathology in newspapers everyday.

What Is The Systemic Under-standing of This Paradox?

This paradox is an example of the “Accidental Adversaries” archetypal structure. In “Global to Local Paradox,” the virtuous cycle (loop R1) shows management’s focus on growth. As the organization grows, shareholders exert more and more pressure on management for returns, pushing them to find new opportunities. Over time, increasing the return on investment becomes increasingly difficult, as fewer opportunities are large enough to fill the new expectations. The company either must make more, smaller acquisitions or initiate a major transformation.

While management is looking for a steady ramp up in growth over time (loop R2), additions to internal capacity influence the operations area, or local perspective, in step changes. Each new acquisition presents the same challenge to the people doing the work inside the firm: They must determine which elements from the new acquisition stay and which go, and then they must figure out the best way to optimize the new mix. Operations research literature indicates that this constant adoption of new elements in a world that is trying to optimize creates tremendous tension for the folks doing the work on a daily basis.

Moreover, operations is judged on their ability to keep costs down and optimize the existing asset base. However, to truly do their job well, they need a stable environment in which to focus on optimizing the resources under their control. There is a physical limit to what they can get done at any point in time. This local perspective is seen in loop R3, as operations pushes hard on optimization efforts to achieve their goals. The essence of the global to local paradox is shown in the diagram in the variables:, “Growth Expectations by Management” versus “Optimization Efforts” by the operations team.

What Can We Do?

The most challenging issue facing the people living this conflict is that it crosses the strategic and operational interests of the organization. The folks doing the work do not often have all of the information that those running or financing the firm have. They are paid to look at very different pieces of the organization and rely on very different mental models in evaluating what to do next.

So, what can we do to mitigate the effects of the paradox? As with most systemic issues, awareness that the conflict exists is the best place to start. Developing a systemic view of the conflict with a more detailed causal loop diagram or in some cases stock and flow model is fundamental. This causal map facilitates study of the archetypal pattern of behavior and unravels the roots of the underlying behavior this paradox creates. In addition, the causal map invites the organization to investigate the diverse motivations across functional lines in the organization, which create potential internal conflict (see “Breaking Down the Functional Blinders: A Systemic View of the Organizational Map,” The Systems Thinker, Vol. 10, No. 10, p. 6-7).

In some cases, when the group wishes to test the cause-effect relationships in their map, they build a dynamic business simulator. What is critical is to make explicit the linkages among the key resources, expectations, and incentives that each group holds to be important in a way that shows respect and rigor around each view. One way to do so is to involve the entire team in developing the computer model. Engaging shareholders, management, and operations in discussions around the results of the systemic understanding of the causal map is a highly leveraged method for building communication bridges across the paradox.

Practically, there will be issues that the senior management team cannot share explicitly with a broader audience during these sessions, such as the intent to acquire or sell specific assets. Yet the discussion of what effects such actions may have on the ability to achieve stated goals should be included. By understanding what motivates groups at the local level, management can better understand the effectiveness of the incentives they have put in place in generating desired behavior from the different areas of the firm.

In one case, a large capital equipment manufacturer’s sales were rebounding from a cyclical downturn, yet the firm was not generating the expected improvements in profit.

Systems tools expose many fundamental, unquestioned assumptions.

Management thought the marketing group was doing a fantastic job, while the assembly group was letting the firm down through late deliveries and financial penalties. Looking at the dynamics and incentives in detail, it soon became clear that management had set up the conditions for this underperformance to happen. Marketing was being paid based only on orders placed and did not have to worry about the firm’s ability to deliver on time. The marketing director commented “I know how to fix this, but you pay me to accelerate sales, so I will stick to selling as much as I can.”

Though obvious now, by changing the incentive so that marketing was paid based on orders delivered on time, management ensured that the marketing and assembly groups now worked closely together to sell only those units that could be delivered on time. By relinquishing a bit of market share, they were able to maximize profit and invest in additional capacity. Referring to the diagram, changing the marketing incentive released pressure on the “Additional Growth Demand on Operations” variable, slowing down the need for operations to expedite orders. To do so, management had to realign its “Growth Expectations” with the existing internal capacity.

Finally, systems tools expose many fundamental, unquestioned assumptions around the philosophy of “This is the way things are done here.” In working together, shareholders, management, and operations can minimize the effects of the global to local paradox and develop and achieve a sustainable set of expectations and results for the firm.

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Rarely will a company retrospective be written by someone whose involvement with an organization’s senior management team can compare to Ed Schein’s relationship with DEC. From 1966 through the early 1990s, Schein coached DEC’s senior management team on problem solving and worked with founder and president Ken Olsen on a wide range of other matters relating to organizational behavior. Schein’s perspective on DEC is supplemented by those of the supporting authors, a bevy of historical documents, and interviews or correspondence with an extensive list of former DEC employees.

All told, what emerges from DEC Is Dead is an insightful, three-dimensional picture of Digital through its growth and maturity. Although the book is well organized and well written, be prepared for some hard thinking. Unlike so many business case studies that oversimplify the story, DEC Is Dead presents a sophisticated view of the company and rich lessons for other organizations.

Three Developmental Streams

Schein centers his analysis of Digital on three developmental streams that can be used to uncover the forces behind the evolution of any organization: technology, organization, and culture. Here’s how the author describes these streams:

The Technology Stream. The technological environment in which a company operates and its own contribution to that environment through its products

The Organizational Development Stream. The ways in which an organization working in this technological context begins, grows, evolves, and, in the case of DEC, dies; the structures and processes that result from success, growth, size, and age

The Cultural Stream. The founding values that are shared through early and continued business success and eventually become embedded as shared, taken-for-granted assumptions about how an organization should be run

The author’s primary proposition is that early on, these three streams were aligned at Digital, creating a highly innovative and entrepreneurial organization. But the streams evolve at different rates. Technology can advance rapidly, sometimes through spurts of extremely rapid change. Culture, on the other hand, is slow to change; by serving as the “brakes” on an organization’s development, it can gradually erode the company’s capability to succeed in the marketplace and can cause an increasingly poor alignment among the three streams.

At DEC, the powerful culture stream had served the organization well during the formative years of commercial computing. But following the emergence of open architectures, microprocessors, and numerous other innovations in the industry, the culture became a barrier to making the changes in the technology and organizational streams that were required for ongoing success. A look at DEC’s formative years describes the culture and how early success entrenched the cultural beliefs.

The Early Years

Technologically, DEC was at the cutting edge and was responsible for many of the innovations in computing that moved the industry from mainframe to networked minicomputers. Its engineering prowess enabled the company to continually churn out new products that delighted the technically oriented buyers of the era.

Organizationally, DEC was structured around product lines, driven in large part by the engineering focus of the leadership team. Supporting business functions, such as finance and marketing, were centralized. Decision making was decentralized, with Ken Olsen preferring to let his management team wrestle things out. Olsen typically played the role of devil’s advocate, challenging any stance his managers would take to ensure that it was robust. Because the organization was still relatively small, local leaders felt responsible to the whole of DEC, and decentralized decision-making usually resulted in decisions being made by the most informed party.

Underlying the technology and organizational streams was DEC’s engineering-oriented culture, which adopted many traits from MIT. As Schein makes clear in his account, in the early years, there was tremendous harmony among DEC’s three streams. The culture suited the organizational structure, which in turn buoyed an engineering effort that was giving the nascent IT market well-made and highly desirable products.

Resistance to Change

Nevertheless, as the marketplace evolved and the technological context shifted, the strong culture impeded DEC’s ability to match these changes. Success in its early years reinforced the belief in and support of the “DEC way of doing things.” Any attempt to effect a change that violated a core cultural tenet triggered the “cultural immune system,” a host of behavioral responses that resist the intended alteration. The statement “That’s not the way we’ve done it before” is perhaps the most common example of an immune system response. Such responses are not explicitly designed by anyone; rather, they usually arise from the well-meant defense of an organization’s core cultural assumptions.

Perhaps the most important example of how the dominant culture was hampering the organization’s development had to do with marketing. Because like in many engineering-dominated environments, marketing was almost a bad word at DEC, early attempts to strengthen its role were met with stiff resistance. DEC engineers held the long-standing beliefs that good products will sell themselves and that customers just needed to be educated on the features and quality of DEC products in order to be persuaded to choose them. Marketing executives arrived, found it virtually impossible to make a dent in the way DEC’s products were presented, and left for more receptive environments. Meanwhile, DEC was beginning to fall behind its competitors in terms of technological innovation and fulfillment of customers’ needs.

Too Little, Too Late

By the time Olsen left DEC in 1992, the alignment between technology, organization, and culture had deteriorated dramatically. In an effort to save the company, new CEO Robert Palmer made wholesale changes to the organization and culture in order to bring them in line with the realities of the current marketplace. Many DEC employees, recognizing that the changes meant an end to the company they knew, moved on to other firms in the computer industry. Although these changes were inadequate to provide for DEC’s survival as an independent entity, they helped the company hang on long enough to be acquired by Compaq in 1998.

Lessons Learned

What does the DEC experience teach us? Schein identifies 15 lessons for other organizations (see “Lessons from DEC”).

Depending on the reader’s background and interests, DEC Is Dead is more than a comprehensive case study of one company’s growth, maturity, and eventual decline. Organizational development consultants are offered fascinating historical accounts of Schein’s early innovations in the realm of change management and process consultation. Leadership coaches can draw insight from the book’s extensive coverage of Ken Olsen’s management and leadership style and its strengths and weaknesses across time. System dynamicists are offered a detailed example of how structure drives behavior. And strategists can benefit from seeing the company’s evolution from an entrepreneurial organization with an emergent strategy to one with a more modern, analytical one. The richness of the tale — and of Schein’s telling of it — will surely make it a classic for a variety of audiences long after the computer industry has moved on to its next set of established technologies and companies.

Greg Hennessy is president of Speed Circuit Training Associates, a provider of motorsports-themed organizational and professional development workshops covering team effectiveness, change management, and competitive strategy. Speed Circuit partners with indoor karting centers across the country to integrate the development of vital skills with the excitement of wheel-to-wheel racing.

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As vice president of Patient Care Services, I was one of those attending the initial session. After three days of intense learning, introspection, and experience with the five disciplines of organizational learning, we understood that we needed to become a learning organization in order to thrive as a rural healthcare system. Peter Senge’s book The Fifth Discipline was perfectly aligned with this goal and the values and culture of GMHS. It would become the foundation of our work. We knew we “weren’t in Kansas anymore.” Our lives had been changed forever.

Our story is much like the plot of The Wizard of Oz, as written by L. Frank Baum and immortalized in the classic 1939 movie. Dorothy lands in the strange world of Oz after her house is carried away from Kansas by a cyclone. She seeks to find the way home by following the Yellow Brick Road. Her intent is to find the Wizard who would bestow on her the knowledge to achieve her goal, only to find that she had the answer within her all along. Here is a summary of our journey.

Dorothy

Similar to the way Dorothy felt when she stepped out of her house to find she was in Oz, our team knew we could not go back to where we had been. We were aware of our destination —to become a learning organization —but didn’t know how we would get there. At first, we felt as though we were “off to see the Wizard,” whose magic would turn us into a learning organization. To get there, we had to “follow the Yellow Brick Road.” In our case, that meant to begin down the path of knowledge and exploration to find out how to become a learning organization.One sunny summer day in July of 1994, the executive team of Gerber Memorial Health Services (GMHS) set off to attend a three-day seminar entitled “Systems Thinking,” sponsored by the Butterworth Management Institute. GMHS is a 73-bed not-for-profit hospital and health system, located in Fremont, Michigan. The organization was one of the first members of the emerging Butterworth Regional Health Network, a group of hospitals interested in sharing resources to meet the needs of west Michigan.

As vice president of Patient Care Services, I was one of those attending the initial session. After three days of intense learning, introspection, and experience with the five disciplines of organizational learning, we understood that we needed to become a learning organization in order to thrive as a rural healthcare system. Peter Senge’s book The Fifth Discipline was perfectly aligned with this goal and the values and culture of GMHS. It would become the foundation of our work. We knew we “weren’t in Kansas anymore.” Our lives had been changed forever.

Our story is much like the plot of The Wizard of Oz, as written by L. Frank Baum and immortalized in the classic 1939 movie. Dorothy lands in the strange world of Oz after her house is carried away from Kansas by a cyclone. She seeks to find the way home by following the Yellow Brick Road. Her intent is to find the Wizard who would bestow on her the knowledge to achieve her goal, only to find that she had the answer within her all along. Here is a summary of our journey.

Dorothy

Similar to the way Dorothy felt when she stepped out of her house to find she was in Oz, our team knew we could not go back to where we had been. We were aware of our destination —to become a learning organization —but didn’t know how we would get there. At first, we felt as though we were “off to see the Wizard,” whose magic would turn us into a learning organization. To get there, we had to “follow the Yellow Brick Road.” In our case, that meant to begin down the path of knowledge and exploration to find out how to become a learning organization.

Scarecrow

We did not know the challenges ahead as we started down our Yellow Brick Road. At first, the learning curve seemed monumental. We attended conferences and studied the work of Peter Senge and others to learn the theory behind organizational learning (OL). After the first year, we came to a fork in the road. We needed a person who would be dedicated to leading and teaching learning organization theory. GMHS management made the decision to hire our first organization development (OD) facilitator. We came to think of this role as being that of the “Scarecrow.” In The Wizard of Oz, the Scarecrow represented the intellect. We needed to find someone to become the “brains” of our organizational learning journey, who would lead us to our destination.

After a few months of searching, we hired our first OD facilitator. At that point, the work intensified. We held visioning sessions and created a “Dream Team” that was responsible for bringing about cultural change. We conducted surveys of the organization to establish a baseline against which to measure progress. In 1997, we conducted Health Quest 97, an event designed to learn what our community wanted from us.

Tin Man

Then we came to the next fork in the road. We had collected much knowledge of what we wanted to create and had a clear vision of where we wanted to go. Additionally, we had learned the language of organizational learning. Now it was time to begin living what we had learned. This would not be the work of the Scarecrow, but of the “Tin Man.” In The Wizard of Oz, the Tin Man longs for a heart. Our first OD facilitator left to pursue other work, and we began the search for someone who could instill what we had learned into the heart and soul of the organization.

Wicked Witch

It wasn’t long after we hired the second OD facilitator and started back down the Yellow Brick Road that the “Wicked Witch of the West” chose to interrupt our journey. In 1998, the federal government enacted the Balanced Budget Act. Provisions of the Act decreased revenues to the healthcare system as a whole. GMHS found itself with a shrinking bottom line. If we didn’t do something quickly, we ran the risk of losing all we had built. The projected loss for the year was $1.2 million.

Lion

Would we have the courage to make the hard choices we needed to make? Could we cut programs that we could not support or for which the government no longer provided reimbursements? Could we reduce expenses to stabilize the bottom line? Could we afford to continue to invest in the tools and concepts of organizational learning? And, finally, in the face of our biggest challenge, did we have the courage to stand up and battle the “Winged Monkeys” of fear and despair? It was time to find our Lion, which in the book and movie represented courage. Our Lion came in the form of the executive team. We decided that if we abandoned the organizational learning initiative, the staff would never again follow us through a cultural change. Why should they?

Using OL tools and processes, we pulled together and created a battle plan. We divided the leadership group into three teams and sent them off to create a new leadership structure. We put safety nets in place, such as generous severance packages that would allow people to safely say “I can leave.” Our president made the hard decision to trim the executive team from five vice presidents to two. Those who left remain friends of the organization. We grieved the loss of our teammates and then moved on.

We have come to realize that we will always be evolving as a learning culture, searching for new answers, and creating our future.

With only two vice presidents and the president left on the executive team, we were afraid that we would not have enough time or exposure to continue the effort. To overcome this obstacle, we formed the Strategic Council. This team of 16 people became the implementers of the strategic plan set forth by the strategic planning body, the Organizational Improvement Council. We regrouped and started back down the Yellow Brick Road. We used OL theory to create our customer service program, improve processes, and design a leadership curriculum. In addition, we put in place a balanced scorecard to measure our progress.

One year later, we were back on track with a positive bottom line. We had reached the Emerald City. Everyone was rewarded with bonuses and celebrations. But where was the Wizard, who would bestow on us the status of “learning organization”? As we reflected one morning in Strategic Council, someone said, “We are a learning organization; the answer has always been within us. Look what we have become.” At that moment, we recognized that we didn’t need an outsider to lead us to our goal; we had reached it on our own.

The Ongoing Journey

Now, six years later, the organization is profitable and healthy, with strong cultural values of trust, integrity, service, and efficiency. Our mission and vision are clear and articulated to all. Our market share has increased by 11 percent. We are adding new services with a patient-centered emphasis and creating healing environments for those we serve.

We have come to realize that we will always be evolving as a learning culture, searching for new answers, and creating our future. When others see our success, they ask, how can we become a learning organization? Our answer is to “follow the Yellow Brick Road.” Their journey will be different than ours, but one day they will know that the answer lies within the people of their organization. Then they will be a true learning organization.

Sue Nieboer, R. N., is the vice president of Clinical Operations at Gerber Memorial Health Services, Fremont, Michigan. Within her responsibilities, she serves as the corporate compliance officer and oversees the Nursing Division, Quality Management Program, and other clinical departments. She is an advocate of organizational learning theory at GMHS and instrumental in sharing the GMHS story with other healthcare organizations in Michigan.

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The software firm wanted help with problems related to the roll out and sales of their new products. Specifically, they wanted assistance in developing a clear intervention strategy and action plan for addressing their Time to Volume (TTV) performance, a measure that tracked the sales performance of their new software products. The TTV was defined as the time in months that products took to reach their targeted or forecasted sales volumes. If the actual TTV was longer than expected, it meant that products were not taking off and that clients weren’t adopting the next generation of software in a timely way.

Unfortunately, the company’s data for the previous 24–36 months of new product launches indicated not only that the TTV was much longer than planned, but that the products were not reaching the expected sales volume at all (see “Forecasted vs. Actual Time to Volume”). This very serious business condition had prompted the request for my help. The assignment focused on the question, “Why is the TTV of our new products failing to meet expectations?”

The executive VP who contacted me was convinced that the TTV problem was systemic in nature and required a different approach than the company had used before. He also believed that the “field” (sales, marketing, and service) and the “factory”(software developers) needed to work together efficiently and leverage their resources to solve the issue. At this point, the factory was sure that the field did not support the new products and never seriously tried to sell them to key customers. The field pointed the blame at the factory, claiming that they were out of touch with real customer needs and unresponsive to the field’s suggestions and feedback. The two entities engaged ina lot of blame and finger pointing. The VP’s goal was for senior managers to recognize, own, and resolve the TTV issue on their own and break the dependency on top management to fix the problem for them.

Three Phases

After taking on the assignment, I collected data and gathered stories through phone interviews. The intervention developed naturally into three phases. The first phase was the design and facilitation of a two-day offsite for all the top senior managers (60 people) around the TTV issue. The purpose of this gathering was to get collective agreement about what the issue was, not to try to solve it. It was also intended to introduce many of the tools of systems thinking to the senior managers and have them apply them to the issue in cross organizational teams.

The second phase was an intensive mapping process around the TTV issue, starting with the data generated at the offsite. A task force developed the system maps with only minimal assistance. My role was to teach and show them the process, and their job was to apply it with some coaching support from me. By “learning through doing,” the team developed internal capacity in systems thinking for the company through work on a compelling business issue and generated deeper ownership of the analysis.

One of the stories that the team developed is shown in “The Field Isolates the Factory.” This example of the “Fixes That Fail” archetype captures how the field responds to new products that they perceive as being flawed or a poor fit for their customer’s needs. The field’s actions isolate the factory (software designers)from the customers (market place)and, over the longer term, erode the factory’s ability to develop high quality and appropriate products for the field’s customers.

The last phase focused on developing and implementing systemic recommendations. Here, the task force stepped back from the mapping process to see what higher-leverage fixes to the TTV problem emerged. They identified key mental models and experimented with applying interventions to the diagrams they had generated. Members then prepared an executive presentation for the VP and fellow senior managers detailing their analysis and making the systemic case for different interventions.

THE FIELD ISOLATES THE FACTORY

“Admiring” the Problem

The process described above had a variety of impacts. For one thing, the process and tools of systems thinking both broadened and deepened understanding and ownership of the TTV problem across the field and factory. After two days together, the senior managers recognized that the problem involved all parts of the organization and that they needed to take a system wide, longterm approach. They could no longer point fingers at other parts of the organization.

One simple indicator of this shift in attitude was a poll I took at the beginning of the offsite and then repeated at the very end. Just as we began, I asked for a show of hands from the participants as to whether they thought they knew what the TTV problem was and how to fix it. About 85 percent of the hands went up, indicating that participants were pretty sure they knew what the cause and solution were. I then repeated the same questions at the end of the session, and the results were startling. No one raised their hand! From my perspective, after two days, the group truly came to “admire” the TTV problem. They acknowledged that there was no simple fix and were now open to looking much deeper to address the root causes. This was progress.

Another impact was the fact that senior mangers initiated their own process to work on the issue. They not the VP or the consultant—chartered a task force that included thought leaders from the field and the factory and launched the second phase of the process.

Additionally, “undiscussables” and “sacred cows” were finally surfaced publicly. Apparently, this kind of openness had never really happened before, at least in a larger group setting. The use of loops and archetypes made it safe for “difficult” stories and, “truths” to be shared without the typical finger-pointing or defensiveness that often happens around high stake issues. By way of example, the task force labeled or headlined each of their archetype stories (there were about 10 different stories that emerged from the analysis) with descriptive and insightful themes such as “The Field Isolates the Factory,”, “Heroism Undermines the Product Development Process,” “Divided We Fail,” “Planning by Panic,” and “Poor Product Fit Gets Worse.” The identification of the mental models from both the field and the factory that lay behind many of the actions and reactions captured in the loops was also extremely telling.

Based on this application of systems thinking tools, the organization shifted from “Who is responsible for this?” to “How are we all contributing to the problem?” The task force was able to identify a number of tactical and strategic recommendations, including an early warning and measurement system, which were readily supported by all the senior managers. The archetypes and mental models revealed a story that touched all parts of the company and made the compelling case for why it was everyone’s problem to solve.

Michael Goodman is principal of Innovation Associates Organizational Learning. He is an internationally recognized speaker, author, and practitioner in the fields of systems thinking, organizational learning, and leadership. Michael is a regular presenter at the annual Systems Thinking in Action® Conference and was a major contributor and editor of the systems thinking chapters in The Fifth Discipline Fieldbook. He helped develop the systems archetypes and has been published many times in The Systems Thinker. Michael’s consulting work, workshops, and capacity-building work have taken him all over the planet.

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BCC has dominated several sectors in the consumer waste containment business. Its cans and pails are found in many, if not most, American households, offices, and factories: under the sink, in the garage, in the laundry room, in home offices, near the toilet, in the garden, by the water cooler, in the copy room, at the vending machines, in the cafeteria, next to production lines, and so on. BCC has built and maintained its competitive advantage in its solid waste business through a strategy that focuses on distribution channel management, marketing and advertising, manufacturing processes, and materials science. BCC is a major center of knowledge about the various substances that make up its products, such as plastics.

In the domain of their consumer products, BCC’s materials science managers works closely with engineers and others, throughout the company, on integrating materials science with the manufacturing process, how product ingredients support marketing, and so on. For example, BCC’s waste pails are internationally renowned for their ability to withstand “punishment.” That is, the user can mistreat them in all sorts of ways, and they don’t break (for example, throwing them on the ground and banging them against hard surfaces, putting all sorts of substances in them, and/or placing them in locations where they are exposed to extremes of heat and cold for extended periods of time). The physical strength of its products is one of BCC’s key competitive advantages.

Recently, one group of BCC’s experienced technology managers noted some disturbing trends, including:

• The materials used in the business have become more complicated and, therefore, more expensive;
• Waste management containers are beginning to be linked with information technologies in new and disruptive ways; and
• Recycling regulations are becoming ever more stringent and they are affecting the design of BCC’s

While coming from scientific and engidisciplines, these technical managers were jointly responsible for the administration of the new product development pipeline. They had become more aware the onslaught of the future when they faced a period of accentuated conflicts and tensions during a recent product launch. Addressing a long-standing customer concern, the new product incorporated a deodorizing ingredient into the production of plastics for BCC cans. Required to mesh the work of their Intellectual Licensing, Basic Research, Prototype Scale Up, Manufacturing Design, Materials Procurement, and New Product Development Program Management units in a very tight frame, the managers of these Consumer Product Technology groups (about 100 people) found that:

• They disagreed over who was supposed to do what when (role confusion), and
• They would soon need to display excellence in various scientific, manufacturing, and managerial competencies that they hadn’t even considered (staffing issues).

Although test market data indicate that the new product will be successful, this complicated innovation left feelings bruised among many members of this technical community and their managers.

Rather than accept this uncom-fortable situation as a permanent reality, on their own accord, the managers of these units took the initiative to start meeting to discuss and plan for the future. They did not want a repetition of this experience. The importance of this self directed act will be more fully discussed subsequently. At present, let us simply assert that it is unique for a group of middle managers in different technical organizations to take steps to analyze and manage a problematic situation confronting their units with neither their superiors nor their subordinates demanding that they do so.

With one member of the group, in particular, championing the effort, managers representing the Intellectual Licensing, Basic Research, Prototype Scale Up, Manufacturing Design, Materials Procurement, and Program Management units met periodically over the course of several months to address role responsibilities and technology planning. They found that conversations regarding the management of their independent processes led to a significant reduction in tension between both the managers and members of their teams. Furthermore, these discussions fostered experiments, such as the sharing of information and certain key personnel between units for the purpose of ironing out bumps that had traditionally plagued the sharing of informa-tion and materiel between functions.

The managers began to reflect seriously on the impact of prospective innovations on technology strategy and the implications of possible new directions for the staffing and structuring of their units. Specifically, they began to construct “capability matrices” projecting out 25 years. They came to feel that their own thinking about their future was being constrained by their living and working within particular frames of reference. That is, their technical disciplines, their existence within Big Can, their age, their ethnicity, the ethnocentrism of their multinationals, etc. biased them in ways that they knew they did not know how to assess. One might say that they knew that they did not know how their existing mindsets limited them. They sought assistance from a consultant to open their eyes to new possibilities and to help them articulate a long-term technology vision.

They came to feel that their own thinking about their future was being constrained by their living and working within particular frames of reference.

The Futures Workshop

With an ostensibly enthusiastic blessing from the vice presidents for the various functions represented by these managers, the technical managers approved the design of a two-day planning workshop. The objective of the workshop was to generate a broad range of ideas about the forces that might be shaping the consumer product businesses in the future and to assess the possible organizational and structural impacts of these forces on the consumer products technical community.

The workshop moved through the following steps:

• A Metaphor Exercise in which groups of participants created a visual metaphor for the future of BCC’s business. The graphic indicated the key forces on the minds of its creators as well as three key opportunities embedded in the situation and three threats or concerns. For example, one graphic showed a picture of a box that represented the traditional relationship between BCC’s Materials Basic Sciences and its Engineering organizations, with an “outside the box” concept represented by bomb bursts coming from other scientific institutions, such as universities. The notion of a paperless society was introduced into the drawing as a threat. This concern was counter-balanced with the possibility that waste containers would have a built-in bar scanner that would assess the monetary value of used electronic equipment and other household equipment via a wireless Web connection.

• The managers then built a 25-year timeline that surveyed their opinions and hunches about prospective development in six different domains (, “STEEPA” categories):

  • Societal changes
  • Technological advances
  • Economic developments
  • Environmental considerations and regulations
  • Political issues
  • Aesthetic norms

Although this was not a rigorous investigation, every member of this intellectually curious group introduced a broad range of provocative ideas into this rich and vigorous multihour discussion. Here are a few of them:

• The prospect that pick-up charges for waste haulers will rise precipitously, putting garbage services out of reach for many current customers.
• The emergence of highly sophisticated recycling services that work best with increasingly complicated waste management equipment configurations, including containers that act on their contents in some way, e.g., weighing and prepackaging metal products.
• The introduction of containers that store hazardous wastes, such as certain types of batteries and lubricants, and track their value in the recycling market through wireless internet connections that can be read out through an electronic display on the storage device.
• An explosive growth of international opportunities linked to recycling.

Using an abbreviated version of a scenario construction technique, the team ranked the trends in each of the STEEPA categories and then chose two that represented the highest impact/highest uncertainty (, “cost of capital” and “interaction with information technologies”). They then mapped out four story lines, reflecting ways in which these trends could interact. Next, they chose their “preferred organizational narrative,” i.e., the scenario they most wanted to see happen in the future and, therefore, the one that they wanted to design their organization toward.

This discussion of the kind of world they would like to live in set up a multi-hour conversation about BCC’s structure: What was the most robust technical organization these managers could envision? That is, what structure might achieve the state of innovation and productivity desired by the managers, but would also be flexible enough to respond to whatever vicissitudes BCC would face?

Each member of the team laid out his or her response to these questions, and they discovered quite a bit of commonality. One member synthesized all the ideas into an elegant graphic. This was a farreaching proposal that would change a variety of BCC’s long-standing organizational structures for the management of technology, but offered much to hope for in terms of new efficiencies and interunit collaboration.

At this point, the managers became quite excited. They realized they had developed a proposal that would change each of their units, but would also, in their opinion, secure the future of BCC’s consumer product lines to which they were very committed. Further, they felt that they were in an ideal position to pro-mote these changes, since they knew the most about the actual workings of their particular technology groups. The scene had some similarities to one where the captains who will be most affected by a phase of a military campaign generate their own action plans rather than having them dic-tated to them by generals viewing the scene from some distant, and un-informed, locale.

Managers Get a Headache

The meeting ended with the managers doing some initial planning about meeting with the vice presidents to whom they reported and discussing how to inform members of their group who had been unable to attend the meeting. Also, because of prescheduled commitments, two of the members of the group—including the champion of the entire process had to leave the workshop early, even though they very much wanted to stay. Furthermore, the group itself was undergoing personnel changes. One of its members, the director for Basic Research, was leaving the company after 20 years of service and another going on to a position in Europe.

Almost from the moment the meeting ended, the managers’ hopes began to dissipate.

The Director of Basic Research was being succeeded by a younger scientist who expressed concern during the workshop with the idea that he was going to have to advocate these changes to his superior. This was his first time meeting with the group as a whole, and he was unsure of the agenda coming in. Members of the group assured him that they would assist him in making the group’s case to his president, and he seemed comfortable with the product of the group’s work.

Things did not go as planned. In fact, almost from the moment the meeting ended, the managers’ hopes began to dissipate.

First, the timetable for their meeting with the vice presidents changed dramatically. As soon as their superiors heard that the managers had had a useful planning session, the vice presidents moved up the initial timetable for discussing the results. This conversation occurred more than two weeks earlier than anticipated. The managers had intended to spend a full day thinking through an approach to the important conversation because they realized that their ideas were highly innovative and, therefore, politically charged. They were all supporting significant change in their own work situation. They were all willing to give up something in their units in order to achieve a higher degree of integration of BCC’s technology strategy. They knew that they were going to have to convey the importance of their strategy to their superiors. The eradication of their opportunity to prepare for the meeting made this impossible. However, no one thought that the group could say “no” to the vice presidents’ request for an early briefing.

Second, both anticipated and unanticipated personnel changes took effect. The seasoned manager of Basic Research retired, and the Program Manager representative attached to the Consumer Container Business took a new job as planned. Surprisingly, the member of the group who had captured the will of the team in a particular graphic was asked to stop participating in its deliberations because he was seeking a promotion that other members of the group would influence. The replacement for the manager of Basic Research was afraid to tell his vice president about the changes the team was advocating. And a new representative of Program Management struggled to become fully acclimated to the group, both because he had little background in the Consumer Products Business and he had no real connection to the other members of the group.

The meeting with the vice presi-dents was disastrous. The managers assumed the vice presidents would recall the background of the situation. Instead, they seemed to have forgotten a great deal about what was at issue in the managers’ meeting. Thus, the presentation was experienced as abstract and erratic. Even though the managers felt they had gotten a clear signoff from their superiors regarding the purpose of the workshop, one vice president criticized them for “having gone beyond your charge”: You were supposed to be looking at staffing issues for the immediate future and the next year. What is all this stuff about 10 and 20 years from now?

Another was nearly livid in his complaint: You’ve pushed yourselves into decision-making domains that you have nothing to do with! [He went on, essentially, to assert that the managers were trying to do his job.]

After the meeting, the managers beat a hasty retreat. They reworked their material to focus on the near term. The new member from Program Management took the lead in managing the “political interface” between the managers and their superiors by asserting that the group had misunderstood and mismanaged the political nature of their relationship with their superiors and that he should be the person to repair the situation; the other members of the group accepted this definition of the situation. The new manager of Basic Research distanced himself from the group. The “synthesizer” who had crafted the graphic that was so helpful to the group stopped attending meetings and spoke with excitement about other activities. The champion of the Futures Thinking project was humiliated by the entire experience. Feeling unsupported, he began looking for options outside BCC.

Summary: This team, which made such headway in understanding the future, decided to put the project on hold

A Specific Example of a Generic Organizational Disease

Particularism provides one lens on this story. That is, one could conclude that these particular individuals made mistakes. One can almost hear the chorus of critiques:

• , “They should have waited for the personnel changes to take effect before holding the workshop.”
• , “They should have said ‘no’ to the demand for an earlier meeting with their VPs.”
• , “They should have gotten clearer up-front approval for the Workshop.”
• , “They weren’t going to get anywhere without a greater commitment from the Basic Research guy, so why did they push ahead?”

On the other hand, this story can also be seen as an illustration of an all-too commonplace system dynamic called “The Failure of Middle Integration.” The human systems theorist, Barry Oshry, offers us this perspective. Oshry’s theory is based on hundreds of simulations of organizational life focused on the way in which the systemic dynamics created by social structure affect the power and efficacy of individuals and groups. Approximately 40,000 people have participated in these programs, and they overwhelmingly report a high level of coincidence between the generalizations of Oshry’s theory and their own experience in specific organizations. Interventionists, such as organization development practitioners and line managers who use these concepts to manage change efforts, also support the validity and utility of Oshry’s ideas.

Oshry contends that the systemic forces exert predictable impacts on groups at various levels of an organi-zational hierarchy. Unseen, these forces will almost certainly limit the effectiveness of any group and, therefore, the level of satisfaction people have in being part of it.

Using the terms “Tops,”, “Bot-toms,”, “Middles,” and “Customers” to represent people who either spend most of their working lives in the strata of organizational life suggested by these terms or can be described as having that position on a particular project, Oshry oversimplifying his argument—holds that:

• At the Top of a system (or any subsystem within it), specialization will emerge as a strategy for managing information overload (e.g.,Vice Presidents for Research, Operations, Infor-mation, etc.). The consequence of over-specialization is, ultimately, competition over the strategic direction of an organization (or a subsystem) and rivalry over which particular function should have the highest organizational status and receive the lion’s share of the available resources. He refers to these Top dynamics as “turf issues.
• At the Bottom of a system, solidarity and de-differentiation become preferred strategies for dealing with the inherent vulnerability of being in a system where others make decisions that affect Bottoms without the participation of the Bottoms themselves (e.g., plant closures and changes in procurement policy). Bottoms organically unite in the face of these conditions, and they frequently resent individual members of their group who attempt to differentiate themselves from others.
• In the Middle of the system—our primary interest here individual managers are pulled away from each other, physically, mentally, and emotionally. Oshry contends that this “alienation in the middle” results from both living and working within silos (functional, geographic, business line, etc.) and having to deal with issues that Tops and Bottoms in a particular silo have with each other. In other words, members of Middle groups disperse because they are kept at a distance from each other through the dynamics of the system. The more complex, the more bureaucratic, and/or the more hierarchical the system (as with BCC), the greater the level of dispersion in the middle management ranks. Dispersed Middles have difficulty integrating. They are “disintegrated.”

There are multiple negative consequences for Middle disintegration:

• Tops in a system have more issues and problems coming at them from all sides because Middles haven’t been able to pay attention to them.
• Bottoms are made more vulnerable because a seemingly functioning Middle team is not mediating arbitrary changes in their work and their level of security.
• Customers and suppliers get mixed signals because organizational functions aren’t working well together.
• Interpersonal distance between Middles separated by organizational boundaries tends to increase when managers and supervisors have both little contact with each other and regular experiences of being disappointed by one another.
• Middles as illustrated in the BCC case always have “something better to do” than interact with each other. They can’t find time to meet. They are continually pulled away from these meetings when they do occur by “important phone calls that will just take a second” or other interruptions. Since something else other than being with each other is typically more important to individual Middles, it is easy to see why Middles may not feel very close to each other as a group.
• They are regularly being promoted, demoted, fired, or transferred without much regard to the impact of these changes on Middle groups or without much Middle input into the processes by which these decisions are made. These personnel shifts provide Middles with frequent reminders of their low power status in organizations, with all of the attendant results of such self-perceptions.

Not surprisingly, given these outcomes, Middles are frequently seen as weak, incompetent, unreliable, indecisive, and/or prickly by both their superiors and their reports. Thus, they are also seen as the most expendable if and when the time comes to cut back on personnel.

Middle Integration

Oshry proposes “Middle Integration” as an antidote to these problems. Middle Integration occurs when the managers of various subsystems consciously make an effort to mitigate the effects of organic separation by meeting regularly to identify and address issues without their subordinates or their superiors being present. Middle Integration works best when it has the enthusiastic support of the superiors to whom middle managers report. Superiors demonstrate their encouragement for Middle Integration by refraining from “messing down,” e.g., demanding to have specific information about the conversations occurring among Middles, which was not so of the Tops in the BCC case. It should be noted, however, that they did not act in a significantly different manner than most others in their position would have if presented with the same set of events. They were not “the bad guys.” In fact, given Oshry’s theory, one would predict that Tops would be (1) either unaware of the systemic and structural conditions that make turf struggles, or aware of the conditions but unable to counteract them effectively; and (2) concerned about any integrative activity by Middles that would affect the “game of power” at their level in an unpredictable and unplanned for fashion.

For Middle Integration to occur, Tops should support the independence of Middles to meet, plan, and act without having to seek constant approval from their superiors. In turn,

Operational issues have been identified earlier and handled better, and relationships among middle managers and their units became more positive.

Middles should address the legitimate need that Tops have for information about Middle Integration activities by communicating regularly with Tops and aligning their integrating activities with the agendas, needs, and per-spectives of their superiors. This sort of linking process fosters the empowerment of Middles, who are constantly threatened with being isolated in their silos, while also bolstering the long-range strategic activities of Tops.

In the BCC case, for example, the Tops might have pointed to the far-sightedness of this Middle group as a reason to lower the cost of long-term credit, which is becoming an impor-tant issue to the whole company as international competition heats up.

Oshry outlines eight levels of Middle Integration:

1. No integration: The common condition, i.e., no awareness of systemic forces that pull Middles apart and no self-generated information exchange.

2. Sharing information: The simple transfer of data about different parts of the system .

3. Working the information: Diagnosing what the system (or its sub-components) needs

4. Coordinating responses to issues identified

5. Problem solving: Addressing identified needs through self-initiated experiments.

6. Mutual coaching: Helping each other with issues faced by individual members of the group

7. Sharing best practices: Enhancing organizational learning

8. Power bloc: Uniting as a Middle team to affect organizational direction and policy.

Compared with the preceding level, each degree of integration requires a higher level of commitment between Middle group members to their team effort. And, each higher level may entail greater political risk and, therefore, each demands a higher and higher level of encouragement and understanding from the Tops of the organization. For example, the Tops in the BCC situation could have expressed appreciation for their Middles’ work on the articulation of a technology management structure even if they, the Tops, were also considering the matter. Instead of punishing them for their initiative, the Tops could have treated the work of their subordinates as a valid option for their consideration.

Many organizations, including Microsoft, Ashland Chemical, Hewlett Packard, and Union Carbide, have been experimenting extensively with Oshry’s ideas. In instances where Middle Integration has been fully implemented, the results have been quite encouraging. Senior executives have been relieved of operational responsibilities and are more able to concentrate on larger strategic questions without sacrificing organizational efficiencies. In fact, operational issues have been identified earlier and handled better, and relationships among middle managers and their units became more positive with a variety of quantitative and qualitative results.

At BCC, however, there had been little explicit support for anything like Middle Integration. These managers were working against the grain of their system. In spite of their apparent endorsements early in the process, their superiors did not welcome the inventive initiative of these Middles. Instead, they saw the Middles’ behavior as poorly organized or ill considered, at best, or, worse, as insubordinate. The middle management team thought it had a level of support for its initiative that it clearly did not have. Rather, their superiors criticized them for being late to do the job that they were supposed to do, adding to the docket of their vice presidents’ responsibilities and implicitly criticizing them by stepping in to the vice presidents’, “turf.” As soon as they met this sort of resistance, the managers returned to their typical disintegrated state.

Middle Integration and the Survival of the Fittest

The collapse of the planning effort by the technology managers of BCC’s Consumer Products Division constituted the loss of a unique opportunity for this corporation. A group of senior managers moved from hope to disappointment. In spite of the fact that the members of this group demonstrated real talent as in investigating the future, the likelihood that any of these managers would initiate (or even participate in) such an undertaking was diminished. As a result, BCC has become considerably more vulnerable to competitors who are in a position to capitalize upon vulnerabilities to which this company chose not to attend.

Clayton Christensen points out that most “disruptive technologies” (i.e., technologies that take an industry into an entirely different direction) were initially evaluated and passed over by the firms that dominated particular industries. If, 10 years from now, BCC has lost much of its dominance of the consumer products containers business to more nimble competitors, it may well be because it didn’t have the capacity to learn from this group of forward-thinking, enterprising, and integrated middle managers.

This case may also be a cautionary tale for participatory theory at a general level. Interventions that bring multiple stakeholders and all levels of an organization together for visioning and problem-solving activities rely on the belief that highly stimulating and interactive processes can transcend the boundaries and rigidities created by organizational structure. The BCC case indicates that such interventions may be short-lived, however, if they are not supported by a commitment to organizational learning activities that makes the players conscious of the forces impinging upon the systemic “space” they occupy. Without such “system sight,” highly participative, short-term interventions may, in fact, become a foundation for enduring cynicism once people are again confronted by the Real politik of organizational life.

* Under the terms of the author’s confidentiality agreement, the case data presented here were deliberately designed to camouflage the identity of the company under discussion. However, the Big Can story remains true both to the issues faced by the client company and to the actions of the men and women discussed in this article.

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