Although these promotions are great for consumers, they may spell trouble – for the airlines. All of the promotions are tied up in an escalation dynamic, where each time a new promotion is offered by one airline, others are compelled to match or beat it just to stay competitive. Each round of new promotions begets more promotions. Once a company or industry is caught in this “Escalation” structure, it is hard to stop the dynamics.

“Escalation” begins when one party takes actions that are perceived by another as a threat. The second group responds by taking action that improves its own situation but increases the first group’s insecurity. The first group must then increase its activities in order to improve its competitive position relative to the other. The spiraling result of each group trying to retain control can lead to a war in which neither group feels in control (see “Escalation: The Dynamics of Insecurity,” November 1991).

There are two main issues that underlie this structure. First, the “Escalation” archetype describes the dynamics of insecurity. The actions of all involved parties create insecurity, compelling one party to attempt to regain control by taking action, which only leads to retaliation by the other. Second, “Escalation” is often a zero-sum game. A price war in a fixed market, for example, means that when Company A wins more customers, Company B loses customers. Losing customers makes Company B insecure about its ability to sustain itself, so it is forced to react with a countermeasure.

If your company, like the airlines, is stuck in an escalation dynamic, what can you do? The following seven steps can help identify “Escalation” structures at work and show how to break out of them or avoid them altogether.

1. Identify the Competitive Variable

Is your company or industry focused on a single variable as a basis of differentiation from competitors? If you have continually taken action in that area — and your efforts have steadily increased over time — you may already be caught in an escalating dynamic. In the airline industry, for example, the frequent flyer program has gone from being merely a promotional technique to becoming a focal point of competition (see “Escalating Frequent Flyer Promotions”). As the market share of one airline drops relative to another, the increasing competitive threat leads it to use frequent flyer promotions to increase loyalty, and hence, ticket sales (B1). But as the first airline’s market share grows, airline B (and C and D….) must respond with its own promotion to regain market share (B2). All the airlines then become caught in the “Escalation” trap.

2. Name the Key Players

After having identified the competitive focus, then pinpoint the parties whose actions are perceived as the major sources of threat. Ask yourself: “Who are the dominant players that are caught in the cycle?” The critical players in the airline industry, for example, might be seen as the big three carriers, American, Delta, and United. On the other hand, if you think you may be caught in an “Escalation” structure within your company, are there specific groups within departments — rather than whole departments — that are the key participants?

3. Map What is Being Threatened

The “Escalation” archetype can be very useful for surfacing a company’s deep-rooted assumptions and core beliefs. If, for example, you feel your market share is being challenged, what does that mean for your organization at a deeper level? Does it threaten your reputation as the market leader or your “no-layoff” track record? You should then examine whether the actions being taken are addressing the actual threat or simply preserving core values that may not be relevant in the new competitive arena.

4. Re-evaluate Relative Measure

Part of the “Escalation” archetype trap is that everyone becomes focused on a single competitive variable. Determining the relative measure that pits each party against the other is crucial for breaking the cycle. Can the foundation of the game be shifted so the players are not really in the same game?

When choosing between airlines, travelers tend to focus on price and schedules rather than service. Promotions have therefore become a primary means for differentiation. The problem with promotions, however, is that they are easily copied and offer no long-term advantage. But if one airline clearly and consistently provided better service and made traveling significantly more enjoyable, people might choose that company because of its great service. SAS Airlines, for example, achieved that with the creation of “Euro Class” — part of its focused strategy to best serve the business traveler.

5. Quantify Significant Delays

Delays can distort the true nature of a threat by providing short-term relief while a company or industry’s long-run capability is systematically being undermined. The heavy discounting in the airline industry, for example, will carry long-term implications for the industry’s viability. In the short term, consumers may hail the benefits of price wars and promotions, but these actions can lead to higher fares and worse service in the long run (see “Decline in Airline Service and Full-Fare Sales”). As promotions become more prevalent, consumers’ willingness to pay full fare for tickets decreases, leading CO an industry-wide decrease in sales of full-fare tickets, which decreases each individual airline’s ticket sales (R3 and R5). As the number and variety of an airline’s promotions increases, emphasis on customer service investments may decrease, which can lead to a decline in sales and more promotions activity (R4 and R6). The promotions therefore keep the airlines’ attention away from the areas it needs to invest in, while the delays in the system camouflage the long-term impact.

6. Identify a Larger Goal

A leverage point in the “Escalation” archetype is to identify an overall objective that can encompass both part it goals. Once you have identified the larger goals, the next question to ask is whether the system is structured to achieve those goals. Are there ways businesses are participating to ensure that the larger goals will he met? Are there ways to actually expand the market, rather than having to cut up a limited pie? To address these larger issues, some kind of central governing body (not necessarily the government) that can serve the needs of the whole community may be necessary.

For example, as a nation we need to ask, “Why do we need a healthy domestic airline industry in the first place?” If we acknowledge that the viability of the whole industry is important for the nation, then coordinated actions at an industry level must be identified.

7. Learn to Avoid “Escalation” Traps

The best antidote to the “Escalation” archetype is to avoid getting caught in it in the first place. One of the reasons we get caught in escalation dynamics may stem directly from how our thoughts around competition are structured. In a competition model, there is no room for collaboration; yet the “Escalation” archetype suggests that cut-throat competition serves no one well in the long run.

The “Escalation” archetype can serve as a starting point for exploring ways that collaborative competition can occur. Collaborative competition may serve as the means for bringing out the best in each company (or department) by encouraging it to excel in its own unique way, rather than being an also-ran in a crowded field of look-alikes.

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Using field observations and studies of other companies, we have developed a model that describes what we believe are the critical factors that are essential for understanding and enhancing the learning capability of any organization.

This model is only a first step toward creating a set of criteria that organizations can use to evaluate their strengths and weaknesses as learning systems. The hope is that as organizations discover how to manage the learning process more explicitly, they can design their own blueprints for learning.

Learning Systems

So how would you recognize a learning organization if you stumbled over it? Suppose we have two companies, A and B, who are both attempting to enhance organizational learning. Company A, a service provider, spends a lot of time scanning the industry for ways to improve, invests heavily in team learning, and has a workplace that is generally described as “open” and “aligned.” The employees work in tightly-knit groups; learning is very informal. Company B, a manufacturing giant, spends its money on formal employee training programs such as Total Quality. It encourages continuous improvement through controlled experiments that value incremental gains over transformational learning. The company is very inwardly focused — almost obsessive — and learning is centered on individual improvement. So, which one is a learning organization?

Actually, both are; they are just developing their learning in different ways. The organizations we studied shared a set of 10 common factors — including environmental scanning (Company A) and an experimental mindset (Company B) — that either promoted or inhibited learning. We termed them “facilitating factors” because we believe they ate crucial to the success or failure of a company’s attempt to improve its capacity to learn.

We also noticed differences in the ways the companies approached their learning. For example, some companies focused on incremental improvements in manufacturing (like Company B), while others focused on breakthrough learning in marketing or service quality (such as Company A). We refer to these stylistic differences as “learning orientations.” Learning orientations do not necessarily determine the quality of learning, but they describe how or where the learning takes place. Together, the facilitating factors’ and learning orientations describe an organization’s overall learning system.

Facilitating Factors

Maximizing learning within the organizational setting is not a haphazard process. Some policies, structures, and processes do seem to make a difference in how well an organization learns. In the companies we studied, we identified a set of 10 facilitating factors that we feel are essential to organizational learning. A company can assess the extent to which it is promoting learning by determining its level of investment (low, medium, high) in the following areas:

Performance Gap. Without feedback indicating gaps between targeted outcomes and actual results, performance can stagnate or decline. To counteract that tendency, organizations need to make concerted efforts to identify and correct performance gaps — in both good times and bad.

Scanning Imperative.Scanning the marketplace can help an organization learn about successes within the industry. Benchmarking, scenario planning, and anticipating new trends in the market can stimulate and give direction to organizational learning efforts.

Involved Leadership. Leaders must not only help develop an organization’s vision, but also engage in hands-on implementation of that vision. Through direct involvement that reflects coordination, vision, and integration, leaders can provide a powerful role model of active learning that will help sustain a company’s efforts.

Initiators of Learning. While involved leadership sets the stage for learning, successful organizational learning efforts require more than one “champion.” The greater the number of “gatekeepers” who bring knowledge into the system and advocates who promote a new idea, the more rapidly and extensively the learning will spread.

Experimental Mindset. If learning comes through experience, it follows that the more one participates in guided experiences, the more one learns. Therefore, venturing into uncharted waters — and experiencing the failures that may occur — is an important part of organizational learning.

Requisite Variety. Investments in experimentation go hand-in-hand with a pursuit of varied organizational skills and competencies. An organization that supports variation in strategy, policy, process, structure, and personnel is more flexible when unforeseen problems arise. Requisite variety opens the door to more options and provides new avenues for learning and experimentation.

Climate of Openness. A willingness to take risks and explore new areas will more likely occur in an organization that fosters a climate of openness. This includes the freedom to express divergent views — which encourages multiple perspectives on an issue — and also to acknowledge mistakes. The organization can then benefit from the rich learning that comes from analyzing and understanding the causes of failures.

Systems Perspective. Failures often result from unintended consequences of well-meaning policies or decisions. In order to design and implement effective strategies, managers need to look at their organization and its environment as a unified system. A systems perspective deepens the learning process by revealing how our actions create our reality, while illuminating high-leverage options for creating long-term change.

Concern for Measurement. Rigorous analysis is an essential part of the learning process, as evidenced by the importance of metrics in Total Quality efforts. Effective experimentation requires a set of well-developed methods for measuring gaps between expected and actual performance, and for designing effective action based on those results.

Continuous Education. Ultimately, learning is built upon a commitment to lifelong education at all levels of the organization. The presence of traditional training and development activities is not enough; it must be accompanied by a palpable sense that one is never finished learning and practicing.

The goal is not to be “the best” in all of the facilitating factors. Rather, focused investments in particular areas that fit the company’s overall learning strategy will be more effective than a scatter-shot approach. Determining the most important areas for investment, however, requires an understanding of the organization’s unique learning style, which is determined by its various learning orientations.

Learning Orientations

How an organization functions as a learning system is based on a variety of factors — including culture, experience, values and attitudes — which determine where learning takes place and the nature of what is learned. Each of the learning orientations listed below consists of two opposing poles. Most organizations fall somewhere along the continuum between the two. For example, in the area of skill development, some organizations focus primarily on individuals, while others promote team skills. The collection of the preferences in each area forms an overall pattern that determines a given organization’s learning style (see “What is Your Company’s Learning Style?”).

Knowledge Source (internal vs. external). Does an organization develop new knowledge internally, or does it seek inspiration through ideas developed externally? The distinction is often thought of as the difference between innovation or imitation. In the U.S. there has been a tendency to value the innovative approach more highly and to look down on those who seem to be “copiers.” The Japanese, however, have proven that organizations can successfully pursue a strategy of adopting other people’s ideas, incrementally improving them, and making them better than the original.

Dissemination Mode (informal vs. formal). Does an organization attempt to create a space in which learning can evolve, or does it pursue a more structured approach to learning? In the more informal approach, learning is spread through encounters with role models or as teams share their experiences in ongoing dialogue. A structured approach, on the other hand, relies more on formal education methods and certification of learning.

Knowledge Focus (product vs. process). In accumulating knowledge, does an organization prefer to focus its learning on issues related to product and service outcomes or on basic processes that underlie and support the products? The distinction here is one of being the low-cost producer or focusing on providing exceptional customer service.

Learning Focus (incremental vs. transformative). Does an organization concentrate its learning on methods and tools to improve what is already being done, or on testing the assumptions underlying the processes? Tool- or method-based learning (also called single-loop learning by Chris Argyris), is useful for enhancing the performance of a system. Conceptual (double-loop) learning can potentially lead to discontinuous steps of improvement in which the entire system or process is reframed.

Value-Chain Focus (design/make vs. market/deliver). In what areas of the company or on which core competencies does the organization focus its learning efforts? If personnel and money allocations are continually directed toward one particular area — engineering or production instead of marketing and sales — robust learning will more likely occur in this area.

Skill Development (individual vs. team). In employee development, does the organization place more emphasis on individual skill enhancement or on team learning? While team skills are essential for taking advantage of the diverse knowledge groups can bring to an issue, this can only occur if continual investments are being made to enhance the knowledge of individual players.

Documentation Mode (personal vs. collective). What efforts does an organization make to retain the knowledge that individuals and groups acquire? At one pole, knowledge is seen in very personal terms, as something an individual possesses by virtue of education and experience. At the other pole, the emphasis is on creating a collective memory through information sharing. As in skill development, organizational learning is enhanced by a continual flow of knowledge from the individual to the collective level.

Once an organization understands its overall learning orientation, it can pursue two avenues for enhancing learning. One is CO embrace the style that exists and try to improve its effectiveness. For example, a firm that is more of an imitator than an innovator could accept its orientation with heightened awareness of its value and focus on honing its skills as a fast-follower. The second possibility is for a company to actually change its learning style by moving toward the opposite pole on the continuum.

Trying to describe an organization’s overall learning system is valuable because we can often see better what we want to be by beginning with an understanding of what we are. Organizational change often comes more readily if the targets of change first become more aware and accepting of their strengths and weaknesses. In other words, it is important to gain knowledge and appreciation of your organization’s assumptions regarding learning, whether you want to build upon them or change them significantly. If you would like information on the assessment exercise and workshop developed from this work, contact Janet Gould at the MIT Organizational Learning Center,(617) 253-1955.

This article was based on “Organizations as Learning Systems,” by EdwinC . Nevis, Anthony J. DiBella, and Janet M. Gould, MIT Working Paper #3567-93, May 1993. Editorial support for this ankle was provided by Colleen Lannon-Kim.

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But as you placed each card and the house grew taller, you began to worry more about the possibility of the house falling down than about building it. You worried about the air currents being stirred as people walked by; you were careful not to breathe while placing each card. Try as you might, it became harder and harder to concentrate on that perfect card house. The sweat beaded on your brow as your shaky hand placed one more card on top, and…CRASH!

Keeping Focused on What We Want

Many goals succumb to the same fate as the house of cards. Try as we might to keep focused on the goal, other pressures interfere and take our attention away from what we are really trying to achieve. Productivity standards, cost control measures, fire-fighting–all can undermine a project or effort and, over time, lead to a “Drifting Goals” scenario. We become focused on what we don’t want to have happen, rather than what we want to change.

The “Drifting Goals” archetype is helpful for trying to understand why an organization is not able to achieve its desired goals. “Drifting Goals” occurs when the gap between a goal and the actual performance is reduced by lowering the goal. Because this often happens over a long period of time, the gradual lowering of the goal is usually not apparent until the decreasing performance measure has drifted so low that it produces a crisis. The following seven-step process illustrates how to use the “Drifting Goals” archetype as a diagnostic tool to target drifting performance areas and help organizations attain their visions.

1. Identify a performance measure that has deteriorated or oscillated over time

Sometimes the actual performance measure that has deteriorated is not the same as the one you have identified. For example, when sales of Tater Tots fell from 1985 to 1987, managers at OreIda assumed that the decline reflected a change in consumer eating habits. But further exploration showed that the quality of the Tater Tots had gradually declined over the years: ‘Their once-chunky insides had turned to mashed potato. The outside had lost its light and crispy coating.”

(“Heinz Ain’t Broke, But It’s Doing a Lot of Fixing,” Business Week, December 11, 1989).

At Ore-Ida, the goal was in the form of a quality standard for Tater Tots (see “Drifting Quality Standards”). A gap between actual quality and that goal should have signaled the need for investments in new equipment and/or the quality of the ingredients (B1). But because the drift in the quality standard (B2) occurred over a long period of time, it was not perceived as a problem.

2. Are there implicit or explicit goals that were in conflict with the stated goal?

Sometimes there are implicit or explicit goals in an organization which are at odds with the stated goal. For example, Ore-Ida was committed to producing quality Tater Tots, but the company had also embarked on a series of cost control plans beginning in 1979. “Cost-cutting had led plant managers to step up line speeds and change storage and cooking methods. Over a decade, the moves had changed Tater Tots.” Identifying other related goals that may be affecting the particular performance measure could reveal conflicts which create sub-optimization.

Drifting Quality Standards

A gap between actual Tater Tot quality and the quality standard should have signaled the need to invest in production processes or ingredients (81). But because the drift in quality &alined over along periodof time, it was not perceived as a problem.

3. What are the standard operating procedures for correcting the gap?

Identifying the standard operating procedures (SOP’s) for correcting the gaps will give you a window into the kinds of corrective actions that are currently in place. You want to find SOP’s that may have inadvertently contributed to the slippage of goals. What are the things that have happened that may have caused the corrective actions themselves to erode over time?

4. Nave the goals themselves been lowered over time?

A key question is whether the setting of the goals has been linked to past performance. The idea is to have an asymmetric relationship between past performance and future goals. That is, when performance is continually improving, basing the next goal on the previous one can create cycles of continuous improvement. But this strategy can lead to disaster when performance begins to slip, creating a reinforcing cycle of declining quality.

At Ore-Ida, the actual Tater Tot quality and the quality standard were linked together in such a way that as the quality deteriorated, it affected the quality reference point (see ‘Slippery Slope’ of Quality”). So from year to year, the quality looked about the same even as it was decreasing (R3). One potential side-effect of sliding quality could be that as sales decrease (due to poor quality), the company might decide to cut back on investments in production process and materials. That would lead to lower quality, which would actually accelerate the deterioration of quality (R4). Breaking this cycle involves creating measures that will counterbalance such tendencies.

'Slippery Slope' of Quality

If actual quality and the quality standard are linked together, qualitymay appear toremain the same from year to year even as it decreases (R3). If deteriorating quality results in a decrease in sales, the company may cut back on investments, further accelerating the quality deterioration (R4).

5. Identify external frames of reference to anchor the goal

One way to keep goals from sliding is to anchor them to an external frame of reference. The reference point can’t be chosen arbitrarily, or it will be susceptible to change. Benchmarking provides an outside reference point. It won’t tell you how to achieve a goal, but it offers a frame of reference and shows what is possible in a given area.

The ultimate source, however, is the voice of the customer. At Ore-Ida, customer polls could have given a clear indication that sliding sales were a reflection of declining quality, not a change in consumer preferences.

6. Clarify the vision

Unless you establish a clear vision that is compelling for everyone involved, the improvement will be only temporary. You can motivate people and train them to use the tools that provide the corrective action, but if they really don’t understand what the vision is all about, at best they will only be complying. Over time, the system will slip back into making only the corrective actions that look good relative to what is being measured, regardless of the overall impact on the company.

7. Create a dear transition plan

After you achieve clarity around the vision, the next step is to explore what it will take to achieve that vision, and anticipate the expected time frame. Where are the goals in relation to that transition plan? If you’re currently operating at a level of 1 and you’re trying to get to 10, it is unrealistic to expect the change to occur overnight.

Unrealistic expectations about the time frame for achieving a goal can produce emotional tension and financial pressure which can undermine even the best improvement program. The question to consider at this point is how to make sure that the gap between current reality and the goal does not turn into a negative force. If we don’t carefully manage the effects of emotional tension, we lose the powerful potential of having a vision. In some ways, that’s the biggest challenge and potentially the greatest benefit of applying a “Drifting Goals” archetype.

Creative tension only works when somehow it taps into a level of motivation which is intrinsic. And that becomes a powerful leverage point for an organization whose creative forces have been tapped by the excitement of achieving the vision. The lesson of the “Drifting Goals” archetype is that in any attempt to achieve a goal or vision, you can’t bypass the emotional tension that results. But by channeling that tension into a creative force, you can transcend it and attain the vision.

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Merlin had foreshadowed Arthur’s struggle when asked what was the most important thing in the world. “Truth,” he answered. “That’s the most important thing. When a man lies, he murders some part of the world.”

When we live the truth, we are truly alive. But when we live a lie, we kill everything around us. Many people are beginning to acknowledge that the systemic problems and limitations we are currently experiencing — in our organizations, our government, the environment — are the result of our continuing to live a lie rather than face the truth of our connectedness.

We are awakening from a lie that we have been brought up to believe — that the individual is but a cog in the wheel of a great machine called industrial progress — to the realization that ours has been a misguided dream. The myth that human relationships could be broken down into their constituent parts, like the parts of a machine, is being replaced by a growing appreciation for the integrity of the whole and the realization that we are all inter-connected with everything. If life is about a deep commitment to the truth, then the learning journey can be the awakening process.

Commitment to the Truth

How many of us feel that the commitment to truth can comfortably extend to include our work environment? How much honesty can we afford? We have come to fear the truth — and truth-telling — in our organizations, especially when it differs from the “company line.” We assume there must be a good reason for stifling the confrontations that would occur if everyone felt free to voice his or her own truth. We have a sense that chaos will take over — that order in our world will cease.

In a learning organization, the discipline of creating shared vision is rooted in personal mastery, and personal mastery is based on a commitment to the truth about current reality. That commitment provides us with a clear idea of where we are and what we believe and allows us to begin to build the creative tension that will propel us toward creating what we truly want (see “Creative Tension” diagram). In order to generate creative tension, we need both a compelling vision, and a clear understanding of our current reality. Without a vision, there is no real motivation to change. Without a clear understanding of where we are, we have no basis for effective action.

Only if we can tell ourselves the truth about the current reality in our organizations can we open ourselves up to new possibilities for innovation and improvement. Only through a commitment to the truth can a learning organization articulate a meaningful set of values that can guide it on its journey (see “Values of a Learning Organization” on p. 3).

When we are unclear about our own truth, we muddy the environment around us. When we clearly express our own truth and also our shared truth — our values — we contribute to the constantly generating field of energy we inhabit. In a “spirited” learning organization, the energy released with this kind of freedom is infectious. People like to come into this kind of space. When we do not have to censor what we really think and care about, we have more energy to devote to creating something that really matters to us.

Multiple “Truths”?

In this constantly changing world, a universe that seems to thrive on diversity and multiplicity and complexity, we can no longer afford to focus our attention on one view or one group of people. Learning organizations need the energy of all of their members, as well as the vision, the aspirations, and inspirations of everyone who is involved in them.

Peter Senge, author of The Fifth Discipline, emphasizes that ongoing conversations about personal visions are vital to creating an organization’s shared vision. As important as building shared vision is, however, Senge notes that the hardest lesson for managers to accept is that “there is nothing you can do to get another person to enroll or commit” to a shared vision. “Enrollment and commitment require freedom of choice.”

In the new documentary about Noam Chomsky called “Manufacturing Consent,” the linguist challenges a young reporter who is condemning him for defending the rights of a professor in France who wrote a book claiming that the holocaust never happened. In reply, Chomsky said, “Free speech is not only for people you agree with. Stalin believed in that kind of free speech; Hitler believed in that kind of free speech. No, free speech is for those you don’t agree with.”

True democracy is based on a fundamental belief in the benefits of listening to as many varied, distinct, and disparate voices as can be heard. What holds people together is that belief in the freedom to speak, to disagree, to have a different view. When that freedom is absent, fragmentation, isolation, and hostility are the result.

“I wonder why we limit ourselves so quickly to one idea or one structure or one perception, or to the idea that ‘truth’ exists in objective form,” questions Margaret Wheatley in her book Leadership and the New Science. “Why would we stay locked in our belief that there is one right way to do something, or one correct interpretation to a situation, when the universe welcomes diversity and seems to thrive on a multiplicity of meanings? Why would we avoid participation and worry only about its risks, when we need more and more eyes to evoke reality?”

Studies of chaos have pointed to how sensitive the universe is, and how important each individual piece is to the shape of the whole. This suggests that we need to encourage differences, rather than smooth them over. Wheatley states, “self-organizing systems demonstrate new relationships between autonomy and control, showing how a large system is able to maintain its overall form and identity only because it tolerates great degrees of individual freedom.”

When we are unclear about our own truth, we muddy the environment around us. When we clearly express our own truth and also our shared truth — our values — we contribute to the constantly generating field of energy we inhabit. In a “spirited” learning organization, the energy released with this kind of freedom is infectious.

The Substance of Spirit

Leadership and the New Science offers some interesting insights into the role of space in an organization. The book explores the more recent teachings of “the new science” — those discoveries in biology, chemistry and physics that challenge us to reshape our world view. In particular, Margaret Wheatley’s study of quantum physics, self-organizing systems, and chaos theory makes some challenging connections between our physical world and the organizations we create.

From quantum physics, we have discovered that we and our world are mostly space (99.999% of an atom is empty space). Wheatley suggests that this vast and invisible thing we call space is actually a field, teeming with information and resources, that we participate in whether we are aware of it or not.

“If we have not bothered to create a field of vision that is coherent and sincere, people will encounter other fields, the ones we have created unintentionally or casually,” she explains. “As employees bump up against contradicting fields, their behavior mirrors those contradictions. We end up with what is common to many organizations, a jumble of behaviors and people going off in different directions, with no clear or identifiable pattern. What we lose when we fail to create consistent messages, when we fail to ‘walk our talk,’ is not just personal integrity. We lose the partnership of a field-rich space that can help bring form and order to the organization.”

If space is not empty, but full of images and messages that we continually feed via our thoughts, words, and actions, then the content of our inner lives — our values, thoughts and beliefs — has a powerful impact on the field of space, or spirit, within our organizations. The quality of that field characterizes the spirit of an organization. We create the field around us, whether it be one which inhibits individuals or encourages them to expand and participate. The field view of organizations suggests the importance of actively working to help shape the spirit of the learning organization.

Leadership

What is the role of the leader in creating this kind of space? The leader of an organization cannot be solely responsible for articulating the vision or spirit of an organization and disseminating it, because that spirit must come from the involvement of all individuals in the organization.

But leaders in learning organizations can help to foster these new ideas by “walking the talk,” demonstrating by their own example that this is not a new flight of fancy, or the management solution-of-the-month. Leaders cannot force a tolerance of diversity; however, they can practice and encourage the exchange of views, especially ones that differ from their own.

We can let go of control as the predominant leadership style and choose to move in sync with the natural universe, which allows for more autonomy among its individual members. More importantly, we can choose to become conscious of our beliefs and attitudes (see “Paradigm-Creating Loops” in Vol. 4, No. 2) and become more willing to see the effect they have on others in our organizations.

Communication, explains Wheatley, is key to this task. “In the past, we may have thought of ourselves as skilled crafters of organizations, assembling the pieces of an organization, exerting our energy on the painstaking creation of links between all those parts. Now we need to imagine ourselves as broadcasters, tall radio beacons of information, pulsing out messages everywhere…Field creation is not just a task for senior managers. Every employee has energy to contribute; in a field-filled space, there are no unimportant players.”

Systems thinking is a discipline that continually prods us to examine how our own actions create our reality and identify ways in which we can change our own behavior to make a difference. With the help of new science discoveries and Margaret Wheatley’s thoughts on their application to the way we view organizations, we have a new arena to explore — the unseen, frontier of field-rich space.

Through exploring the values, truths, and meaning we find in the world, we can contribute to the generative spirit of a learning organization by bringing those intangibles to bear in our everyday lives, consciously and intentionally.

Our unique contribution toward building learning organizations may lie in our ability to know intimately the space we inhabit and how we contribute to the overall spirit of the enterprise. Perhaps that is the secret of the Holy Grail — to know the truth about ourselves, in whatever field we inhabit.

Further reading: Margaret Wheatley, Leadership and the New Science (San Francisco: Berrett-Kohler, 1992). Margaret Wheatley was a keynote speaker at the 1993 Systems Thinking in Action Conference, November 8-10, sponsored by Pegasus Communications.

Daniel H. Kim is the publisher of The Systems Thinker and Director of the Learning Lab Research Project at the MIT Organizational Learning Center. Eileen Mullen is a freelance writer living in Somerville, MA.

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Gateway took the lead in the $6.5 billion U.S. mail-order PC computer business by combining low production costs with a customer base of small businesses and technically-knowledgeable users. Low taxes and cheap labor at its headquarters in South Dakota allowed Gateway to keep its production costs low relative to competitors. A “no-frills” corporate style also allowed the company to undercut competitors on price. These benefits enabled Gateway to offer its customers a low-cost, high-quality product along with good customer service.

According to the Business Week article, however, “Gateway is at a cross-roads that has tripped up many a PC company in the past. It must keep revenues growing like mad while maintaining quality and service — and not losing control of costs.” For the first time since its founding, Gateway experienced a drop in sales over the past year. Gateway CEO Ted Waitt attributes the decline in sales to a backlog of orders from last December that inflated first quarter results. Future drops in sales, however, may indicate a larger problem — declining customer service quality.

Finding and training technical and assembly-line workers in South Dakota quickly enough to keep up with customer demand has been difficult. This staff shortage has increased customer complaints regarding delayed deliveries and long waits on customer service lines. By adding 75 new phone lines and expanding its cadre of 176 technical support personnel, Gateway has managed to cut the time that customers must wait to speak to a technician in half. Still, some customers may spend up to six minutes on hold.

At the same time it is experiencing these problems at home, Gateway is planning to create a production facility in Ireland and market mail-order PCs in Britain, France, and Germany. These expansion efforts mirror Gateway’s early U.S. strategy of finding a production base that will keep initial costs low, thus allowing the company to provide quality service at a lower cost. Gateway may find, however, that plans to expand overseas are more difficult to implement with a dissatisfied customer base at home.

Another part of the company’s strategy for increasing its competitive position involves marketing to a broader domestic corporate base while expanding its market overseas (see “Gateway’s Growth Strategy”). To increase corporate buyers’ purchases from the current 40 percent of sales, the company has created a new major accounts team that plans to target companies like Ocean Spray Cranberries, Inc. and Union Pacific Corporation. However, Dell Computer Corporation is already challenging this strategy with a marketing campaign that is targeted specifically at Gateway. At the same time, larger computer companies like IBM and Compaq are challenging Gateway in its traditional mail-order PC market.

Discussion

• Flow fast should Gateway expand its technical support capacity relative to its revenue growth?
• Once a capacity shortfall has been identified, the acquisition delays are usually fairly obvious. But what are some of the hidden sources of delay?
• Performance standards do not necessarily have to erode to be ineffective; they can become obsolete. How might Gateway’s current standards of service become inadequate?
• Is Gateway’s goal of expanding into new markets, maintaining profit margins, and improving service quality an achievable one?

Gateway's Growth Strategy

As customer demand for Gateway’s products increases. revenues also increase, providing the necessary capital to expand into new markets and further spur demand (R1).

Gateway may find that it is caught in a pattern characteristic of the “Growth and Underinvestment” archetype, in which rapidly-expanding demand for a product outstrips the ability to add capacity to meet it. Although the solution of adding the needed capacity seems obvious, the dynamics created by this structure can be subtle and the appropriate capacity level can be difficult to assess.

In Gateway’s situation, the current technical support service problems are a direct result of its sales success. Revenues have skyrocketed from a mere $100,000 in 1985 (its first year) to $70 million in 1989 and $1.11 billion in 1992. Estimated revenues for 1993 are around $1.7 billion. As the number of units sold continues to climb, the number of customers requiring service also increases. This suggests that the service capacity should be expanded at least as rapidly as the growth in shipments. In terms of total number of employees, Gateway appears to have kept pace with revenue growth. From 1990 to 1992, its revenues almost quadrupled from $275 million to $1.11 billion, while the employee ranks grew almost five-fold, from 400 to almost 1860.

But, as Gateway has learned, simply adding workers is one thing, finding people with the appropriate skills and experience is altogether different. In particular, acquiring and training service technicians has proved to be a more difficult process than the company may have first realized. Consequently, Gateway customers have been experiencing delivery delays and busy customer service phone lines which, over time, will dampen demand (B2 in “Underinvestment in Technical Support”).

Hidden Delays

When a company experiences a decline in its service quality, halting the slide requires investing in more capacity as quickly as possible. In making the decision to invest, it is critical to immediately recognize when the performance actually falls off and when the needed capacity should be added. In many cases, the delay between recognizing declining levels of service and adding needed capacity widens due to an inability and/or unwillingness to acknowledge that current efforts to address the declining quality may be inadequate.

Keeping production capacity in step with rapid growth is hard enough. But the challenge of keeping after-sales support on track is compounded by the fact that when sales are growing linearly, the installed base is growing exponentially; and when sales are growing exponentially, the installed base is growing super-exponentially (see “Super-Exponential Growth in Installed Base”). This means that the number of service technicians may need to grow at a rate much faster than the organization as a whole.

If Gateway’s mental model is that the number of service technicians should grow at the same rate as sales, the company is likely to chronically underinvest and will fail to provide customers with the level of support offered in the past. This delay in recognizing the true capacity needs may become a self-limiting factor for continued growth by keeping the technical support quality low (and keeping loop B2 active). If the low service quality persists and depresses customer demand, the lower demand will be easier CO service. This will reduce the quality gap, which will lower investments in capacity and lead to a lower technical support quality (B3). Loops B2 and B3 can spiral in a vicious figure-8 reinforcing loop that leads to lower demand and lower service capacity, all the while maintaining what is believed to be an “acceptable” level of service.

Inadequate Performance Standards

Even it Gateway recognizes the need to expand its technical support at an accelerated rate and is somehow able to hire and train all the people the company feels it needs, it can still fall victim to the figure-8 dynamic. This is likely to happen if Gateway’s performance standards, which drive its investment decisions, are not continually updated to fit the company’s current situation.

The value of a performance standard can effectively “erode” if it remains unchanged while the needs of the market-place continue to change. If the standard is never revised to meet current market conditions, adequate investments needed to support the market’s changing quality expectations will never be achieved. The result: demand will decrease until it hits the number (and type) of customers who are satisfied with the company’s traditional standard.

For example, the service needs and expectations of the new corporate customers that Gateway is targeting will most likely be higher than its original core market of technically-savvy users. And people who are accustomed to IBM-style service may find Gateway’s service level, even at its best, inadequate. A push into such new markets may require a substantial redefinition of Gateway’s notion of high service quality.

Conflicting Goals

Improving customer service in the face of continuing rapid growth is a challenge in and of itself. Couple that with a strategy for entering foreign markets and targeting more established corporate buyers, while still preserving current profit margins, and the goals seem to be at cross purposes — at least in the short term (see “Expansion, Investments, and Profit Margin”).

Expansion into the direct mail market overseas involves a complicated and costly web of marketing and shipping arrangements which will require significant investments. For example, different countries in the European Community will require customized computer systems and marketing plans. At the same time, the new corporate buyers and the ever-expanding installed base at home will require further investment in technical support capacity. Both investments will increase costs and squeeze profit margins, since sales are not likely to rise very fast in the early stages of overseas expansion. If both investments are pursued aggressively, profits will suffer and there will be pressures to cut back (B4 and B5). However, if technical support investments are pursued less aggressively, the new markets can still be targeted and profit margins may be maintained. The risk, of course, is that service quality may suffer.

One possible scenario for Gateway is to proceed with its expansion plans while keeping a careful eye on the bottom line. Additions to technical support can be made on an incremental basis, but only after there are complaints that service quality is inadequate. When customers defect, Gateway can try to beef up service while embarking on more expansion plans to maintain revenues. In the long run, however, these choices could lead to a reputation for poor service, which may eventually necessitate additional price cuts to regain customers. This, in turn, would squeeze margins and create pressure to improve them, perhaps by cutting back on service investments.

A better scenario may be for Gateway to commit to the necessary investments in tech support and overseas expansion plans, but expect lower profit margins in the short term. By relaxing the profit margin goal in the short term, the company may be better able to sustain healthy profit margins once it has built the necessary infrastructure to support its new markets.

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In the 1980s, automakers focused on manufacturing enhancements and vastly improved the quality of their cars. Those efforts, however, eventually hit their limits — poor quality designs. The focus of the 1990s has therefore shifted from manufacturing to new product development.

A number of forces are driving this increased emphasis on new product development. In today’s global market, companies no longer have the luxury of extending product lives by pushing old products into new geographic markets. Instead, products must be introduced almost simultaneously across the globe. Rapid scientific advances also mean more companies can access new technologies faster. The result: competitive advantages based on currently superior technology are often short-lived.

These changes place great pressure on product development organizations to become more flexible. For those that meet the challenge, the rewards are great: lower development costs due to reduced rework, higher margins due to premium pricing, and improved quality due to better design integrity.

Superior performance in product development can also have profound implications at the corporate level, since the learning that occurs in the development process can enhance a firm’s understanding of its markets and internal processes. Exploring the intersection between product development and learning may therefore provide a focal point for organizational improvement efforts.

We have the technology, the people, the skills, all the pieces — why can’t we put it all together?

Putting It All Together

Despite all the new product development research that has been done, however, product development managers have a lot more questions than answers. As one manager put it, ‘We have the technology, the people, the skills, all the pieces — why can’t we put it all together?” Even when an organization has all the component technologies and expertise necessary, performance can be greatly diminished by the way it is man-aged in concert. Consequently, the greatest barriers to better product development performance may lie in the organizational structure and systems. New product development efforts of-ten suffer from a gap between the goals of the individual product teams and the needs of the entire process. Improving performance therefore requires building a shared understanding that allows people to connect their individual activities to the whole. The “Tragedy of the Commons” systems archetype may help provide some insight for managing product development so that the performance of the whole is not sacrificed for the optimization of the parts.

Tragedy of the Commons

The storyline for the ‘Tragedy of the Commons” archetype was first outlined by Garrett Hardin in 1968. Hardin described the ‘Tragedy of the Commons” using the analogy of a common pasture where many herdsmen graze their cattle (see “Tragedy of the Commons:’ All for One and None for All,” August 1991, and “Using ‘Tragedy of the Commons’ to Link Local Actions to Global Outcomes,” April 1993). Each herdsman is allowed to graze as many cattle as he wishes, and as long as nature, wars, and disease keep the number of humans and their animals below the carrying capacity of the land, the system works well. When one begins to approach the limits of a system, however, tragedy results: “Each is locked into a system that compels him to increase his herd without limit in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all…”

Tragedy of the “Power Supply” Commons

How does the ‘Tragedy of the Commons” dynamic play out in the product development process? For one car manufacturer, “Cars, Inc.,” the ‘Tragedy of the Commons” archetype helped create a better understanding of the dynamics of its product development system. The original system, as the product development manager described it, was based on resource control and restraint. The engineering design validation process over-involved senior management, treated suppliers with indifference or hostility, and greatly reduced operating personnel’s ability to meet their quality, cost, and time objectives.

For example, at Cars, Inc., individual component teams in the product development program all drew power from a limited power supply. Although it made sense for each component team to draw as much power as they required to maximize the functionality of each part, the collective result was an over-loaded power supply and an impasse in the design process. No team could concede what it considered to be in the best interest of its own component.

Cars, Inc.’s product development team acknowledged that appealing to the “good of the whole car program” is useless in such a situation, because no component group leader is willing to sub-optimize his/her component (and face the backlash from his/her functional area or team) in order to optimize the whole.

When teams had encountered this problem in the past, they struggled among themselves until at some point the product timing was jeopardized and a decision had to be made. The program manager would then have to step in and dictate how much power each component could draw. This process was unsatisfactory for all involved: the teams felt a lack of empowerment because they were not able to make the decision themselves, and the product development manager was frustrated because he had to intervene when he had expected the team to make the decision. The reason would appear to be that the team was poorly-aligned or the manager was heavy-handed. Without a general framework to interpret the actions, the outcome was seen as situation-specific.

To understand how their patterned responses kept them trapped in old behaviors, the product development team used systems archetypes to build an ongoing learning process within their organization. Once the team mapped out their situation and saw it as a ‘Tragedy of the Commons,” the course of action and the reasons why the action was necessary were clear. The program manager was given all the component designs and asked to make the decision on how much power to allocate to each of the components. Those who had to give up some functionality did not like it, but given the systemic structure, they understood why.

The ‘Tragedy of the Commons” doesn’t minimize the importance of individual actions; instead it recasts them in a systemic context. It also reveals how the rewards and incentives can conspire to make solutions at the individual level ineffective. For Cars, the archetype provided a common framework that helped all parties rise above the shared view that individuals (or teams) are responsible for either succeeding or failing and realize there are larger structural forces that govern certain situations.

Tragedy of the Supplier Commons

Subsequently, other teams at Cars, Inc. looked at similar common resource issues and realized that they, too, fell into the ‘Tragedy of the Commons” structure. For example, relationships with component suppliers also revealed a ‘Tragedy of the Commons” situation in which the “commons” was the performance of a particular supplier (see ‘Tragedy of the Suppliers”). As a division builds up a good working relationship with Supplier X, that division is more likely to contract with Supplier X in the future (RI). If another division decides on the same supplier, Supplier X’s ability to satisfy both divisions’ requirements can erode (B3 and B4). Given its historical relationship and dependence on Cars, Inc., Supplier X feels it is not in a position to say “no” to any of the requests for fear of losing future work.

The unfortunate outcome is that Supplier X becomes overburdened and fails to deliver on some of its commitments. Cars, Inc.’s purchasing department concludes that Supplier X is no longer reliable and drops it from their list of suppliers. Both parties collude in destroying what was once a strong relationship, but they are blind to how each was responsible for making it happen. Without some form of commons management that oversees and coordinates the different relationships, all such programs are susceptible to the ‘Tragedy of the Commons” dynamic.

A “Commons Managements’ View of Product Development

The prevalence of the ‘Tragedy of the Commons” archetype in the product development setting provides a systemic understanding for why a heavyweight product manager with wide authority over an entire product program makes sense. Clark and Fujimoto’s Product Development Performance lists several characteristics that a heavyweight product manager must have to be effective. Among them are the following:

• Coordination responsibility in wide areas
• Responsibility for concept creation and championing as well as cross-functional coordination
• Frequent and direct communication with designers and engineers
• Circulate among project people and strongly advocate the product concept rather than do paperwork and conduct formal meetings

A heavyweight program manager is especially important in situations where there is a “commons” that individual component groups can destroy, or when a firm has limited resources and each department vies for more of a common resource (e.g., drafting) in order to produce the best product. Clark and Fujimoto showed that product managers who have broad authority in setting agenda — and who clearly convey that information to the engineers — have significantly greater success than those who have less authority and influence.

True Empowerment

The idea of a heavyweight program manager seems to fly in the face of empowerment and the precepts of a learning organization, such as the belief that individuals should have autonomy in their work. In reality, the reverse is true. Many organizations have joined the “empowerment bandwagon” recently. What few have done, however, is make the necessary changes in their organizational and reward structures to support such a shift in power. Empowerment in settings where the incentives are individual-based and where the goals require collective compromise ends up being an exercise in frustration. And when such efforts inevitably fail, they only serve to reinforce the view that “strong” management is required.

Managing from a commons perspective requires relinquishing autonomy in certain areas so that the collective good is served. Once it is recognized that a “Tragedy of the Commons” structure is operating, the players involved usually recognize the need for management to take charge of strategic decisions such as allocating power consumption requirements or weight limits. At Cars, Inc., for example, the team members voluntarily relinquished strategic autonomy, while still retaining the operational autonomy necessary to engineer the best parts and sub-systems possible within the given constraints and objectives.

Empowerment therefore does not mean relinquishing total control in every setting, but having a clearly understood boundary and context within which individuals have true freedom of choice.

Portions of this article were drawn from Daniel H. Kim, “A Framework and Methodology for Linking Individual and Organizational Learning: Applications in TQM and Product Development,” Unpublished Ph.D. dissertation, MIT Sloan School of Management (Cambridge, MA).

Further Reading: Kim B. Clark and Takahiro Fujimoto, Product Development Performance: Strategy, Organization and Change in the World Auto Industry. (Boston: Harvard Business School Press, 1991). Garrett Hardin, “The Tragedy of the Commons,” in G. Hardin and J. Baden (Eds.), Managing the Commons (New York: W. H. Freeman & Co., 1977).

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As your company begins to gain market share, new competitors enter your markets with lower prices and more production capacity. What should you do?

Producing the next generation of your product will take heavy spending in R&D, but additional marketing might boost sales now. Where should you make the investment?

Strategy experiments help managers understand cause-and-effect relationships that often lead to surprising, non-intuitive results — including the discovery of unseen opportunities.

Strategy Experiments

Strategy experiments can provide clues that help managers make more informed, systemically-aware decisions. By experimenting with new strategies, scenarios, and investments, managers can better understand the possible consequences of their decisions before they have committed themselves to a particular path.

Simulations can also give a better understanding of consequences of decisions over time, indicating when it is necessary to change strategies as a market matures or undergoes transition.

Strategy experiments help managers understand cause-and-effect relationships that often lead to surprising, non-intuitive results — including the discovery of unseen opportunities. For example, teams of managers can use simulations to make critical investment decisions. A company considering price reductions might expect increased product demand and responses from competitors. A carefully-constructed simulation can help them understand which circumstances might lead to increased market share and which might result in a price war.

Using Simulation in Scenario Planning

Simulations can be especially effective when used as scenario planning tools. This differs from their traditional use in fore-casting. Instead of providing an estimate of next year’s sales in a particular market, strategy simulations are used to understand the likely consequences of a change in advertising on sales, or a competitor’s response to the introduction of an unforeseen product improvement.

Effective strategy experimentation requires that managers stay focused on their business needs and the purpose of the strategic planning process. There are at least four major recommendations for strategy simulation developers:

• Solve a particular problem, or focus on one issue. Do not try to analyze the entire business.
• Before beginning, understand how the results might be used after the strategy experiment is finished.
• Make the simulation as simple as possible. Add complexity only as necessary to make the simulation realistic.
• Keep all decision makers involved in the model building process.

Focus on One Issue

Start by focusing the model development effort on solving a particular problem. Ask what the team wants to know and what the simulation should help them understand. This may sound trivial, but many simulation efforts start with no clear problem or issue to consider. In these unfortunate cases, managers begin modeling their company with the vague goal of trying to better understand their business. If the simulation is too general, nobody will know what to do with the strategy simulation once it is finished.

The process of creating a simulation is as important as using the simulation… jointly creating a model forces managers to be explicit about their views on corporate activities, strategies, and outcomes.

Build the Strategy Experiment for How It Will Be Used

If a simulation is going to be used for strategic planning, then the simulation results must appear in a format that is easy to see and familiar to the managers that will be using it. For example, if the managers are used to analyzing results on balance sheets and income statements, then representations of pro forma balance sheets and income statements should appear in the simulation.

Another important consideration is the ability to view the simulation results. When a simulation is used during a strategy meeting, sometimes the most experienced, senior managers are furthest away from the computer. If not everyone can analyze the results, there is a tendency for the person sitting closest to the computer to become the “expert,” interpreting the results for the rest of the group. This can be frustrating for other meeting participants.

Keep the Strategy Simulation as Simple as Possible

Probably the most important suggestion for building models to use in strategic planning is to stay simple. As in many other activities, there is a tendency in strategy simulation toward increased complexity. However, it is best to start with absolutely the simplest solution possible. For example, if you are considering purchasing new capital equipment, begin a simulation with one simple link from desired capacity to current sales and nothing else. After this simple model is working, add inventory, available labor, investment constraints, etc. Add complexity only as necessary. If you are focusing on a particular problem, you should first have a definition of what you want to better understand and how the model will be used. These definitions will help put constraints on what will be included in the model.

Keep Everyone Involved

Ideally, managers should be responsible for defining and creating the simulation. At the very least, managers should provide all of the background information. Many analysts who use simulation tools think of themselves as experts providing specific advice to their colleagues or clients. While this method works well for some forms of analysis or consulting, it is inappropriate when creating strategy simulations.

The process of creating a simulation is often as important as using the simulation. Jointly building a model with experienced managers can help those managers better understand and define their problem. The process of jointly creating a model forces managers to be explicit about their views on corporate activities, strategies, and outcomes.

With full participation from the simulation users, the finished model will be able to simulate the impact of decisions based on participants’ different perspectives. In some cases, these differences of opinion will have little impact on the results. Thus, the modeling work is able to help people resolve differences of opinion and accurately depict the understanding and insights of an entire group.

The other important advantage of involving simulation users in the model-building process is higher confidence in the model results. If the simulation produces a non-intuitive result, managers who were involved in the model-building process will be more likely to try to determine its causes rather than dismiss the model as inaccurate.

Strategy simulation can be a useful supplement to the strategic planning process. If done well, these simulations can be used continually by managers who want to test assumptions about their business. When strategy simulation is combined with scenario planning, managers can use simulations in new ways. Teams can get together to discuss new strategies and use the computer simulation as an aid to that discussion. Instead of emphasizing the analytical aspects of a problem, the simulation can emphasize discussion and understanding.

Michael Bean, president of Second Sight (Cambridge, MA), creates Windows-based competitive games and strategy simulations for scenario planning.

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Using the Archetype Family Tree

The Systems Archetype Family Tree is based on two principles: that the systems archetypes are related strategically to each other, and that many situations can be described by progressing through several archetypes as they are linked on the tree (see “The Archetype Family Tree”). The tool is intended to help you use the relationships between archetypes to figure out how to begin looking at a new situation, and to gain increasing understanding of a problem as you work through the tree.

For example, suppose you were one of the proprietors of that lawn care company. You would start at the top of the chart, thinking about the nature of your situation. Is the phenomenon you want to understand something that used to be growing, whose growth you would like to reinstate, or something that is growing too quickly and you are worried about where it might lead? Then wind your way through the statements on the reinforcing (left-hand) trunk of the tree to see if they apply to your situation.

In this particular case, growth was not an issue; they had a debt problem to consider. If you, like the lawn care company owners, are trying to fix a chronic problem that persists despite your efforts to fix it, you want to work through the balancing (right-hand) trunk. Again, follow the chain of logical relationships, continuing to identify elements of your story.

For example, the lawn care proprietors’ fix” was to borrow whenever their cash flow was low (BI in “A Diagnostic Journey through the Archetype Family Tree”). As they serviced their mounting debt, however, the fix came back to haunt them in a “Fixes that Fail” structure (R2).

A Diganostic Journey Through The Archetype Family Tree

Working through the family tree reveals that what began as a simple balancing process(borrowing to meet cash needs) becoming a “Shifting the Burden” structure, in which the real leverage is to tighten financial control.

The lawn care proprietors sensed they were trapped in a “Shifting the Burden” process because they were not addressing the more fundamental issue of weak financial controls (B3). The borrowing fix was making matters worse by reinforcing a “loose” spending mentality (R4). Having diagnosed the situation, they could take effective action by focusing more attention on the root causes of their problems — low income and high spending — by tightening their budget and investing in better financial management tools.

Experimenting

Experimentation is key to using the archetypes most effectively. It is probably most useful to look at a particular situation or problem through the lens of several different archetypes, moving through the “tree” as needed. You may find yourself combining archetypes, adding loops and links to adapt them more completely to your story. By the time you have gleaned what you can from them, the loops may be five or six generations removed from the original archetype with which you began.

Michael Goodman is vice president of Innovation Associates (Framingham, MA). Art Kleiner has a long-standing background writing about business, environment, and systemic issues. This material will appear, in a different form, in the Fifth Discipline Fieldbook (Doubleday, forthcoming Spring 1994) .

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Margaret Wheatley challenges us to look beyond our current understanding of a world based on control and certainty, and see the beauty and potential of a chaotic, yet orderly, universe.

We are often afraid of the “letting go” that chaos requires, because we believe our world will fall apart without strict controls. And yet the new science of chaos tells us there is an underlying order to the universe that does not require our control, and that chaos can be a gateway to quantum leaps in improvement. -DHK

MANAGEMENT WHEATLEY—NEW SCIENCE AND THE LEARNING ORGANIZATION

For three centuries, we have been planning, predicting and analyzing the world by separating it into parts. We have held on to an intense belief in cause and effect, and we have let numbers rule our lives. Yet at the end of the 20th century, our 17th-century organizations are crumbling.

Today’s organizations are strong, complicated structures. We have built them deliberately to resist change, as we fear what might happen if we loosen our grip or let members of our organizations speak truthfully to one another. We are afraid that things will fall apart. Yet throughout the universe, things work well without us. Wherever we look, we see a landscape of movement and complexity, of bearings gained not from organizational charts or job descriptions, but from natural processes of growth and self-renewal.

In our desire to control our organizations, we have detached ourselves from the forces that create order in the universe. All these years, we have confused control with order. What if we stopped looking for control, and began in earnest the search for the order we see everywhere around us in living, dynamic systems? If we become a community of inquirers seeking to discover the essence of order, we will find that order in the heart of chaos.

Chaos and Order as Partners

Although we have always thought that small influences can be neglected, we are now aware that we live in a universe of exquisite sensitivity. Fortunately this means that it doesn’t rake a large mass to create change; it involves just the right disturbance in a part of the system that is so well-connected it will create change everywhere.

When systems were looked at from a long period of time in 3-dimensional phase space, the “shape” of chaos, called a strange attractor, emerged. There are many different attractors (ways of plotting movement) in science, but these were called strange by two scientists who said the name is deeply suggestive of the unusual beauty and mystery of these objects. We now understand from watching these strange attractors develop that they conform internally. We don’t know how, but when you observe chaos over time, it conforms to a boundary and has a predictable shape.

This realization has led to a very different definition of chaos: “order without predictability.” This paradox of autonomy and control is everywhere in chaos science. Chaos is therefore teaching us that as leaders we can let go of certain things and still create a well-determined, well-ordered organization. We are also learning that we cannot see the order in chaos without time and distance. To allow natural processes of order to be colleagues in our search for well-working organizations, we need to develop a very different relationship with time.

The Edge of Chaos

A second sensibility of chaos theory is chat the pursuit of a stable, balanced life of equilibrium is not possible. Chaos science says you can’t get to a truly creative or transformative solution unless you arc willing to walk through chaos, sit with your confusion for a while, and feel overwhelmed and uncertain. Unless you tolerate moments of deep, personal confusion, you can’t change your mental models. Systems are most capable of responding to change at the edge of chaos; therefore, if we don’t become confident that chaos is a useful state to be in occasionally, then we are going to get incremental, small solutions and miss the moments of great creativity.

Nobel Prize-winning physicist Ilya Prigogene noticed that living systems will fall apart when faced with radical amounts of change. But after they fall apart, they have the capacity to reconfigure themselves such that they work better within the environment. We may only see the falling apart stage, and get so terrified that we rush in to stop a group or an organization from descending into chaos. But this descent into chaos makes a new level of wisdom available to an organization.

In fact, chaos is a state of pure information — in that state, the system has two choices: it can die or disappear, or it can reorganize itself around the information and become more adaptive to that particular environment. The intriguing thing about self-organization is that many paths of change are possible. The avenue selected depends on the particular structural coupling that occurs with the available information. Self-organization is therefore a process of continuous tinkering — and we don’t normally tinker with organizations.

We need to consider how we can partner with chaos — how we can create processes through which people can generate new information and look at existing information and just be overwhelmed and confused by it. To do this we have to learn that we don’t always need to feel organized; we just need to understand that we will always be in this dance between disorganization and organization.

Managing Patterns of Chaos

The third sensibility of chaos theory is that complex systems can be understood by identifying some very simple patterns. We don’t know how to believe that a deep pattern, when combined with autonomous self-expression and rules of interconnectedness, can give intricate, complex, beautiful, and predictable shape to our organizations. As we learn this, however, it is clearer that as leaders we should be managing patterns, not people.

There is a DuPont facility in Belle, West Virginia that manufactures highly-toxic chemicals. Several years ago, a new plant manager was brought in because the plant had over 80 safety problems in one year. The manager, Dick Knowles, cut the safety or personal injury incidents in half by strong-arming people to comply with EPA regulations and procedures. But he realized he could never get a perfect record with that kind of autocratic management. What he needed to do was implant a desire and an ability to be safe.

So he focused on a pattern of safety by building an environment where safety was the ultimate concern. Every Monday morning, the senior group would meet to talk about anything that had gone wrong, even though it could be detrimental if the EPA got hold of some of the information.

At one particular meeting I observed, they talked about personal injuries. The first incident involved a plant worker who hit a deer while driving on a dark road 300 miles from the plant; the second incident concerned a team leader who had been rear-ended in his car about 12 miles from the plant. The group asked themselves what they could learn from these incidents — concluding they should alert people that the deer are coming out because it is winter, and people should therefore be careful on the dark roads and wear their seatbelts.

At the end of this meeting, I went up to Dick and said, “I don’t understand why you’re talking about these acci-dents that happen hundreds of miles from the plant.” He looked at me like I was from another planet and said, “Meg, if you care about your people’s safety, you care about their safety.”

He is a wonderful teacher. And he is involving his entire workforce in expressing their individual assessments of what the patterns of safety mean. I believe that such pattern consciousness leads us back into the arena of visions, values, and mission statements, but with much greater seriousness and intent. And our work is not just in establishing a core identity for an organization — the work is in creating the processes so the organization can discover its core pattern for itself.

Developing a Capacity for Autonomy in Our Organizations

To develop a strong core identity, we need to develop the capacity in our organizations to constantly self-update, stay connected, be in touch, develop relationships, find necessary information, and know how to interpret that information. Much more of our focus needs to go into how well we work together and how available we are to each other. Such possibilities signal a whole new way of being in organizations.

The biologist Francisco Varela said we need to understand systems as autonomous cognitive systems, and acknowledge that they have the capacity to determine what works best in their environment. They don’t need a template, model, or imposed structure. As self-organizing beings, we all have the capacity to figure out what works best for us in a given environment. And we can develop that capacity in our organizations — if we don’t, we will be in a lot of trouble. But how do we build this capacity in our organizations? I don’t know that answer yet — but I think that is our work for the next 10 years.

One of the terrors of these new lenses of science is that most of what made us “experts” is irrelevant. The process is one of letting go of our certainties and expertise and becoming willing to stay in a place of not knowing for longer than feels comfortable. Together, we are being challenged to open ourselves to a whole new way of looking at the universe and our organizations.

• • •

The changes required by the new science are deep; the challenges are significant. A clear articulation of anew vision of the organization marks the beginning of the journey. Making that vision a reality also requires a core community of people who are committed to helping transform themselves and their organization.

Peter Senge suggests that the concept of community may replace organizations as the focal point of our work. Building these communities will require investments in organizational infrastructures and in what he calls a deep teaming cycle. -DHK

PETER SENGE — BUILDING COMMUNITIES OF COMMITMENT

Something very interesting has been happening at the MIT Organizational Learning Center over the last three to six months. We have started to experience an interesting shift in what I would call the root metaphor of our work. The root metaphor for a long time has been “organization.” That seems to be shifting now and becoming “community.” It is that shift I would like to ponder together: where it is coming from, why it is occurring, and what are the implications.

I want to start by making a fundamental distinction between “organizational architecture” and the deeper learning cycles that are at work (see “Framework for the Learning Organization”). What we mean by architecture is what you actually try to build. I have suggested three dimensions of this architecture: Guiding Ideas; Theory, Tools, and Methods; and Innovations in Infrastructure.

Guiding Ideas

In a recent paper that Fred Kofman and I wrote called “Communities of Commitment,” we tried to articulate what we believe are three guiding ideas that are relevant for learning organizations: the primacy of the whole, the community nature of the self, and the generative power of language.

The idea of the primacy of the whole challenges our tendency to look at the world as if parts arc primary and wholes are secondary. We are always trying to “put the pieces together,” but perhaps they are already together. Maybe there is nothing but wholes within wholes, and it is only our common use of language and our patterns of thought that cause us to see things as isolated and separate.

That leads into the second basic notion, the community nature of the self. We tend to think of “self” as something isolated in time and space: here I am, there you are. But in other cultures, a person only exists in relationship. It is a different way of looking at the world — one that is more consistent with the primacy of the whole.

The generative power of language means that, when all is said and done, “there ain’t nothing out there except what we say is out there.” The basic notion is that we are continually constructing our reality, and there is enormous power in that if we start to recognize it.

Theory, Tools, and Methods

Some examples of tools for building learning organizations are dialogue, systems archetypes, and causal loop diagrams. The theoretical understanding behind these tools is crucial for extending learning beyond a particular situation or setting. Numerous times a group of people has actually achieved a break-through and produced results that are qualitatively ahead of what anyone has done before, but the learning doesn’t spread. Why? I think it is because we have very little idea what it means to build good theory. Deming has a saying: “No theory, no learning.”

A simple illustration of theory building is the product development work at Ford, where they have created causal loop diagrams to better understand the dynamics of resource allocation. Their work is producing superior results, but more importantly, they are building theory.

Innovations in Infrastructure

What are some innovations in infrastructure that are important to our work? One innovation is “learning forums.” In late June I attended AT&T’s Chairman’s Forum, in which the top 150 managers worldwide come together once a year for a day and a half just to talk. The conversation was quite remarkable — I sensed a candor and openness in that conversation that I don’t think I have ever noticed in that kind of group. I asked AT&T’s chairman Bob Allen why he started these forums, and he said, ‘We have a lot of infrastructure in our organization for decision making; we have very little infrastructure for learning.”

Much of our research at MIT is focused on another innovation in infrastructure called “learning labs,” which are practice fields for decision making. Nobody wants to make a mistake that might cost the company jobs or money, and yet all learning is about making mistakes. So somehow we have to create domains, integrated into our work environment, that are literally about making mistakes. That is exactly what a practice field is.

In many ways, dialogue is an attempt to integrate a particular type of practice field into a real work setting. The purpose is to start to think together about complex issues. Not to resolve or make a decision, but literally to improve the quality of our collective thinking, which will then directly inform and improve the quality of decisions.

Petting it Together

The significance of the “Framework for the Learning Organization” is that there is a meaningful distinction between the architecture and the deep learning cycle. All of the stuff in the triangle — Guiding Ideas; Theory, Tools, and Methods; and Innovations in Infrastructure — are the “hard,” quantitative stuff. But there is an irony to it — everything in that triangle could be changed tomorrow if a new CEO came into the company. What is most “hard” turns out to be most ephemeral, most fleeting.

The essence of the learning organization is what is on the right hand side of the diagram — the deep learning cycle. The development of new skills and capabilities, the development of new awarenesses and sensibilities, and a shift in attitudes and beliefs are the soft stuff, the stuff that lasts. Recently I was reading David Bohm’s book Wholeness and the Implicate Order, and I came across a remarkable statement about the evolution of the concept of “measurement.” In the West, our prevailing notion of reality is “what is most real is most tangible.” Bohm points out that the word “measure” and the word “mays” in Sanskrit trace their roots to the same word, which means “illusion.” “This startling divergence over some 3,000 years reflects a profound divergence in Western and Eastern notions of reality. In the prevailing philosophy of the Orient, the immeasurable is regarded as the primary reality.”

The idea in “Framework for the Learning Organization” is that there is a progression from the most subtle, what Bohm would call the most “implicate,” to the most explicate or manifest. It is not to say that results are not important, but the deep learning cycle and the architecture lie on a sort of continuum from the most subtle to the most manifest.

Community

Juanita Brown, an organizational change expert, said, ‘The fundamental glue of an organization is economic transaction. The glue that holds together a community is the opportunity to make a contribution.” That is a different root metaphor.

Let me give you an example of that shift, using the idea of shared vision. I don’t think organizations have shared visions. What is an organization that it can have a vision? It is the people in that organization that carry the vision. What really happens when a group of people in an organizational setting build a shared vision? The vision transcends the organizational boundaries, especially when we start to think of building community rather than improving organizations.

Not all visions are created equal. Some have more power than others. This is part of what David Bohm calls the “implicate order”—something wanting to happen. There is a continual unfolding of the universe, and it is our human capacity to participate in the unfolding. So why are we all doing this? I think it is because we sense it is part of the unfolding. It is what needs to happen next.

I remember a beautiful articulation of this idea by Martin Buber, a Hebrew existentialist philosopher. ‘The only thing that can become fate for a man is belief in fate…lt does not keep him in leading strings, it awaits him. He must go to it, yet he does not know where it is to be found. But he knows that he must go out with his whole being. The matter will not turn out according to his decision, but what is to come will only come on what he decides and what he is able to will…Then he intervenes no more. But at the same time he does not merely let things happen. He listens to what is emerging from himself to the course of being in the world. Not in order to be supported by it, but to bring it to reality as it desires.”

Margaret Wheatley, author of Leadership and the New Science, president and co-founder of The Berkana Institute, a non-profit foundation that supports the discovery of new organizational forms. She is also a principal of Kellner-Rogers and Wheatley, Inc.

Peter Serge, author of The Fifth Discipline: The Art and Practice of the Learning Organization, is the director of the MIT Organizational Learning Center.

Peter Serge’s comments on building communities will appear in a different format in the introduction to the Fifth Discipline Fieldbook (Doubleday/Currency, forthcoming Spring 1994).

Further Reading: Fred Kofman and Peter M. Serge, “Communities of Commitment: The Heart of Learning Organizations,” Organizational Dynamics (Fall, 1993).

Editorial support for this article was provided by Colleen Lannon-Kim and Kellie Wardman.

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The explosive growth in the homecare industry helped this particular company go from $0 to $10 million in revenue between 1989 and 1991. From ’91 to ’92, however, revenue plateaued and the company lost a major hospital account. When I came on, I needed to learn what was happening in the company and reestablish the growth pattern set in the previous years.

Challenging Mental Models

As a starting point, I began to explore the different viewpoints held by the company’s key players. Corporate management and the board of directors had opposing visions and ideas that required reconciliation in order to make progress. The board of directors saw only one problem — an inability to sell new hospital contracts. Consequently, they believed that if the company could solve the problem of selling, everything else would “work itself out.”

Management, however, saw the problem in terms of fundamental weaknesses in the company’s underlying operation and infrastructure. They believed that these weaknesses, such as internal capacity constraints, were being masked by flat volume and would become much more evident once the company began to grow again. Ironically, the growth that the board prayed for every day was management’s biggest nightmare.

To prepare the board and management for the systems work, I needed to convey several ideas. First, that the nature of progress isn’t necessarily linear but discontinuous, and, as with learning, you can hit plateaus or take giant steps. Many organizations do not grasp this concept of learning and instead follow a behavior pattern that assumes a linear, constant developmental path. I also needed to convey that there can be multiple “right” paths for strategy, and different combinations of strategies and tactics can conceivably get you to your goal. Finally, to set the framework, I had to illustrate that individual strategies can reinforce each other, cancel each other, or balance each other. Therefore, the strategies need to be viewed as interdependent, and the analysis must take into account how any two or more strategies interact.

Service Volume

By increasing service volume, service demand will also rise. If demand grows and capacity doesn’t, service quality will drop, resulting in a smaller client base (B2). In order to keep customer satisfaction and sales high, service capacity must grow at the same pace as service volume. Higher service quality will ten lead to higher customer satisfaction, which will maintain or expand service volume, revenue, and profits.

Designing the Process

We wanted to incorporate a strategic planning process with certain primary specifications. First, the process needed to help us gain a basic systems-level understanding of how our clients are generated and how they interact with us. It also needed to enable us to explicitly play through alternative scenarios, while letting us treat strategies as dynamic and interdependent, thus allowing us to model the strategies in various ways over time.

Keeping with this criteria, we felt that an approach using systems principles and computer simulation using ithink software would work best. We chose this strategy because it would require a strong understanding of basic business dynamics and would allow little room for ambiguity. It also allowed for explicit definition and debate of underlying assumptions. We wanted to go through a process that included early dialogue to lay out every assumption we were making about both the way the industry was moving and the way our company functioned. Finally, this approach allowed us to generate “real-time” learning and hypothesis-testing, which we achieved by manipulating our assumptions in real time in an interactive computer-based ithink model.

Modeling the Macro View

We started by modeling a macro view of the company and its strategy using causal-loop diagramming. This macro view included assumptions regarding how clients are generated and how the financial and operating systems of the company function. Our primary goal was to frame and illustrate the major issues in a simple one-page strategy for the company. We also wanted to high-light interdependence among the different strategics that had been proposed within the company. The team that worked on the causal loops was a subset of seven senior managers in the company who had the best embedded knowledge of the company.

The causal looping took place in a two-step process. The team knew that the board’s fundamental issue was marketing, so it started by modeling the marketing function and then looking for all of the second-stage implications that might emerge. Suppose, for example, that we are successful in marketing. Would marketing alone be sufficient to successfully move the company forward? The board’s logic was that the marketing program would generate more clients, more clients would generate more service volume, and more service volume would generate more revenue. With reasonable expense control, the result would be higher profits. The board liked that plan and wanted to keep it that way.

As we drew the causal loop diagrams, however, I posed a question — “What would happen to our service volume if we boosted marketing efforts?” (see “Service Volume”). Marketing efforts will drive more service volume. If demand grows and capacity doesn’t, service quality will drop, which will ultimately reduce our client base (B2). The key is to turn this balancing loop into a reinforcing process. If service demand grows and service capacity keeps pace, service quality will be maintained or actually increase over time. If that happens, higher service quality will lead to higher customer satisfaction, which will maintain or expand service volume, revenue, and ultimately profits (R1).

Measuring Performance Standards

A gap between performance standards and perceived performance drives investment in service capacity, which will improve quality and lead to higher customer satisfaction (R3).

This way of thinking produced new insight for the board: a marketing program is important, but building service capacity is equally critical. We needed to invest in capacity immediately to anticipate and meet service needs. The next step, therefore, was to determine what drives service capacity. Our theory was that we operate based on something we call “perceived performance,” in which we are driven by our measures of service quality against some realistic standard. The company doesn’t have well-developed standards beyond the usual measurements of cost per case, cost per visit, and other basic economic standards. Therefore, without well-defined operating standards, we had no realistic understanding of our perceived performance.

Consequently, we were brought to the question of how to drive realistic performance standards. We concluded that we needed a formal learning program under the rubric of Total Quality Management. The belief was that our perceived performance should drive a steady investment chain in process improvement, while also inciting a greater need to study business processes (see “Measuring Performance Standards”). A gap between performance standards and perceived performance would then spur further investments in service capacity, which would raise the overall service quality (R3), leading to higher customer satisfaction and an increase in service volume. With this systemic understanding, we felt comfortable endorsing the creation of a structured program in order to create knowledge that would reinforce and refine the performance standards.

We went to the board with a plan to operationalize their vision by investing in four areas: marketing, service capacity, a rigid set of performance standards, and an organizational learning approach that would drive the kind of knowledge that sets the standards. The result was that the board and our management group began to understand that there was far more than one barrier to success in the company.

The board then challenged management with an acid test: based on the systems logic, they decided to allocate some money up front to start work on building capacity. They would not approve the full program, however, unless we demonstrated that we could deliver on selling new accounts.

We found that the easy part was adding accounts. The much harder part was the other three objectives: building capacity, creating credible performance standards with that reorganization, and instituting a TQM program throughout the company. These other aspects absorbed the vast majority of our time.

For the first three to four months, my time was spent mostly on marketing and partially on systems thinking. We were able to get over the initial threshold, proving that marketing was the apparent and not the real problem. When the board saw two signed contracts within four months, they were more willing to invest in the next stage of development. The next stage of work involved building an operational model of the company, which we used to develop and test our mix and timing of strategies. The model reinforced our understanding of the need for multiple, integrated initiatives to reach our goals.

Company Learning

Through the planning process, we realized that as a company we were not nearly as good as we thought we were. This was partly because there was little history of planning in the company. Previous strategy had been developed by the board, was very top-down, and had no involvement of the operating staff. Because strategy started and ended at the level of the board and executive management, it never found its way to the operating managers who represented 95 percent of our staff and 100 percent of our revenue. It also involved little understanding of the hospital client.

Another major reason for our performance shortfall was that the board had little exposure to the operational reality of the company. The radically different perceptions held by the board and management about future prospects and risks came about because the managers were much more grounded in the reality of the company, but they had no way to communicate that reality to the board. Although the managers could easily point out the systems that weren’t working, the measurements we weren’t doing, and the level of understanding about our core business we didn’t have, that knowledge was not being transferred to the policymakers. Our systems thinking work provided a forum and a language to stimulate that communication.

Until we started asking these questions and modeling our assumptions, many people in the company did not understand certain aspects of the business — such as how a new client was acquired (see “From Causal Loops to Simulation”). For all practical purposes, our clients “materialized out of a cloud.” So what we tried to do was work back from that cloud and really educate everyone in the company about the operational realities. Through that process, we learned a great deal about our company and our client institutions. As a result of the planning process and our work with systems thinking, we have reached a better understanding of our business and a new way of communicating and testing the complex strategies necessary for future success.

Steven DeMello was president and chief operating officer of Alliance Home Care Management, Inc. I le is presently the director of healthcare practice for High Performance Systems, Inc.

Editorial support for this oracle was provided by Anne Cycle.

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