In the mid 1980s, “knowledge management” superseded “information management,” again building on the best aspects of the existing practice while representing an exponential leap forward. By recognizing the need to capture, store, and make accessible people’s operational knowledge, proponents of knowledge management tapped into a hidden source of competitive advantage.

Today, the field of “knowledge ecology” has emerged as a natural outgrowth of knowledge management. Whereas the target of knowledge management is to accumulate and leverage knowledge, knowledge ecology’s goal is to develop and mobilize collective intelligence and ultimately organizational wisdom. By acknowledging the social nature of learning and the key role that technology can play in bringing people together, knowledge ecology bridges the gap between the static data repositories of knowledge management and the dynamic, adaptive behavior of natural systems (see “The Virtuous Cycle of Knowledge Ecology”). To understand this new approach to “knowing what we know,” we first must understand the relationship among knowledge, intelligence, and wisdom.

The Knowledge, Intelligence, Wisdom Value Chain

Knowledge. Knowledge is the capacity to act. As Peter Drucker has said, “Knowledge is information that changes something or somebody — either by becoming grounds for actions, or by making an individual (or an institution) capable of different or more effective action.” Books, databases, lists of “best practices,” help desks, and so on are important in that they contribute to and influence our knowledge. However, these mainstays of traditional knowledge management implementation themselves do not have the capacity to act. They are repositories of information, not of knowledge.

Researchers from across the spectrum agree that learning is a social activity. We create, share, and utilize knowledge through our interactions with others. In this way, knowledge emerges through productive conversations — both face-to-face and through various media — and networks of relationships. These resources cannot be managed, only inspired by work systems that reward collaboration, learning, and innovation.

Intelligence. Designing knowledge-creation structures and practices requires a certain level of intelligence. Intelligence refers to our effective use of knowledge and our capacity to respond to specific opportunities and challenges as they emerge. In biological systems, an organism’s innate intelligence enables it to adapt to changing circumstances. The same is true of social systems. The main function of a workplace’s collective intelligence is to sustain the “social organism” by augmenting its ability to rapidly respond to conditions of accelerating complexity and chaos.

An organization develops collective intelligence the same way bodies do — through a nervous system. The nervous system in a social organism is the ongoing series of conversations and contacts that enable it to coordinate its actions and learn from its experience. It is embedded not in computers and hardware, but in the interactions among people that bring the organization into existence day after day and help it evolve. Collective intelligence continually emerges from the energy and information that move through this infrastructure.

To thrive, an organization must have both the wisdom to ask the right questions at the right time, and the infrastructure for tapping into its own collective intelligence for responses.

In both biological and social systems, the quality of the nervous system affects the quality of the intelligence that flows through it. Organizations have better chances to grow healthy and robust nervous systems — with requisite flexibility — if their members are connected and motivated to realize their full creative potential in support of the joint enterprise. If participants have easy and convenient ways to share what they know, the accelerated flow of knowledge lets the organization act with cat-like reflexes in the face of rapid changes in its environment.

The stage of evolution of a given nervous system — both in biological and social organisms — defines how effectively it can perform the following four functions.

• Communication: Facilitating the exchange and flow of information among the organizations’ subsystems and with its external environment.
• Coordination: Effectively coordinating the actions of the subsystems and of the whole.
• Memory/Knowledge Management: Storing, organizing, and recalling information as needed.
• Learning: Guiding and supporting the development of new competencies and effective behaviors.

Each of these activities is vital to the performance and evolution of the organism, be it biological or social. The biological ones have seamlessly integrated these functions in their repertoire of capabilities. Millions of years of trial-and-error have paid off!

Social organisms such as corporations don’t have the luxury to wait that long. If they are to survive and meet the challenges triggered by the current waves of epochal transition, they quickly need to enhance their nervous systems. Only then can they respond to their volatile strategic options with increased agility.

But having an adequate intelligence infrastructure isn’t enough to maintain a community at the leading edge over the long-term. The sustainability of social organisms also requires the exercise of systemic, collective wisdom.

Wisdom. Wisdom refers to our effective use of intelligence, as evidenced by our capacity to alleviate suffering and increase joy in human and organizational systems. As Verna Allee noted in Knowledge Evolution, “Wisdom is . . . a highly creative and connective way of processing knowledge that distills out essential principles and truths. Wisdom tells us what to pay attention to. Wisdom is the truth seeker and pattern finder that penetrates to the core of what really matters.” Systemic wisdom can help with intuiting the long view, understanding systems in the context of their larger whole, and anticipating future crises.

To thrive, an organization must have both the wisdom to ask the right questions at the right time, and the infrastructure for tapping into its own collective intelligence for responses. Organizational wisdom thus plays a key role in dealing with two essential aspects of the new marketplace: the “attention economy” and the “experience economy.” The concept of the “attention economy” derives from the fact that we’re living in an age in which we are continually inundated by information. The competition for people’s attention has reached a fevered pitch. Time and attention are scarce resources; learning to use them wisely has become a valuable personal competence.

In the current conditions of galloping “complexity multiplied by urgency” (as described by Douglas Engelbart, the pioneer of augmenting human intellect with computers), only wisdom can effectively guide our decisions on how to invest our attention, both individual and organizational. Wisdom helps us find a balance between focusing on current tasks and on long-term priorities by offering the power of perspective. It provides us with the ability to take a step back, view the larger picture, and determine what is really important and what is really at stake.

We can also view today’s working world through the lens of the “experience economy.” Customers are looking for more than products/services; they want to have a memorable experience of buying and using those commodities for achieving their aspirations. B. Joseph Pine II and James H. Gilmore, authors of The Experience Economy (Harvard Business School Publishing, 1999), describe this phenomenon: “No matter how acute an experience, one’s memory of it fades over time. Transformations, on the other hand, guide the individual [and the organization] towards realizing some aspiration and then help to sustain that change over time. There is no earthly value more concrete, more palpable, or more worthwhile than achieving an aspiration. Nothing is more important, more abiding, or more wealth-creating than the wisdom required to transform customers. And nothing will command as high a price.”

Where does the wisdom to create this kind of transforming experience reside in an enterprise? How can we notice it and cultivate it? We used to think of wisdom as a hard-earned quality of elderly, white-haired men and women. The emerging field of knowledge ecology opens the possibility of nurturing wisdom as a distributed quality of human communities.

What Is Knowledge Ecology?

What is “knowledge ecology” (KE) and how can it help us to boost organizational knowledge, intelligence, and wisdom? KE is a field of theory and practice that focuses on discovering better social, organizational, behavioral, and technical conditions for knowledge creation and utilization. It is an interdisciplinary discipline that draws on the best of current thought and action, including knowledge management; communities of practice; businesses as complex, adaptive systems; organizational learning; and the hypertext organization. By integrating these and other ideas, KE seeks to help organizations achieve unprecedented breakthroughs in performance while nurturing and enhancing people’s capacity to reach their highest aspirations.

KE operates on the principle that the best models we have for designing systems that create, sustain, and foster organizational learning and development are natural “learning organizations,” like a rainforest or the human brain. KE’s primary area of study and domain of action are the design and support of self-organizing knowledge “ecosystems,” in which information, ideas, insights, and inspiration cross-fertilize and feed one another, free from the constraints of geography and schedule.

According to the 10th edition of Merriam-Webster’s Collegiate Dictionary, an ecosystem is “the complex of a community of organisms and its environment functioning as an ecological unit in nature.” The simplest form of a knowledge ecosystem consists of

• a network of conversations — face-to-face or virtual — contributing to and informed by
• rich knowledge repositories.

Knowledge ecosystems, just like biological ones, are self-sustaining, self-regulating, and self-organizing. They have permeable boundaries through which they can interact with other ecosystems. In a natural ecosystem, the higher the diversity of species, the more robust the community and the more fit for longevity. The same applies to organizational ecosystems.

To visualize a knowledge ecosystem, picture the waves of ideas, requests, and offers that move through your awareness each day as bundles of color-coded lights that link you with your coworkers, customers, and coaches. Play with the colors, if you wish. Then imagine an animated flowchart with small circles representing all the employees in your organization. Arrows of different sizes and colors link the circles to indicate the length and form of each contact — phone calls, memos, reports, meetings — in a single day. Finally, think of this network of contacts as a web of distributed intelligence, comprised of all the members of the enterprise and all the ways in which they create value for other members, the enterprise as a whole, and its stakeholders.

For any organization to have all of its members share what they know with other stakeholders in a limited timeframe, it must “electrify” its network of conversations; that is, link its people networks and computer networks. This kind of “electrified” nervous system can then serve as the infrastructure necessary for a community to self-organize and improve its collective intelligence effectively and consistently.

Practitioners of KE maintain that in knowledge ecosystems, people networks create knowledge networks supported by technology networks (see “The Triple Network”). By “people network,” we mean the members of the organization, their communities of practice, and their company’s customers and other stakeholders, as well as the ways in which they organize their collaboration. By “knowledge network,” we mean the web-like connections between productive ideas that people in organizations generate in the normal course of work.

Unprecedented synergies and creative breakthroughs occur when enabling technologies offer new ways of forming meaningful connections. “Technology network” in this context includes all of the technological means that support communication and collaboration for knowledge creation, sharing, and utilization, ranging from e-mail to video and web conferencing to virtual worlds.

Knowledge communities co-evolve with their shared body of knowledge, and with the protocols and tools for upgrading that knowledge. Organizations pass an evolutionary test when they learn to adapt to and drive innovations in technologies, markets, and organizational design by increasing individual and collective intelligence. The smarter we become as individuals in managing our personal learning processes, the more we can enhance our organization’s collective intelligence. The smarter we become as learning communities, the deeper will be the pool of the collective intelligence that each of us can tap into, thus enhancing our individual intelligence. The two interconnected spirals drive each other ever higher. Companies like Hewlett-Packard and Lucent have found that the “triple network” of people, knowledge, and technology is vital to this process.

The Practice of KE

At the heart of knowledge ecology is the art and science of gleaning meaning and value from productive conversations. This practice represents an art in that it involves the sensitive, spontaneous realm of human relations. It is a science in that it relies on the best of today’s new technologies for bringing people and their ideas together across time and space. KE offers a framework for enhancing an organization’s capacity to learn faster by linking these two seemingly disparate facets of organizational effectiveness (see “The Duality of Conversations and Knowledge Bases”).

How does an organization begin to incorporate KE into its daily activities? Perhaps the first step is to ensure that the corporate culture recognizes the synergy between personal growth and expression and organizational productivity. Management must encourage listening, dialogue, participation, openness, inquiry, reflection, sharing, collaboration, and learning as expressed through mission statements, reward systems, and actions. Every member of the community — whether an organization as a whole, department, community of practice, or team — must feel included in the process and have the means to contribute as an equal participant.

Restricting any member’s contribution to and use of the ecosystem reduces its vitality and capacity to support emergent action. Fortunately, technology offers myriad options for enabling community members in different locations to conduct effective, efficient, and enjoyable knowledge-sharing, collaboration, and coordination of action. “Virtual space” technologies — such as conference calls and videoconferencing, which allow “same time/different-space” meetings — fill the need when speed of action is important and the community needs to process and evaluate simultaneous input from multiple sources.

When conflicting schedules prevent concurrent participation or when continuous access to the community’s shared intellect is crucial, the “virtual time” technologies of e-mail, electronic bulletin boards, and computer conferencing support “different-time/different-space” meetings. In this case, the host computer receives and holds everyone’s input, allowing community members to access the documents at any time of their choice and convenience — , “anytime/anywhere” communication.

The seamless integration of real-time conversations held in a meeting room and those held in the virtual realm is another crucial need. Teams that meet both in-person and on the electronic network need to discover and agree on the best mix of these and other media — telephone, fax, email, videotape, and so on — for completing each of the major tasks that they need to collaborate on.

A computerized system for managing the community’s knowledge assets and memory must provide easy access to shared documents and lessons learned from the past. A well designed system is not merely a repository of files and archives; it also includes the rationale and assumptions upon which actions were based so they can be examined and improved for more effective future action. The system should also indicate where specific organizational memories are located and should be indexed in a logical and easy-to-use manner.

A system has yet to be created that provides all the features that good gardeners of corporate knowledge ecologies would want to have. However, there are many knowledge systems vendors with helpful products. The challenge is to anticipate the set of features that you’ll need in six months or a year. Collaborative scenario-planning, “future conference,” and other processes for anticipating and co-inventing the future can help you design systems to meet upcoming needs.

KE’s Value Proposition

Dysfunctional knowledge ecologies cost organizations much more then well-functioning ones. When information is placed in a database where it is seldom accessed because the details have been separated from the context in which they occurred, companies lose time, money, and valuable insights. When employees hoard working knowledge —  either intentionally or because the organization doesn’t have an infrastructure for individuals to share what they know — it results in lost productivity by triggering the “reinventing the wheel” syndrome, “The same result is produced by hoarding failures. As long as a culture makes people hide their ‘mistakes,’ it pushes others to fall into similar erroneous experiments” (as my colleague Holly Blue Hawkins put it). In each case, the organization’s collective intelligence is squandered and stunted, leaving the company more vulnerable to the whims of the marketplace.

KE is a perspective that responds to the need to nurture systemic wisdom with emerging interdisciplinary insights into the organization and operation of living systems. Corporate knowledge ecosystems are complex adaptive systems. Their power exists in the flexible and evolving relationships among the elements of the system, which interact in complex and often surprising ways. KE provides a framework, tools, and practices for crafting and sustaining evolving webs of relationship in which we can embed and preserve the knowledge that emerges from social activity. In today’s knowledge-driven economy, the highest payoff investment that any business can make is in improving its practices, tools, and methods for creating and sharing new knowledge (see “Improving Organizational Performance”).

Think about your organization. Does it have a collective intelligence, or is it merely a collection of individual intelligences? Organizations that succeed in these times of accelerating change will be social organisms with the collective intelligence to guide them through turbulence and transformation — and the wisdom to take the long view and let it inform the strategic choices of the present. The companies that succeed in achieving repeatable wins in fast-shifting market conditions will be those that have learned to increase value to all stakeholders by leveraging the power of people, knowledge, and technology. These wisdom-driven businesses will easily provide the highest quality products, the highest quality work experience for their members, and an energizing context for societal evolution in the new economy.

George Pór is a pioneer of Knowledge Ecology and the founder of Community Intelligence Labs, a network of change agents dedicated to eliciting transformation by mobilizing the intelligence and wisdom of the whole organization. George is also the convener of the Attention Leadership Circle, an intercorporate research alliance focused on developing better practices and environments for augmenting attention resources of organizations, their leaders, and free agents. Meet him at http://www.co-i-l.com/coil/who/george.shtml.

The post Nurturing Systemic Wisdom Through Knowledge Ecology appeared first on The Systems Thinker.

In this way, the vertically integrated firms of yesteryear are transforming themselves into the virtually integrated supply chains of today. As such, many businesses are moving from producing all of their final products’ components and services internally to buying them from a network — or supply chain — of external suppliers. Why are so many companies taking this dramatic step? The benefits of this new business model include lower parts or service costs, lower up-front investment, and less financial risk if expected sales volumes do not materialize. But outsourcing has hidden drawbacks that may take several years to emerge. Ultimately, these “outsourcing traps” may actually increase a firm’s cost structure, reduce its products’ competitiveness, or in the worst case, lead to the emergence of new competitors.

How can businesses manage this major shift without falling into an outsourcing trap? Research shows that the design of a company’s supply chain is of decisive importance. In his book Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Perseus Books, 1998), Massachusetts Institute of Technology professor Charles Fine argues that supply chain design may be a business’s most important competency, and that deciding which components to make and which to buy profoundly influences long-term corporate survival. While conducting research for Professor Fine, we discovered that the key to making wise sourcing decisions is to understand the short- and long-term trade-offs of different choices.

Although supply chains are now hot topics within Fortune 500 companies, smaller firms have long recognized their importance. For example, consider a mortgage company. As soon as a home-buyer applies for a mortgage, the mortgage company requests a customer credit report from a supplier such as Informative Research. The supplier compiles its reports from several credit databases maintained by credit repository companies such as Trans Union. At this point, the mortgage bank that will actually fund the loan (which is often separate from the mortgage company) must examine and provisionally approve the loan. In most American states, once the bank provisionally approves the loan, the mortgage company orders a property appraisal, a flood certification, and a title insurance policy, each of which is provided by a separate firm with its own supply chain. Finally, at closing, the mortgage company collects its commission and turns the loan over to the mortgage bank. Many mortgage banks in turn sell their mortgages to another investment institution.

Coordinating all of these firms to provide the end customer with a complete product is a complex process, but similar transactions occur throughout the business world. Designing a supply chain to operate as efficiently and profitably as possible is a difficult but potentially fruitful endeavor. For example, a normal mortgage company takes two to three weeks to go from application to closing. However, one mortgage company we work with has brought both the mortgage bank and appraisal functions in-house. By underwriting its own loans, conducting its own appraisals, and establishing close relationships with local builders, this company can “crash” a mortgage from application to closing in 48 hours if necessary, thus improving customer service. Mortgage companies that do not have these internal capabilities cannot equal this performance. This “simple” example illustrates the critical importance of supply chain design resulting from sourcing decisions.

Although outsourcing has been extensively examined in the academic literature, most of this work has focused on topics such as the economies of scale that it can offer. We are aware of few sources that examine outsourcing from a systems perspective, taking into account the intricate relationships, time delays, and feedback processes that relying on a vendor sets into motion. Systems thinking and system dynamics provide the perfect tools to examine the trade-offs. Companies that fail to apply this level of analysis to the decision-making process may seriously undermine their competitive position by falling into one of the outsourcing traps.

Common Outsourcing Traps

As part of our research, we developed a system dynamics simulation model that identified several circumstances in which an organization may experience short-term gains from outsourcing followed by devastating — and unexpected — long-term consequences. We call these “outsourcing traps.” Three of the more interesting traps are:

An organization may experience short-term gains followed by devastating longterm consequences. We call these “outsourcing traps.”

1. A company loses its market dominance when its supplier acquires its proprietary technology and diffuses it to its competitors.
2. A company relies too heavily on a single supplier, which weakens its ability to negotiate favorable purchase agreements.
3. A company outsources a component or service to a vendor to reduce costs, only to encounter higher expenses or reduced functionality when putting the final product together.

We examine each of these dynamics in more detail below.

Boosting — or Creating — a Competitor

One possible consequence of outsourcing is that a competitor may gain access to critical technology through a common supplier. This can occur when the supplier offers the technology for purchase or when the supplier’s engineers bring the knowledge gained from working with the original firm to projects with other companies. If a competitor then uses the information to duplicate or improve on the original product, it may erode the first company’s market position (see B1 in “The Secret’s Out” on p. 1).

The classic example of this dynamic occurred when IBM was developing its new personal computers (PCs) in the early 1980s. The company made what turned out to be a crucial decision to outsource production of the PC’s microprocessor to Intel and development of its operating system to Microsoft. Little did IBM know that by doing so, it was opening the door for direct competitors such as Compaq and Dell to purchase the two components of the PC that are most difficult to duplicate. The result is that IBM today is only the third-largest maker in an industry that it created.

General Motors and Ford may have fallen into this trap when they decided to spin off their component divisions. The two new companies, Delphi and Visteon, are busily expanding their customer base beyond their parent corporations. As they do so, the risk of another automaker gaining access to once-proprietary technology grows. GM and Ford’s knowledge of the components may also become obsolete, leaving them helpless to make any innovations in component performance.

Auto companies may be most vulnerable in the area of automotive electronics, which has become the decisive factor in advancing car comfort, safety, and performance. Toyota is avoiding this trap by bringing some of its automotive electronics back inhouse after 45 years, even though its supplier, Denso, is the world leader in cost and quality. Toyota sees electronic components as critical to automobile performance and wants to keep at least some of its technology proprietary to gain a market advantage. It has made this move just as U. S. manufacturers are divesting themselves of this same capability.

“The Secret’s Out” also shows another twist on this situation. As the supplier grows more efficient at making the component and learns more about the component’s functionality, it may become sufficiently skilled at manufacturing the entire product to become a direct competitor (B2). U. S. consumer electronics firms fell into this trap in the 1960s and 1970s when they outsourced production of televisions and other electronics to Japanese suppliers. Ultimately, as domestic suppliers failed to develop their own capabilities, they fell further and further behind their own vendors. The suppliers eventually began to sell products under their own names — including Sony, Panasonic, and Mitsubishi — driving U. S. manufacturers such as Zenith and General Electric out of business. Today’s U. S. electronics and software companies may be repeating the same mistakes, as they increasingly outsource design activities to international suppliers.

Held Hostage by a Supplier

Another common but subtle outsourcing trap occurs when a supplier holds a firm hostage. If a company — or an industry — becomes too reliant on a particular vendor or set of vendors, power may shift to the supplier, allowing it to reap most of the profits. This dynamic is an extension of the IBM PC example above. Little did IBM know that the PC assembly industry would become primarily a commodity business, as the functionality that differentiated performance migrated from circuit boards to semiconductor chips and software.

As Professor Fine emphasizes — and as IBM presumably learned the hard way — the key is to “outsource capacity, not knowledge.” When IBM farmed out the bulk of the PC’s intellectual property to the software and semiconductor houses, it gave up a great deal of power in the supply chain. Intel and Microsoft could sell to any number of circuit-board manufacturers that could readily duplicate IBM’s design, but IBM could purchase Intel-compatible processors only from Intel and Windows-compatible operating systems only from Microsoft. This virtual monopoly enabled Intel and Microsoft to capture the bulk of the profits in the supply chain.

IBM tried to buck this trend by developing OS/2, its own operating system, in the late 1980s. It was arguably a better operating system than Windows. However, customers would not buy it because most software applications available at the time functioned only on Windows. Furthermore, because Windows had many more users than OS/2, Windows customers could more easily trade documents or software with other users than could OS/2 customers. In the end, the OS/2 system did not offer enough new features to convince users to switch. Because of the difficulties in competing with Microsoft and Intel, IBM and many other PC firms are instead trying to expand beyond the unprofitable PC business by moving into the maintenance and technical support of PCs, which offers more comfortable profit margins. Others are outsourcing as much of their production as possible to Asian contract manufacturers with lower personnel costs.

Another possible adverse consequence to outsourcing is that a company may lose the ability to intelligently purchase components — and suppliers may take advantage of this ignorance and price them at a premium. An executive for a top PC manufacturer recently stated that when the company first outsourced its notebook computer manufacturing, it could do so efficiently. However, after three years, the technology had changed sufficiently that internal people no longer knew enough about the product to determine whether a contract bid was competitive — especially because they suspected their vendors of engaging in price collusion and price gouging. The suppliers had the PC company in a difficult position, because they knew that the firm could no longer make the product themselves and that they had even lost the ability to determine the cost of the products they were buying.

As shown in “Paying the Ransom,” outsourcing initially decreases the cost to purchase the product (R3). As the supplier gains leverage and the firm loses it ability to determine the component’s cost, the supplier may eventually boost the price above what it would have cost the original company to produce if it had not outsourced it in the first place (B4).

The danger of falling into this trap is especially acute for companies that outsource a component to one supplier for a long period of time. Lack of expertise within the original company about creating the component leads to increased in-house manufacturing costs, which makes outsourcing even more attractive (R5). This “Success to the Successful” dynamic can prove costly if the firm ever desires to make the part again. As time passes and the knowledge of how to make the component diminishes, it can become prohibitively expensive to reverse the outsourcing decision. If the firm determines in the future that this component is vital to the performance of the product, it may need to invest heavily to bring the knowledge back in-house. However, this penalty may be necessary to regain some bargaining leverage with suppliers.

Reassembling Humpty Dumpty?

A firm also needs to know enough about its components to effectively integrate them into a single coherent product. As stated earlier, firms commonly choose to outsource because they can purchase a component from a supplier for much less than they can make it themselves. However, outsourcing may weaken more than just a firm’s ability to make and price a component; it may damage its ability to integrate multiple components into a final product.

Industry experts believe that one of the reasons Toyota decided to bring production of its electronic components back in-house was so that it could better integrate those components into a coherent whole. Forty years ago, automobile electronics were confined primarily to radio, lighting, and starter systems. Understanding electronics was not essential to automotive design. However, electrical systems control nearly every aspect of modern cars — from engine responsiveness to suspension behavior. Without understanding the intricacies of automotive electronics, it is difficult for manufacturers to design and produce cars that will meet customers’ expectations of automotive performance and comfort.

In another example, SAP, a German provider of enterprise-wide integrated software packages, experienced serious implementation problems with many of its North American clients. These software packages, often known as enterprise resource planning programs (ERPs), integrate all the information processing activities in a firm, from purchasing and manufacturing to order fulfillment and accounting. SAP ultimately traced its difficulties to its outsourcing of implementation to third-party consultants. Because SAP did not participate in the implementation process directly, the company did not gain knowledge to feed back into product improvements. Many of these problems have lessened since SAP began to join its alliance partners in actual implementation projects.

Manufacturing a component or performing a service can thus give a firm a decisive edge in knowing how to integrate it effectively into the final product (for more on this topic, see E. G. Anderson and G. G. Parker (2000), “Learning, Product Integration, and the Dynamics of the Make/Buy Decision,” University of Texas McCombs School of Management Working Paper, available from the author). Many of Microsoft’s detractors claim that the software giant uses its in-depth knowledge of the Windows operating system to give it an edge over its competitors in designing the features of its applications software. If this is true, then splitting Microsoft into an operating systems company and an applications software company may have a hidden cost to the consumer. The new applications company may become less familiar with Windows as the operating system changes over time and former Microsoft employees leave, leading it to design less effective products.

The third trap can lead to a possibly fatal balancing loop (see “All the King’s Men . . .”). As a company’s knowledge of its products’ components diminishes, integrating those components to provide a high-quality product or service can become prohibitively expensive (B6). Because the total product cost is the sum of the cost to make or buy components plus the cost to integrate them into the final product, any benefit received from cheaper components may be eliminated by increased integration costs.

Overcoming Outsourcing Traps

How does a firm overcome these outsourcing traps? One way is to avoid outsourcing altogether. This approach may be necessary for firms concerned about the leakage of proprietary knowledge through a supplier. If the company still wants to pursue outsourcing, it may need to have vendors sign binding nondisclosure agreements. However, even the best of these will only slow, not stop, the diffusion of knowledge. Companies cannot prevent suppliers from transferring personnel to projects for different clients. And, even if transfers could be stopped, as long as the supplier is selling to more than one customer, some information leakage will necessarily occur.

On the other hand, complete insourcing may not be the right solution. Companies that make components in-house may avoid the supplier hostage and systems-integration traps, but they must assume all the costs of producing the component or service. So, are there ways to obtain both the low risks and low integration costs of insourcing and the low component costs of outsourcing? We have found that there are (see, “Avoiding Outsourcing Traps” on p. 5). In many instances, by making just a small percentage of the components (or one of a number of similar components) in-house, a firm can maintain adequate knowledge to control many outsourcing risks and integration penalties while still reducing the average cost to make or buy those components. Toyota has pursued this strategy in its relationship with Denso. The automaker knows that it cannot produce electronics control systems more cheaply than its supplier, so it lets Denso produce most of the components. However, by designing and manufacturing others, Toyota can gain enough knowledge to utilize the full potential of its electronics control systems when designing new automobiles. This approach also helps prevent Denso from holding the company hostage.

Businesses can pursue a similar strategy when outsourcing services. Franchisers that also maintain company-owned stores are classic examples of partial outsourcing. For example, in 1988, Dunkin’ Donuts operated only 2% of its 1500 locations itself. However, it specifically used its company-operated sites to pilot all new distribution and marketing programs before asking the franchisees to adopt them.

The success of the partial outsourcing strategy depends on a number of variables, including economies of scale, the pace of technological change, and the modularity of components. But most important are the fixed costs associated with the component or service. If both the firm and its suppliers incur high fixed costs, then pursuing this partial outsourcing strategy may not be feasible. For example, silicon wafer fabs, which make semiconductor chips, cost several billion dollars to build and are unsuitable for low-volume production. Because of such huge capital requirements, partial outsourcing is unlikely to be cost-effective in this industry. On the other hand, in the software design industry, the majority of fixed costs—such as providing workers with high-end computers and Internet access—are based on the number of programmers employed. Hence, maintaining a small fraction of programming activities in-house is unlikely to be prohibitively expensive.

There are other possible solutions to the outsourcing dilemma as well. For example, a firm can lower its integration costs by hiring and training people with certain specific systems-integration skills, such as systems engineering. If employees carefully design a product so that its component interfaces are well defined and well understood, then the organization can avoid many thorny integration problems. For example, products that are designed to use “snap-in” components are usually much easier to assemble into a final product than those designed with parts that must be screwed into place. HewlettPackard has pursued this approach in tandem with increased outsourcing over the past five years.

Avoiding the IBM PC’s Fate

In this article, we have looked at just a few of the difficulties that can result from a decision to outsource. The outsourcing traps highlight how a seemingly simple decision to have a vendor produce a component or service can have devastating effects on a company’s future well-being. Using system dynamics, we can look beyond the short-term benefits achieved by outsourcing and analyze the long-term consequences, including what effects these decisions may have on future economic and market positions. We can be almost certain that IBM’s management did not envision the future that it created when it chose to farm out its microprocessor to Intel and its operating system to Microsoft. Perhaps IBM’s fate in the personal computing market and the structure of the entire industry would have been different if the company had used the tools that system dynamics and systems thinking offer to anticipate the potential pitfalls— and promise—that supply chain design can offer.

Edward G. Anderson Jr., Ph. D., (Edward. Anderson@bus.utexas.edu) is an assistant professor of management at the University of Texas McCombs School of Business. His research focuses on employing systems thinking and system dynamics in outsourcing and other knowledge management issues. Mary Ann Anderson (CABS@texas.net) is a principal consultant with the Computer Aided Business Strategies Group in Austin, Texas. The firm provides strategic solutions to businesses utilizing system dynamics.

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HOW DIALOGUE SUPPORTS OUR EXPANDING WORLDVIEW

The inner circle describes Newtonian approaches to managing and organizing. The outer circle describes quantum approaches. Both are valuable, but the need for quantum approaches is growing as organizational life becomes more complex.

Neither worldview is right or wrong; however, each offers unique advantages under specific circumstances. Indeed, in the diagram, the dotted lines that separate the two paradigms imply permeable, flexible boundaries. Moreover, the arrows suggest that other ways of organizing will also evolve.

But for now, we seem to be lodged in the Newtonian mode of operating, with our eyes cast toward the quantum one. Most of us say we want to have shared leadership and more collaboration in our organizations. We want to foster systems thinking and to leverage diversity. But the inertia of older ways of working often keeps us from moving in these directions.

Dialogue can play a key role in an organization’s ability to adopt a quantum approach to day-to-day operations and challenges, because it focuses on how diverse perspectives and interests within a system relate to one another. What exactly is dialogue? In its simplest sense, dialogue is a form of conversation intended to build shared understanding and learning around how the members of a group think about a given issue or question. Dialogue is markedly different from discussion, or debate. We dialogue in order to learn from each other and clarify what we are trying to accomplish together.

The core skills and practices of dialogue are suspension of judgment, listening, reflection, assumption identification, and inquiry.

Suspension of Judgment. In conversation, it is our nature to make value judgments quickly: We often make assessments that what someone said is good or bad, right or wrong, etc. Suspension of judgment isn’t about stopping judging – we couldn’t do that if we tried. Rather, it’s about noticing what our judgments are – and then holding them lightly so that we can still hear what others are saying, even when it may contradict our own judgments.

Listening. In Westernized, modern cultures, people normally listen to others from the standpoint of their own personal interests. To listen in dialogue is to flex a very different conversational “muscle.” Not only must we listen for our own and others’ voices, we must also attend to the larger picture of what everyone is voicing together.

Reflection. Reflection is the capacity to wait in silence, to consciously slow the rate of speed with which the conversation might take place, and to see beyond our immediate responses to what we are hearing, thinking, and feeling in the moment.

Assumption Identification. Our assumptions and beliefs about how the world works powerfully shape the decisions and results we get in organizations. Yet we often gloss over our assumptions, never challenging ourselves to see what drives our decisions at a deeper level. Our ability to think creatively has a lot to do with our ability to surface and examine our underlying assumptions.

Inquiry. Another core capacity of dialogue is inquiry; that is, the art of asking questions to clarify thinking and generate new possibilities. Inquiry requires a keen sense of curiosity about learning what others might say about a topic of conversation. It also requires the ability to formulate open-ended questions that draw out others’ opinions.

Transforming Organizational Culture

Just as dialogue can dramatically impact our worldview, once awareness of the power and capacities of dialogue arises in an organization, the entire culture may ultimately be transformed. Dialogue stimulates deep change, not only in the pace and approach with which people make decisions but also in their attitudes toward diversity, questions, and other important concepts.

Becoming Self-Directed. One of the most noticeable attitude shifts that dialogue can catalyze is the movement from being “other-directed” to being “self-directed.” What do these phrases mean? Being other-directed indicates waiting for some outside authority to give direction, while being self-directed stems from the capacity to listen within one’s self for what is appropriate in a given context. Dialogue helps us build a system-wide view of what is happening, because it lets us see the many connections between actions and functions in a team and throughout the whole organization. Once we have the big picture before us, we can more easily see our place in it. As a result, we often begin taking more responsibility for our own day-to-day decisions after engaging in dialogue. Over time, we become less dependent on managers or supervisors for answers and direction. Decision-making diffuses throughout the organization, and individuals are able to align their behaviors with the organization’s core vision because they can see it in its entirety.

Dialogue helps us build a system-wide view of what is happening, because it lets us see the many connections between actions and functions in a team and throughout the whole organization

Valuing Diversity. Another core shift happens in attitudes toward diversity – whether it’s diversity of gender, race, ideas, culture, sexual orientation, or all of these. While many tout the idea of diversity as valuable in organizations today, in reality, diversity often makes us uncomfortable. We unconsciously desire to be with people like us and seldom go out of our way to seek out diverse opinions. Indeed, many people view diversity of any sort as a source of conflict and an obstacle to decision-making.

But something problematic happens when we cluster only with like-minded people: We have trouble generating new ideas and innovations. We also lose sight of the larger picture that the expression of diverse perspectives can create. And without that larger picture, our decisions stem from a narrow perspective. Simply put, without inviting and exploring diverse viewpoints, we risk making unwise, ineffective, and downright dangerous decisions.

Fortunately, dialogue provides the tools for navigating these differences. As people feel more confident using the tools, diversity and conflict become less frightening. Instead, they become sources of creativity and new energy.

Staying in a Place of Inquiry. Another shift in attitude that occurs as people practice dialogue is that individuals gain a new appreciation and tolerance for questions. In Western cultures, we often feel compelled to drive for answers. We don’t like to leave questions unanswered and problems unsolved. If a question pops up, we want a fast answer. In dialogue, we seek to stay with questions long enough to allow diverse perspectives to contribute to the generation of more possibilities – thus promoting new learning and creativity.

Attending to the Larger Picture. As a related shift, dialogue teaches us to attend to the larger picture, which ties back to the sense of shared responsibility we explored above. When we practice dialogue, we place more value on seeing the whole, seeing how the parts all add up to more than their simple sum. Newtonian thinking takes a particularly narrow focus on things by breaking problems and challenges down into small, analytical, bite-size pieces. Because dialogue is integrative, it teaches us to pay more attention to the whole: “Where is the whole company going? What are we doing together? How does my part contribute to the whole?”

Practicing Dialogue

To reap the benefits of dialogue, you don’t have to practice it only in a formal sense. Once you understand dialogue’s core capacities and begin practicing them, you can weave them into any conversation. People often get confused about this. They think that to dialogue, everyone has to sit in a circle, with serious expressions, and practice in a structured way every week. While this is the most complete form of dialogue, it isn’t the only way to hone these capacities.

What are the best avenues for introducing this form of conversation, and the skills that support it, that will deliver the most value to your organization? Below are some easy-to-implement suggestions.

Leading Change by Example People often ask, “Well, what if I’m talking with people who don’t know dialogue?” Our advice is: Try practicing it anyway – your modeling just might rub off on them! Many of the principles behind dialogue are actually quite intuitive; it’s just that when we are conversing with others in a competitive environment, we tend not to use them. By trying to remain consciously aware of these capacities, we will be more likely to use them. This kind of skills modeling is your most powerful way of influencing others to give dialogue a try.

This may sound simple, but of course it can be hard to change our conversational styles – particularly in a culture that emphasizes win-lose metaphors of war and sports and that equates quick results with success and even survival. Yet such change is possible – through small shifts made one person, and one moment, at a time.

Experimenting with Personal Practice. One great way to both model dialogue skills and start introducing dialogue at work is to begin a personal practice of the skills. Here’s how you might do this: Choose a skill area, such as suspension of judgment. Outline a plan for working with the skill. For example: “I will notice my judgments and consciously suspend them in designated conversations. I will notice how my judgments affect my listening. I will notice what impact suspending my judgments has on my listening and on the overall quality of my conversations.” At the close of each day, review your daily practice and note any specific observations and learning (see “Tips for Practicing Dialogue Skills”).

Building a Safe Container. Another strategy for incorporating dialogue into your organization is what we call container building, or creating an environment to support dialogic forms of conversation. Container building entails arranging a safe place where all can speak their minds, where people explore questions like: “Why are we all here? Do certain things need to be said before each of us can be fully present for the conversation? What guidelines do we want to agree on that will support our purpose?” The goal of container building is to create shared meaning and intention about where you are as a group, where you’re going, and what practices will help you get there.

If a key purpose of dialogue is to promote learning, along with whatever other goal is at hand, we need to create an environment that supports authentic speaking and new ideas, an environment where the words dumb and mistake do not have a home. If a team member cannot say what he’s thinking, or if he’s withholding information that may be important to the team, how can learning take place and good decisions be made? All teams need an environment where everyone can get their cards on the table, so the team can play with a full deck.

Team leaders can play a central role in container building, through a dialogue principle that we call “suspension of status and roles.” No matter what level you occupy in your organization, it can be very hard to speak honestly in a meeting when your boss is in the room. In dialogue, we agree to do our best to temporarily suspend status and roles. Of course, these don’t disappear, but by suspending them, we become more conscious of power differentials and their impact on our communication. If you happen to be the leader in such a conversation, you can suspend your status – and contribute to container building – by actively practicing suspending judgment, listening, speaking later rather than earlier, and acknowledging and building on others’ comments.

Sustaining Energy and “Aliveness.” When learning occurs during a meeting or conversation, a feeling of energy and spark arises within the group. By intentionally asking questions like those that follow, everyone takes responsibility for keeping the conversation alive and valuable. “What is of interest to the group? Is what I’m saying adding to the conversation in a way that expands and/or deepens the picture? What are we learning?”

Stalking Dialogue Opportunities

If we assume that learning is happening all the time, then we can practice engaging in it day to day, rather than relegating it to certain times or locations, such as training rooms. By stalking dialogue opportunities, we can simultaneously promote learning. Where can we find such opportunities? Look for occasions in which people are grappling with decision-making, problem-solving, conflict work, visioning, and other challenges that strongly affect the whole group or organization. Below are some tips for using dialogue during these times

Problem-Solving and Decision Making. With both problem-solving and decision-making, groups focus on taking action. And though dialogue is not about immediate action, it is about building shared understanding of a problem in order to decide on the most appropriate action for the entire system. A good maxim here is “Dialogue first, decide second.” Establishing an environment for listening, inquiry, and reflection will take you a long way toward surfacing root causes to problems, reaching shared understanding of a problem, and avoiding decisions and solutions that may create short-term success but prove extremely costly in the long run (see “Opportunities for Dialogue”).

Conflict. Conflict also offers an excellent opportunity to practice dialogue. In fact, by using dialogue, you can turn conflict into a learning experience. We have seen this happen numerous times within work groups. One common source of conflict stems from differences in personal styles; for instance, some people want to move ahead quickly while others prefer a slower pace with time to reflect. When differences lead to conflict, we remind group members that dialogue is about suspending judgment of others’ behaviors and perspectives and about listening to understand. Second, we ask that people resist the urge to create guidelines or ground rules that inevitably validate one behavior or style and negate the other. The group will usually find a way of conversing that works for all involved .

Someone once said that “the opposite of one great truth is another great truth.” Acting on this, the next time you become embroiled in a conflict of opinion in your work team, try switching positions back and forth with your “opponent.” That is, argue for your side, then try arguing from the other side as your adversary now argues from your side. Ask yourselves, “What might we learn if we consider both sides to be right answers in a larger picture? And what larger picture might include both viewpoints?”

Visioning and Strategic Planning. For individuals, groups, or organizations to develop a meaningful strategy, they must first engage in some authentic conversation about purpose, values, and beliefs about how the world operates and how they want to be in relationship with that world. All too often, people crank out visions and strategies without ever stopping to examine the ground on which they stand, the assumptions they hold about how things work, and the implications of those assumptions for future dreams and plans.

Inquire into your assumptions about what is working in your company’s current reality and why; where you want to go and why; and how you think you might get there. Look for any inconsistencies or incompatibilities in assumptions that might lead to strategies and actions that are not coherent with your desired results. For example, you want to move toward a collaborative culture because you assume that by collaborating, people can craft creative solutions to daily challenges. On the other hand, you propose a reward strategy that compensates people for individual accomplishments because you assume that individuals will feel devalued if you don’t recognize them independently. These assumptions may both be valid, and yet if you don’t recognize how they may undermine one another, you will almost certainly send competing and confusing messages.

A lot of people talk these days about the need to “think out of the box.” It’s a great concept, but it’s very hard to do unless you first have a clear vision of the box. Dialogue can help by surfacing the assumptions that create your current reality. Then you can ask the question, “How would our assumptions and thinking need to change in order to create a different reality?”

Successes and Challenges

Where has dialogue been most successful, and, conversely, where has it faced the biggest challenges in organizations? Dialogue seems to have the most chance of success when it’s used by people who already have an affinity for and support its values. Such people might not yet be consciously aware of the skills and capacities involved, but they have an innate attraction for dialogue’s underlying principles.

Commitment from team leaders and members also increases dialogue’s chances of success. By leaders’ commitment, we mean managers’ support of people in their practice of dialogic communication skills, as well as their willingness to see and make changes in their own style. This approach means participating in the dialogue process, not simply supporting it from afar. And, when leaders are truly committed to the dialogic process, they do not mandate it. They recognize that to do so would be incongruent or inconsistent with the very values of dialogue. Instead, they invite employees to participate voluntarily.

Change agents or people who do organizational development work can be especially successful at bringing dialogue directly into how they are promoting organizational change. They may not call it dialogue, but it is clear that their facilitation style is dialogic in nature. These individuals pay attention to the way that people are taking part in conversations. Whether it’s a team-building session, visioning, or problem-solving or coaching session, they bring dialogic skills into those contexts and demonstrate the value of attending to conversational forms. They also encourage shared responsibility for the quality of conversation. By doing so, they shift responsibility for monitoring behaviors and setting ground rules from themselves to the group members We’ve also noticed that dialogue is successful when people talk about things that are really important to them. They are usually strategic in their use of the process and do not use dialogue as a blanket approach to any issue. They make choices about where dialogue skills are most appropriate and bring the highest value. By applying dialogue in this way, practitioners reinforce its value.

Still, as with every important tool, there are some challenges that come with incorporating dialogue in an organization. For one thing, we don’t recommend introducing dialogue in an atmosphere where there is little to support its use. When people are trained in dialogue but not supported in the ongoing, daily practice of it, their expectations will ultimately be dashed.

Another big challenge is that while dialogue often produces an immediate impact, the cultural changes that it supports don’t happen overnight. They may take years, perhaps even lifetimes. We have to recognize that dialogue can shift a culture dramatically, but it will do so over time. And that can be a challenge in a culture that wants quick fixes and immediate gratification.

We feel confident that dialogue will play an increasingly important role in the future in organizations. As dialogue works its way further into our consciousness, there will be more brave souls eager to learn it. The idea is to recognize and seize the opportunities for dialogue that make sense within your organization or community. By nurturing dialogue, both as it spontaneously emerges and in planned sessions, you’ll be well on your way to leading long-term organizational learning and change.

Glenna Gerard and Linda Ellinor are co-founders of The Dialogue Group and co-authors of Dialogue: Rediscover the Transforming Power of Conversation (John Wiley & Sons, 1998). Glenna (ggunlimited@earthlink.net) has a consulting practice based in Laguna Beach, CA. She helps groups and organizations design environments and processes for powerful conversations. Linda (lellinor@home.com) is an organization consultant living in Dana Point, CA.

The post Flexing a Different Conversational “Muscle”: The Practice of Dialogue appeared first on The Systems Thinker.

JAY FORRESTER: I think we should start by realizing that system dynamics is a profession like learning engineering or medicine. The idea that it is quick and easy to acquire is fallacious. We’ve had the experience of running a basic training program in system dynamics here at MIT the last three years by e-mail for professionals around the world; about 20 took it each year. It was a very intensive program in which participants received an assignment each week that took them about 15 hours to complete. That is a big load on top of their normal activities. The program ran for 30 weeks. Thirty weeks at 15 hours a week is 450 hours of work on their part. At the end, many said, “I’m now beginning to see enough of this field to know that I need to go further.”

We have seen people going to three-day conferences and thinking they’re experts in system dynamics. They set themselves up as consultants or to bring the ideas into a corporation when, in fact, they don’t have enough insight to know how to approach the subject. You can draw an analogy to medicine. I think a one-day first-aid course is useful. It will help you with simple things in medicine, but it does not prepare you to do heart transplants. System dynamics covers fully that wide a range.

The activity called “systems thinking,” which is talking about systems, recognizing there are systems, and agreeing that systems are important, is really at the level of the one-day first-aid course. It is not sufficient for understanding the dynamics of an organization. I have no doubt that a brief introduction can be useful; it just isn’t sufficient. The introduction from systems thinking is not strong enough and not persuasive enough to reverse detrimental policies that are strongly held, because there’s no solid basis for the argument to change. A systems thinker cannot, I believe, achieve the kind of position that one can have working from a good system dynamics simulation model.

With a solid, thoroughly studied system dynamics model, you know the assumptions that are in the model, you know the behavior those assumptions lead to, and you know how the behavior will change from a wide variety of different policies. If everything you say at the level of policies, at the level of structure, and at the level of behavior is correct in the eyes of participants who know various parts of the real system, it becomes persuasive. And that’s what the expert system dynamics practitioner should aspire to.

I would say that any attempt to introduce a deep understanding of systems on a broad sweep through the organization by simply talking about it probably will not be effective. The right way is to go deeply into some specific issues, do serious computer simulation modeling, and show how the troubles of the organization are being generated, how problems evolved out of past policies, and how alternative policies would improve behavior. To effectively create and use a model requires skill. People will spend tens of millions of dollars over a period of five years or more to develop a new product, but are reluctant to spend anything like that amount in preparing themselves to make the corporation more successful.

I think the way to introduce system dynamics is to find colleagues, build a grassroots understanding, develop skills, and get help from people who understand system dynamics very well. Engaging an expert consultant in system dynamics can accelerate the launching of a program. System dynamics is for solving problems. An effort should start by selecting an important problem. Decide what difficulty to work on and model its causes, rather than starting to model the entire system.

Most people believe their problems are created from outside. In system dynamics modeling, we usually find that the problems are being created on the inside. A corporation that is having problems and is being overtaken by other organizations is operating in the same outside world as those other corporations. Therefore, it must be something they themselves are doing that is causing them to be different and less effective.

Beyond the “Quick Fix” Mindset

DC: In some of my meetings with management teams, something seems to be missing in terms of the way that problems or issues are approached. The thinking somehow doesn’t encompass what you just talked about.

JWF: People expect a quick fix in a year. A company’s problems take years to develop and the fixes take years to repair the damage. If you look carefully at the difficulties of many major corporations, you find the cause of troubles began 10, 15, or 20 years before symptoms are recognized by management or the public.

It’s a mindset of the whole society that’s standing in the way — the mindset on short-term results. In complex systems, we usually see that policies that are good in the short run produce troubles in the long run and vice versa. Therefore, to do something good in the long run probably imposes some pain in the short run. With hired managers who are in their positions only one to five years, their personal interests tend to be in the short run. They are not committed to the long-run good of their organizations. The financial markets also tend to impose that same detrimental short-run view.

People will spend tens of millions of dollars to develop a new product, but are reluctant to spend anything like that amount to make the corporation more successful.

The attitude of founder owner managers is substantially different. Those who found a company, who are significant owners, and who are managing without expectation of going to some other corporation can have a 20 year view or more. I think many of today’s corporations that are being run by short view point managers will disappear in favor of a new wave of founder-owner-manager companies.

DC: Compare the current state of the field of system dynamics its development and acceptance with your own hopes and expectations.

JWF: It’s probably developing faster than I would have expected. The growth rate in the field number of people interested in it is probably doubling every four years or so, which is a very rapid growth rate. We are arriving now at the point where it really can’t be ignored. The consulting companies are looking more and more for people with system dynamics backgrounds. And, of course, my own work is helping to in filtrate system dynamics into the kindergarten through 12th-grade educational levels. I think it’s going very, very well.

A lot of people in the field express disappointment. They say, “Why isn’t it developing faster?” Well, it can’t because one of the great dangers is running ahead of the number of people who can practice it effectively and correctly.

I think one can argue that great frontiers don’t stay as frontiers; they become a part of everyday life. The most recent frontier has been exploring science and technology. I think the next great frontier is to truly understand and be able to improve the behavior of our social, economic, and managerial systems. The understanding of those systems has not improved markedly since the time of the ancient Greeks. My wife and I were taking a tour through the Alhambra, the great Moorish castle above Granada, Spain. Our guide stopped at one point to show us the room where the Moors around the year 1300 met to discuss their problems of inflation and balance of trade problems that are still with us.

It’s clear why the understanding has not advanced until recently there has not been any effective means to understand dynamic complexity of social systems. Mathematics is a weak science when it comes to dealing with dynamics. It can deal with extremely simple systems, but in realistic social systems, there is no possibility of getting mathematical solutions. Therefore, simulation is the only known approach. System dynamics modeling is like doing experiments in the laboratory instead of trying new policies on a corporation. The simulation experiment is much clearer than trying policy changes in real life because you know the circumstances under which you did the experiment, you know the policy changes that were made, and you know nothing else has changed. If you carry on those same experiments in real life, results are very ambiguous, because you’re never quite sure what other things affected the results.

Are We Doomed?

DC: In my work, I keep running into deep frustration that employees lower within an organization experience, and the high levels of burn out, cynicism, and turnover that result. I believe that this is linked to not using system dynamics more effectively in running organizations.

JWF: Well, you find a lot of reasons for frustration. Demands are put on people that they cannot possibly achieve, because they aren’t given the resources and authority to produce what is demanded. Further more, people haven’t been educated in what they need to know to succeed. Those lower-level people are squeezed by demands for impossible performance. That’s very frustrating.

DC: My sense is that people tend to blame upper management for the problem.

JWF: I suppose it’s fair enough from the viewpoint of the middle level to blame upper management. But upper managers are in the same situation; they also do not know what to do and are themselves under pressures from the outside world. Everybody is operating under the pressure of growth. Why should they be? Why not just run a successful business? It is not possible for everybody to grow beyond the capability of the system. We have great pleading to allow people to immigrate into this country because we think we need more labor. Why should we want to do more than we are able to do? The attitudes that society has drifted into create pressures not only at the middle levels, but also at the top of corporations. Many top managers are coping with problems created by predecessors who focused on the short run.

DC: Are we doomed?

JWF: A lot of large corporations are doomed, yes, and properly they should be. It is good for society to have decaying organizations eliminated. Great depressions like in the 1930s have traditionally helped solve such decay and inefficiency. Severe economic downturns wipe out a lot of dead wood incorporations and open the door for new, vital growth.

DC: What do you see in the future as potential breakthrough areas in the field of system dynamics?

JWF: We need a different approach from the one followed in the early days of system dynamics. The result of a system dynamics study will almost always show that the serious problem at hand arises from policies people know they are following but believe are the solution to their problems. You often have to say to people, “Your problems are because of what you’re doing that you’re proud of, and you must reverse your course.” It takes three or four years for them to accept that point.

We’ve often worked many years to introduce system dynamics into corporations from the top down. It takes three or four years with even a receptive top management before they fully understand. Then the people you’re dealing with retire or die, and you have to start over with another group. This is one of the main reasons why I shifted over to system dynamics in kindergarten through 12th grade, to bring up a society that has a better understanding of the nature of the systems within which we live.

It is much easier to teach system dynamics to fifth graders than it is to CEOs or parents. As children ask questions that people can’t answer, they learn it’s politically incorrect to ask questions that embarrass people. So they finally stop addressing the big issues. However, at age 10, children have much less to unlearn and they have more open minds. They are more inquisitive; they have not yet had stamped out of them the desire to understand what is difficult.

The Linking of People and Modeling Skills

DC: I have found a lot of fear in people trusting that there might be a different way to do things.

JWF: That’s right. There are two big hurdles in system dynamics: having enough people with enough competence, and finding out what to do about people being afraid to take the steps necessary to improve their situations. There are great challenges in implementing policies that are opposite to what people have been doing and what they believe is successful, even though those policies are getting them into worse and worse difficulty.

DC: Does it mean that system dynamics professionals also need to be fairly skillful in dealing with people? They can’t just be good modelers?

JWF: To be successful, yes. Sometimes we see a team where several people have different roles, with one doing dynamic modeling work and other spaying attention to how to get people to understand it, why are they balking, and why they find it so difficult.

DC: What career advice would you give young system dynamics practitioners?

JWF: I suppose the main thing would be to keep building skills. Very few have read all of the available good system dynamics literature, and probably very few are trying to establish an apprenticeship with an expert. Just as in medicine, one needs to go through an internship. One does not just go to medical school and then do major operations or deal with the most serious illnesses most learning comes from experience. You don’t learn system dynamics by just going to conferences; you must have working experience. System dynamics is not a spectator sport. Like learning to ride a bicycle, listening to lectures is not sufficient.

I would say that a young system dynamicist who goes by himself into a company and is doing simulations will have great difficulty in building acceptance. The best choice would be to go into a place where there is already some level of acceptance, but also to be careful not to be subverted by bad system dynamics that may already be going on there. There’s a lot of so called system dynamics work that is very bad practice. People who are not yet competent are trying to do things well beyond their ability because system dynamics seems deceptively simple. The major books in the field can be read by almost anyone. Urban Dynamics was, I think, on the list of books for discussion by the League of Women Voters and PTAs. People can read those books and understand them, and the process looks very straight forward. Then, when the person closes the book and says, “I’ll do some of that for myself,” there isn’t the slightest idea of what to do next. Also, the accessibility of system dynamics software allows people to build things that look like system dynamics models but may not be useful. There is a great need for processes for developing high levels of skill.

DC: If you were going to design a corporation, how would you introduce system dynamics?

JWF: It’s like introducing system dynamics into K–12 education. InK–12, very few places have a way to learn system dynamics. System dynamics needs to become a part of everything else that’s going on. It has to be widespread to be most effective. In a corporation, suppose we have a top management that has some serious problems, and the long-term dynamic solution requires reversing cherished policies. Assume top management accepts the reversed policies, they believe in the new policies, they are willing to act, and they issue instructions to do so. Below the top will be several levels of managers who see it as their duty to protect the organization from the idiosyncrasies of the top. The understanding of policy design must extend down through many levels.

DC: So even if you had a group of executives who decide to change policies, they may still be in trouble.

JWF: As an example, take one of the early studies in system dynamics done by a couple of graduate students. It dealt with a two terminal trucking company between Boston and Philadelphia. Their big problem was that trucks tended to be at the wrong end of the route. When they needed to ship things from Boston to Philadelphia, they had too many trucks in Philadelphia and vice versa.

The modeling showed how the terminal with extra trucks could provide prompt service, and business there would increase until trucks were concentrated at the opposite end, resulting in poor service and decline of business at the first terminal. Then service would improve and business would pick up at the second terminal. Business would swing back and forth as the stock of trucks shifted.

“The high-school teachers who know what’s going on here are terrified. They see the day coming when the elementary schools and the middle schools will be delivering to them little monsters who can think!”

The solution then became relatively obvious: They needed to keep their trucks balanced, even if they sometimes had to send empty trucks from one end to the other. Management understood and issued orders but nothing happened, because the people in the dispatching office and on the shipping dock knew the company didn’t make money driving empty trucks around. Nothing happened until the model was explained on the shipping room platform and in the dispatchers’ offices. I was told that one could hear truck loaders on the dock discussing the model. At that point, management could get the policy implemented, because now it made sense and everyone understood why. Previously, the lower level employees, who were making day-by-day decisions, saw the policies as totally irrational and believed they should resist in the best interests of doing a good job.

“Delivering Little Monsters Who Can Think!”

DC: Is your K–12 initiative developing as you had anticipated? What have you been learning from it?

JWF: Yes, I think it’s developing as rapidly as is reasonable. Moving to system dynamics is a difficult transition. A particular school may start with one enthusiast but, even in a receptive environment, it may take 10 years to get to a self-sustaining, school wide activity.

There are now conferences for teachers interested in system dynamics in K–12 education. My wife and I went to one at the end of June 2000. There were nearly 200 teachers present. Never before in any field have I gone to professional meetings where the excitement is so high and the enthusiasm about the future so great. Teachers come up to me and say, “I had no idea these students could do so much.” One teacher reported that in the junior high, the students in detention hall for misbehavior dropped from an average of 50 to an average of 5. It’s the first time they’ve seen students who want to come in before school starts and stay after it ends. My favorite sound bite was from the teacher who said, “The high school teachers who know what’s going on here are terrified. They see the day coming when the elementary schools and the middle schools will be delivering to them little monsters who can think!”.

DC: Jay, what are they doing in high schools around system dynamics?

JWF: Most of what’s going on so far is very elementary. Furthermore, there is not yet any continuous program that builds on itself from kindergarten through 12th grade, to say nothing about going on through undergraduate college and graduate schools. There’s no organized developmental path yet. Eighth, ninth, or tenth graders should be able to move well head of what is now being taught in the graduate schools. There’s the challenge of developing new material for high school, and for four years of undergraduate and three years of graduate school. That would be some 12 years of material not yet on the books. The system dynamics challenge for the future lies in developing such additional depth and breadth.

Worcester Polytechnic Institute is the first school to organize a four year undergraduate program leading to a bachelor’s degree in system dynamics. It will take a long time to get system dynamics introduced widely into teachers’ colleges. The teachers that are coming into system dynamics now are doing so through knowing others who have become enthusiastic and by reading the limited amount of available material. They become intrigued, they introduce a little into a class, and then it begins to evolve. You hear stories like a teacher begins to introduce system dynamics in biology, and other teachers find that their students are taking notes in system dynamics stock and flow diagrams. Then the other teachers go to find out what is happening.

System dynamics runs across all disciplines. The application to physics is fairly obvious because of the dynamics involved, but it’s probably not one of the most active areas. In social studies, students can use system dynamics to explore the economic and social forces causing various things to unfold in history. There are English teachers doing computer simulation modeling of the psychological dynamics in various pieces of literature. System dynamics provides a foundation that underlies most of the subjects. A student discovers a new mobility between subjects. If one understands a particular dynamic structure in one setting, the behavior is the same in all settings.

DC: So it seems as though for children who experience feedback dynamics over a number of years, there’s a deep difference in the way they perceive things.

JWF: Entirely different. One father of a junior high boy told me his son had gone on a tour of Europe. He came back with descriptions of the way things are interrelated far beyond what you see in the newspapers, because he looked at things differently. Another boy, when asked what all this has meant to him, said, “I’m much better able to deal with my mother.” It gets down to things that matter. After all, that’s a very complicated interacting feedback system.

The system dynamics mentor to the schools in Glynn County, Georgia, has written that some of her most interesting experiences come when she is talking with teachers and students about modeling discipline problems. As she develops a diagram of the processes and interactions going on, the students suddenly see why what they’re doing gets the teachers so frustrated. The teachers also see that the discipline system they’ve set up is preordained to create trouble.

On the Cliff’s Edge

DC: When you wrote Urban Dynamics, you bumped up against people’s cherished beliefs by putting out something very different. What allows you to continue to work when you stir up a lot of controversy or receive a lot of criticism?

JWF: Pioneers always find that. The very definition of pioneering is that you’re doing something that people don’t already know and don’t already believe. I have been a pioneer in several different fields. In the early days of digital computers, we were building a computer using the binary system of calculation. Many people said it would be useless unless we did decimal calculations. Of course, all modern digital computers are binary.

Before that, I’d been in the pioneering of feedback control systems for the military in World War II. I graduated in electrical engineering, electronics, and we found ourselves working on systems to control Army gun mounts. The Army wouldn’t trust anything made out of electronics except their radios. So my first professional job was to design high performance controls using hydraulic oil pressure, with an emphasis on reliability. We were doing one of these for the Navy, and the question naturally arose, what will happen with the equipment in an ocean environment? So I thought I’d better know. I went down to the beach and brought back a gallon of genuine Atlantic Ocean water, mixed it half and half with the oil, and ran the equipment in it all winter. Everything still worked.

DC: So part of the success of moving the field of system dynamics forward has to do with your own comfort in being a pioneer?

JWF: Yes.

DC: And knowing what that entails as you’re moving things forward.

JWF: Knowing the opposition, knowing a little bit about how you bridge the gap. But it takes time. And, of course, being very much in touch with the real world. I grew up on a cattle ranch in Nebraska. And there, if things didn’t work, you found out fast. In my senior year in high school, I built a wind driven electric plant that provided the first electricity we had on our ranch. And it worked. So I think you develop a feeling for where the edge of the cliff is. If you step out too far, you’re a crackpot and you fall off. If you stay back too far, you’re just part of the crowd.

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In this new context, managers must develop a different mindset. They need to deal with a high level of unpredictability and accept the incompleteness of our knowledge base. Moreover, they need to act on the fact that the key differentiating factor between success and failure will be the ability to learn collaboratively with others — both within and outside of their organizations.

Why collaborative learning? In the current business climate, no one person or organization can bridge the chasm between present levels of skills and knowledge and the level of understanding necessary to take advantage of breaking technologies. The challenges of the global economy require that we join with customers, vendors, competitors, and partners from other industries to share insights. Organizational survival into the next century may well depend on our ability to configure collaborative arrangements within and across organizations — quickly, flexibly, and with a clear learning strategy. Companies that cannot network with others to share key knowledge — using the latest technology — will fall hopelessly behind their rivals.

The Practice of Collaborative Learning

What is collaborative learning, and what does it entail in practice? Collaborative learning is the process of generating new knowledge and capability that occurs when two or more people explore key business issues together, with the goal of fulfilling organizational needs and continually building their ability to work and learn in tandem. The practice of collaborative learning moves relationships beyond the mere exchange of information that characterizes most project teams or corporate partnerships. Collaborative learning begins at the individual level. For it to take root in an organization, employees must first develop a collaborative mindset and a collaborative skillset.

A Collaborative Mindset: Seeing New Opportunities

Individuals who adopt a collaborative mindset maintain an active awareness of the collaborative learning potential in every business transaction. They possess an openness and keen interest in others’ perspectives, and develop the ability to gather resources to experiment with and implement new ideas. These employees realize that their own tacit knowledge — when combined with a colleague’s tacit knowledge — may hold the key to a new innovation. Therefore, individuals working from this orientation constantly seek opportunities to explore collaborative potential with partners, coworkers, and even those who seemingly have no direct connection to the business. They leave themselves open to serendipitous opportunities for new partnering that may arise on airplanes, in shopping malls, or in other environments that we typically do not think of as supporting learning.

But a collaborative mindset at the individual level is not enough. To foster this same mindset on an organizational level requires that a firm understand the learning and data acquisition styles of partner organizations. Then the firm must deliver information and knowledge in forms that partners can use. This activity can be as simple as providing a list of the organization’s commonly used acronyms, or as complex as opening the company’s intranet to partners so that they may understand the firm’s inner workings.

When companies become aware of the potential in collaboration, knowledge-generating opportunities arise both by conscious design and by chance. For example, a manager at one firm gave a presentation to a partner company, knowing that a dissatisfied customer sat in the audience. By working from a collaborative mindset, this manager openly engaged the customer in recounting the problems he had experienced with the product and made a commitment to remedy the situation in front of the audience. Over time, this collaborative stance led to a new partnership with the now satisfied customer and resulted in several joint projects, including one at a major airport. Working from a collaborative mindset means continually seeking opportunities to build on existing relationships, and turning neutral or negative circumstances into advantageous ones.

A Collaborative Skillset: Spanning Boundaries

In addition to developing a collaborative mindset, individuals need to build a set of competencies that let them cross boundaries between groups and companies, learn from others, and disseminate that learning throughout their organizations. The six “boundary-spanning skills” described below provide managers with the tools they need to work more productively with others — within and outside of the organization — and to create and manage the knowledge gained through those interactions (for a boundary spanning competency model, go to www.pegasuscom.com/model.html).

Double-Loop Learning. The usual approach to a new experience or piece of data is termed single-loop, or adaptive, learning. (These concepts derive from the work of Chris Argyris.) Single-loop learning occurs when we alter our actions based on new information but we do not question the assumptions and beliefs concerning that data. We see an example of this in how organizations typically handle failure. Analyzing the “lessons learned” from a particular problem may be valuable, but it often results in a list of do’s and don’t’s — single-loop learning. This technique doesn’t delve into the assumptions that brought about the shortfall, nor does it seek to change the system created by those assumptions. In double-loop, or generative, learning, when we encounter failure, we explore our assumptions and commit to behaving differently in the future. Developing skill in double-loop learning involves increasing our awareness of the filters and suppositions that we use to interpret reality, and acting on this insight.

Communication (Dialogue, Feedback, Listening). Effective boundary-spanning relies on hearing, understanding, and empathizing with others. This ability involves listening not only to others but also to ourselves to uncover hidden biases. The practice of dialogue, as first defined by physicist David Bohm, can help. Dialogue supports divergent communication, in which a group allows a stream of viewpoints to flow through the conversation without feeling a need to reach a set conclusion. It also teaches us how to listen to others without judging them. Another component of boundary spanning communication is the capacity to give and receive feedback. This challenging skill helps us to see beyond our own view of reality and improves our ability to communicate with others. Tactfully done, feedback conveys potentially ego-damaging information in a neutral and helpful way. Mediation. As organizations continue to move toward flattened hierarchies, they have less need for traditional management techniques. Instead, they must help their workers learn to influence their peers in productive ways. In particular, mediation capabilities let parties go beyond political maneuvering and a winner-take-all attitude to achieve alignment through a focus on shared interests.

Systems Thinking. Systems thinking provides the essential backdrop for understanding the cause-and-effect relationships between organizations and their larger environments. This perspective highlights the functioning of the system as a whole, rather than the discrete parts that make up that system. The systems thinking toolbox — which includes causal loop diagramming, systems archetypes, stock and flow diagrams, and other tools — provides a powerful methodology for surfacing barriers to change, identifying leverage points for effective action, and building new connections.

Peer Learning. Peer learning is a vital and, in many cases, the most effective form of learning. Traditional corporate learning models involve either in-house classroom training or university courses. These methods emphasize the transfer of theory and case studies from the expert to the student. In current business practice, however, learning must take place “just-in-time,” with theory and practice developed in parallel and all players taking part in problem-solving activities. The concepts of self-directed work teams, 360-degree feedback, and communities of practice all support the increasing relevance of peer learning.

Cultural Literacy. Research shows that success in managing relationships with individuals from other cultures hinges on flexibility, openness, sensitivity, tolerance, curiosity, the ability to handle stress, and a sense of humor. Even armed with these skills, people can still fall victim to their own cultural values and assume that their perspective is the right one. This attitude can spawn unexpected conflict. To work successfully on a global level, organizations must continuously build awareness of cultural differences among employees and help them develop a level of comfort working across cultural boundaries. Such awareness emerges primarily from actual interactions with members of other cultures; it cannot be acquired from books and lectures, no matter how engaging or insightful.

A Collaborative Environment

By combining a collaborative mindset and skill set, managers acquire the skills and flexibility they need to move their organizations forward. As a result, they can inspire individuals to cross boundaries, learn from others, and disseminate that learning through-out the organization (see “The Collaborative Learning Cycle”). Such boundary spanning activities give workers access to business expertise in the moment — and can lead to rich, new insights.

However, there is another prime ingredient necessary for collaborative learning: the organization must support and sustain a collaborative environment. Organizational consultant Edward Marshall defines a collaborative environment as consisting of:

• A Collaborative Culture: a set of core values that shape a business’s behavior, including respect for people, honor and integrity, ownership and alignment, consensus, trust-based relationships, full responsibility and accountability, and recognition and growth
• Collaborative Team Processes: including team formation, management, self-sufficiency and renewal, and closing processes
• A Collaborative Structure: support for collaboration from human resources and information systems
• Collaborative Leadership: the ability to recognize many leaders, not just one; these leaders fulfill a number of functions, such as facilitator, coach, healer, member, manager, change agent

How can an organization bridge the gap between individuals’ development of a collaborative mindset and skillset and the company’s development of a collaborative environment? One way is to form an internal learning group. Drawn from various divisions and levels within the company, such a group focuses on building collaborative capability — and deriving business results from that enhanced capability — within the organization.

These groups begin by assessing the organization’s level of support for collaborative efforts. For example, one company found that workers failed to share technical information across departments because they didn’t understand the firm’s policies regarding intellectual property. In this case, the organization provided additional training to help employees work through these concerns.

Internal learning groups cultivate boundary-spanning skills and practice collaborative learning themselves in addressing the company’s business challenges. For example, a small West-Coast chemical company experienced communication barriers after merging with a lab on the East Coast. Management assembled a group consisting of members from each of the merged entities to address issues of collaboration. This team put together a personnel directory and a compendium of technical success stories from both firms. In addition, it designed a plan for an organization-wide session to inform employees about the merged organization’s new accounting processes, lab procedures, technical competencies, and customer care approaches. In the process, the group discovered pockets of people who were interested in exploring collaboration. Encouraged by this finding, it began to support ongoing experiments in collaborative learning, such as periodic meetings of project managers to exchange knowledge and practices.

These internal learning groups also play a central role in disseminating new knowledge throughout the organization, using tools such as after-action reviews, internal publications, and intranets. The sharing of cutting-edge tools and ideas with other teams creates value because it improves processes and hones collaborative skills. For example, the learning group of a Fortune 500 company experimented with the use of e-meeting software and disseminated that knowledge throughout the company through the technical staff. Finally, the learning group members experience an enhanced degree of interdependence, which steps up collaboration — and performance — even further. The group’s process both begins and ends with a reassessment of the organization’s collaborative learning capability, at an increasingly fine-grained level of inquiry.

Forming a Learning Network

Once the internal learning group has completed some successful projects, it will likely encounter barriers to moving the organization to a fully collaborative environment. These barriers often take the form of inherent conflicts between espoused beliefs, such as “We are a collaborative company,” and core values, such as “The individual is who counts here; watch out for number one.” One way to surmount these barriers is for the group to participate in a learning network (see “The Learning Network” on p. 1), drawn from the work of Massachusetts Institute of Technology professor Edgar Schein on the learning consortium.

A learning network is a cross-organizational forum in which internal learning groups from diverse organizations can explore challenges together. Group members come together on a regular basis to give and get feedback and create new knowledge. The interaction among the parties sparks behavioral changes that create value for each organization. This is because outsiders may have a more objective view of an organization’s operations and strategies than do those who are involved in the firm’s day-to-day operations. For example, when an information technology company’s learning group presented a new project for a Web-based internal instructional system to the other members of its learning network, someone from another company asked how it would implement the program in countries where Internet access is limited. This query served as powerful feedback for the presenting group.

For a learning network to succeed, the organizations involved must decide how to deal with differential power among the stakeholders; define the network’s mission, goals, and norms; involve dedicated and trained participants; develop a level of trust among individuals and organizations; and assume a win-win orientation. Each member group engages in a process of experimentation, application, and dissemination of knowledge within its own organization. The network member groups then meet regularly to share knowledge and to engage in collaborative projects across organizations. These projects can take the form of joint research, standards setting activities, experimentation, problem-solving, or peer-teaching seminars. Interdependence and trust strengthen when network members follow through on commitments, provide feedback, and come to new insights together.

The ongoing support and vitality of internal learning groups is central at this stage. To create value within their home organizations, member groups in the learning network must capture and transfer learnings from the network’s cross-organizational programs. They can do so through ongoing activities that link internal groups’ projects to the network. This might include visits between companies, the design of collaborative spaces — both physical and Web-based — for network activities that are broadly accessible to members, and frequent face-to-face and virtual meetings, both internal and cross-organizational.

For instance, the Collaborative Learning Network is a consortium of seven companies from a variety of industries dedicated to understanding how collaborative learning can enhance organizational performance. Its members have engaged in a series of monthly virtual seminars over the past year that link semi-annual face-to-face meetings. Network members have found that experimenting with virtual processes for cross-firm communication has directly helped their business units build expertise in collaborative tools. Below are some findings from these joint experiments:

• For virtual meetings, simple tools like phone conferencing, e-mail, and Powerpoint presentations shared on the Web work best. These tools are standardized across organizations and platforms.
• Synchronous meetings, whether face to face or virtual, garner more consistent participation than more open-ended, asynchronous methods, such as Web-based discussion boards.
• Information overload is at best irritating and at worst debilitating. Networks must find a balance between “push” (e-mail, phone, print) and “pull” (Web sites, scheduled events, conferencing) methods of information exchange.

Of course, companies must receive a return on their investment in collaborative processes. Questions to pose in assessing learning network results include: What has been the bottom-line impact of new sources of learning? Have new applications of technology emerged from the network activities? If so, are they now producing profit or cutting costs? Has senior management acted on any feedback received through the learning network’s activities? If so, what has been the outcome?

Each learning network will have a natural life cycle. Once the initial period of activity has concluded — as agreed at the outset — the network members need to enter a closing or renewal phase. If the network chooses to disband, then the participants should schedule a formal closing meeting to celebrate the network’s achievements. Members might also document the network’s experiences in some final form, such as a learning history. As a final outcome, members could assemble a core group of mentors willing to guide other individuals in each organization who may wish to initiate their own learning network (see “Forming a Learning Network”).

Bringing It All Together

If used skillfully, collaborative learning can improve work performance; heighten strategic awareness; enhance responsiveness to changes in the marketplace; and foster more productive relationships with customers, vendors, and other stakeholders. It can also encourage teams to experiment with fresh approaches for addressing problems and for working and thinking together. By combining collaborative awareness and skills at the individual, group, firm, and inter-firm levels, organizations can effect significant and lasting change. In this challenging climate, we all need to develop powerful new models of partnership and learning. Collaborative learning offers a structured way for organizations to quickly adapt to the needs of a changing business environment — to the benefit of individual employees and the organization as a whole.

Dori Digenti is president and founder of Learning Mastery, an education and consulting firm focusing on collaboration and learning. Over the past 20 years, Dori has worked with business, academia, and government to develop cultural literacy, learning capacity, and collaborative competence. She has written the Collaborative Learning Guidebook (1999), as well as articles for Reflections: The SoL Journal, the Organization Development Journal, and other publications. Dori is webmaster for www.learnmaster.com, www.collaborative-learning.org, and a forthcoming Web site on the work of Edgar Schein.

The post Collaborative Learning: Real-Time Practice for Knowledge Generation appeared first on The Systems Thinker.

First, we need to specify exactly what we mean by Emotional Intelligence (EI). In his best-selling book Working with Emotional Intelligence (Bantam, 1998), Daniel Goleman defines it as “the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships.” Goleman goes on to define several core EI skills (see “Emotional Intelligence Skills” on p. 2).

Based on this definition, Emotional Intelligence is not a new idea. As a component of self-knowledge and of understanding others, Emotional Intelligence (the capability, not today’s movement) is as old as the inspiration of the first philosopher who exhorted followers to know themselves. It also has links to the wisdom of the earliest spiritual leader who encouraged disciples to treat one another with love and compassion. As a subject of psychological study and personal development, the examination of the inner, “nonrational” self goes back at least as far as the work of Sigmund Freud. Certainly throughout the 20th century, psychologists and organizational development theorists created models and programs to help people understand and solve their intra and interpersonal issues.

But in the 1940s, David Wechsler and R. W. Leeper began to recognize “affective intelligence” as a component of general intelligence and something distinct from intellectual or cognitive intelligence. Current Emotional Intelligence theorists cite this work as the starting point for today’s EI movement. Other researchers, including Peter Salovey, Jack Mayer, and Reuven Bar-On, contributed additional work to define this emerging field in the 1980s and 1990s.

Building on this earlier research, Daniel Goleman’s books Emotional Intelligence (Bantam, 1995) and Working with Emotional Intelligence dramatically opened up the idea of EI to people around the world by bringing the earlier research to the public’s attention in an accessible way. The field took. off, and more than 200 books on the topic have been written in the past two years alone.

“Smart” People, “Stupid” Mistakes

One reason for this surge of attention is captured in Goleman’s own words: “The rules of work are changing. We are being judged by a new yardstick: not just by how smart we are, or by our training and expertise, but also by how well we handle ourselves and each other” (Working with Emotional Intelligence, 1998, p. 3). Why this shift in work rules? As competition and globalization intensify, as technology grows more complex, and as the imbalance between work and family/community life spins further out of control, companies everywhere are realizing that cognitive IQ simply isn’t enough to run productive, thriving organizations.

Similarly, studies are beginning to document that not managing our own emotions can actually interfere with our cognitive intelligence. Specifically, when we let ourselves get overwhelmed and stressed, our thinking becomes impaired. We then say and do things that can damage our own health and livelihood, our relationships with our coworkers, and ultimately our organization’s bottom line.

To explore the benefits of helping employees learn new ways to handle tension and conflict, Motorola contracted HeartMath LLC, a consulting firm in Boulder Creek, CA, to conduct a six-month productivity study to see if focusing on emotional management techniques would benefit productivity, teamwork, communication, and health. The results showed that 26 percent of trainees saw their blood pressure drop, 36 percent reported reduction in stress symptoms, and 32 percent claimed increased feelings of contentment. Fifty-seven percent said that their productivity improved by more than 50 percent, 47 percent reported a 50-percent improvement in teamwork, and measured quality rose by 22 percent (, “Self-improvement, Corporate Style” by T. Kinni, Training, May 2000). Clearly, emotions can be a vital resource if organizations fully leverage them.

Emotional Intelligence has also surfaced as an issue for organizations struggling to understand why “smart” people sometimes make “stupid” mistakes. For example, Fortune’s June 21, 1999 feature article, “Why CEOs Fail,” pointed out that leaders rarely strike out because of lack of smarts or vision. Authors Charan and Colvin contended that “Most unsuccessful CEOs stumble because of one simple, fatal shortcoming . . . the failure is one of emotional strength.”

Linking Head and Heart

The fact remains that having a high IQ (in the traditional sense) is not enough to be effective in the workplace. The good news is that, with training and practice, EI can be learned. EI is about having “street smarts” in addition to cognitive smarts, about the head and heart working together. Emotional Intelligence comprises three components: (1) an awareness of our own emotional state and its impact on ourselves and others, (2) an awareness of others’ emotional states, and (3) the ability to manage and make use of that awareness. These skills play a central role in at least three aspects of organizational effectiveness — in particular, personal development, collaborative learning, and systems thinking.

Personal Development. Effective organizations are built on a foundation of effective individuals. As Tellabs manager Debbie Reichenbach explains, “If people feel personally balanced, they are able to make more effective decisions, and we can leverage their personal effectiveness. We have a highly intelligent workforce, and we have to maximize the use of that” (Training, May 2000). But how can we become more productive in the workplace? One way is by increasing our capacity to learn from experience and to gain insight into the personal motivations, choices, beliefs, and thought processes that motivate our behavior.

Cultivating these abilities takes practice. In HeartMath’s programs, participants learn activities that help them manage stress and balance the mind and the emotions with the body. In the Freeze Frame® exercise, for example, individuals shift their attention away from a problem that is causing stress and instead focus on positive feelings in the area of the heart. This one-minute drill brings respiration, heart rate, and blood pressure into synchronization. It also allows the individual to gain perspective and bring clearer thinking to the situation.

Collaborative Learning. For both constructive reasons (strengthening the capacity for team learning) and preventive reasons (avoiding interpersonal problems), EI plays a key part in effective teamwork. Well-rounded self-awareness—among team leaders and members alike — is essential for both successful work projects and a thriving company culture. Specifically, individuals who lack awareness of their own inner drives and feelings also have trouble sensing their impact on others. For example, a “micromanager” who doesn’t recognize her own need for control also won’t perceive the extent to which she saps subordinates’ sense of independence. And a bully usually ignores his own feelings of vulnerability as well as the humiliation or anger he generates in his colleagues. Few teams can thrive under these sorts of conditions.

Through exploring and developing their EI, team members can improve their ability to contribute to projects and build productive work relationships. EI skills let individuals better understand each other and communicate more effectively about what is important to them. For example, a key manager at Intel recently described how, when members of far flung global teams spent time learning about each other’s interests, hobbies, and families, their ability to collaborate at a distance by e-mail improved noticeably. Why? Because they knew each another as three-dimensional, distinct individuals, and their personal and emotional connections were more complete.

Systems Thinking. To us, systems thinking is a third key element of personal and organizational effectiveness. A classic way of introducing people to thinking systemically is to use the events/patterns/structure “iceberg” model. This framework teaches us that systemic structures — which can include feelings, beliefs, and motivations — give rise to patterns of behavior and, ultimately, the events that we observe.

For instance, suppose you miss your daughter’s school play this week (an event) (see “Missing the School Play — Again”). You apologize, really believing that this is a unique occurrence. But she points out that you have missed six school events this year (a pattern). When you delve deeper, you might discover that your underlying assumptions and emotions are contributing to this pattern of behavior (a structure). For example, you might be under intense pressure to meet work deadlines, and you might be fearful of being perceived as uncommitted or incompetent by your colleagues if you leave the office early.

This model suggests that, like the submerged portion of an iceberg, systemic structure is difficult to see and much more substantive than we might expect. Drawing causal loop diagrams (CLDs) with others can help us to clarify our understanding of those structures. As management consultant Rick Karash explains, we can deepen our understanding of the systemic structures we’ve depicted in a CLD by asking what feelings and assumptions motivate people to make the choices represented in the diagram.

For example, in “Shifting the Burden to Senior Consultants” on p. 4, fears of not satisfying clients force ConsultSmart to turn to its senior consulting staff to solve thorny client issues (B1). As a result, the company comes to rely too heavily on its senior staff and invests less in training for junior consultants (R3). This decision ultimately constricts the total resources that ConsultSmart has available to offer clients (B2).

In diagramming a system, the clearer and more complete your picture of the deepest levels of structure, the more powerful and useful the insights you and your team can gain from the diagramming process. Because Emotional Intelligence enhances understanding of one another’s feelings, relationships, and motivations, it is a critical competency for understanding organizational systems.

Emotional Intelligence in Action

Behavioral change programs have been around for many years. The challenge facing EI practitioners today is how to design new training modules based on developing this aspect of intelligence. The theorists have done their job of bringing these concepts into our awareness; now it is up to the practitioners to diffuse effective EI programs into the corporate world.

Practitioners are finding business applications for this work in numerous areas, including executive coaching, employee selection and retention, team building, and leadership development. The number of companies that are developing EI programs is growing. Some of them are building their own programs from scratch; others are revising their standard materials to incorporate EI. Below are just a few examples:

American Express Financial Advisors (AEFA). The first successful EI program, the Emotional Competence Program, was developed at AEFA in 1992 by a team lead by Kate Cannon, Director of Leadership Development. The philosophy supporting the program is that, if individuals can identify their motivations and emotional states, they will communicate more effectively with colleagues, establish stronger relationships, and achieve their personal and professional

goals. According to Cannon, the program was developed to help leaders carry the company into the future. “So much had changed, we needed leaders who could support the business — leaders who were flexible and adaptable, who could develop relationships” (Workforce, July 1, 1999).

Initially, the company found that 60 financial planners who participated in the pilot program outperformed their associates. A more recent evaluation suggests that participation in the program has continued to boost sales revenue. In that study, sales in regions where the managers attended the program increased 11 percent more than in regions where managers did not attend the workshop. The financial planners said that participating in the program was the number-one factor in their success.

In a third study, the Emotional Quotient Inventory (EQ-i) — an assessment tool that measures people’s ability to handle day-to-day pressures and demands and achieve successes —  was administered as a pre- and post- test for the AEFA group. The EQ-i results revealed that participants’ scores improved on most of the tool’s 15 subscales. AEFA’s training and testing program was the first objectively evaluated instance that demonstrated that EI can improve as a result of a learning program.

Nichols Aluminum. The Emotional Competence Program proved so successful that American Express has made it available to other companies interested in building EI competencies. One of those companies is Quanex Corporation’s Nichols Aluminum Division, a scrap-based aluminum sheet manufacturer with 750 employees at five plants in Iowa, Illinois, Alabama, and Colorado.

Coming off a record fiscal year in 1999 with sales increasing 17 percent to $312 million, Nichols wanted to find innovative ways to support and sustain its success. Terry Schroeder, who had become president in 1996, decided that the company needed to cultivate a culture that empowered employees to make smarter decisions. Training manager Jan Daker had read an article about AEFA’s Emotional Competence Program and recognized its potential.

Nichols brought the AEFA program in initially to strengthen communication and trust among senior managers. One program participant disclosed, “The Nichols culture had been very stilted and withdrawn.

No one knew how to express their emotions constructively, and we needed emotional competence to build the business.” A core group of 20 such individuals took the four-day program in July 1999. The EQ-i was given as a pre-test to benchmark EI, then administered again at the end of the program. A consultant gave individual feedback to all participants to help them understand their strengths and areas for development. He visits Nichols every three to four months to do follow-up coaching with the original participants.

Evidence indicates some promising results from the program. In describing the impact of EI on teamwork, an employee described a colleague who had completed the training in this way: “He is much more in control of his emotions now, less vulnerable, less frustrated, and less angry. He is more people oriented, listens, asks for my input, and asks for the urgency level in order to judge the response time needed from him.” In addition, the senior group is more united as a team, and communication throughout the plants has improved.

In one plant near Chicago, only four people attended the training — yet their experience has rippled outward to the remaining 130 employees at that location. Like other Nichols facilities, since the program took place, the Chicago site has repeatedly reached new levels of operational and financial performance, with higher volumes, sales, and profitability. Daker is delighted with the results. In her view, the training has given employees more access to high-level managers, and has let them make new connections that have positively influenced the entire organization. A second program was offered in the summer of 2000.

The Future of EI

The need for Emotional Intelligence has been around since primates began to live in groups. Over the centuries, recognition of the need for these abilities has periodically risen and fallen in many cultures, depending on larger societal trends. For instance, the emotionally centered Romantic Movement, a literary and artistic outlook that emerged in the late 18th and early 19th centuries, sprang up in opposition to the Age of Reason and to industrialization. Romantics decried what they saw as cold-minded, mechanistic thinking. Scientists and industrialists in turn scoffed at the artists’ so-called mushy and fuzzy-brained thinking.

Similar skepticism by business-people about how to apply EI theories in the workplace is understandable. Though many activities in the human-potential movement do generate insights in the moment, it has been harder to demonstrate that they consistently produce long-lasting and self-sustaining results. Moreover, there is a history of faddish adoption and then rejection of new ideas, techniques, or vocabularies in the organizational arena. In some cases, the concepts have not been founded on well thought out and tested principles. In other cases, people become infatuated with a trend because it resonates with a deep societal need or a widely held feeling.

But like many new lovers, the proponents of the latest craze are not as clear-eyed as they might be about their beloved. Often, they believe it to be capable of more than it really is. In certain instances, a new idea or technique may actually have substance, but too many “quick fixers” promote it without taking the time and discipline required to acquire the skill, wisdom, and true benefits that the work offers. Six months later, the idea “didn’t work,” and its ardent proponents are off pursuing something else. Onlookers become cynical, quick to condemn the next new discovery as “just another fad.”

As a field, EI could ultimately meet the same fate that other worthy ideas have encountered — if practitioners allow it to lose credibility. They must not present it as a panacea when it is just one among several valid frameworks for improving personal and organizational effectiveness. Practitioners should also avoid creating excessive “pie in the sky” expectations. Enhancing Emotional Intelligence requires hard work and persistence; there’s no “quick fix.”

Even the success stories about organizations that have implemented EI awareness or competency programs are still too new to allow any of us to make confident declarations of EI’s undeniable validity. However, we believe that EI has enormous potential to play a fundamental part in building long-term personal and organizational health. Certainly it takes intense effort and patience — but so does anything that has real value. Only time, inquiry, evaluation, and adaptation in light of new knowledge — in short, organizational learning — will prove the lasting power of EI.

Debra Duxbury (debdux@aol.com) is an independent consultant with 20 years’ experience delivering innovative training programs to industry. She is certified in and trains others to use and apply the EQ-i assessment in training programs. Prinny (Virginia) Anderson (vranderson@aol.com) is an independent organizational learning consultant, coauthor of Systems Thinking Basics: From Concepts to Causal Loops and Systems Archetype Basics: From Story to Structure, and certified in the use of the EQ-i tool as well as tools for corporate cultural values assessment.

Further Reading Bar-On, R. EQ-i, Bar-On Emotional Quotient Inventory, Technical Manual. Multi-Health Systems, Inc., 1997.

Cherniss, C. Beyond Burnout. Routledge, 1995.

Childre, D., & B. Cryer. The HeartMath Solution. Harper, 1998.

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Poised as we are on the knife’s edge between socio-environmental disaster and a liveable future, one question cuts to the core of our future: Will the result be chaos and the even more repressive and dictatorial regimes so often arising from chaotic conditions? Or will we emerge from the eggshell of our lndustrial Age institutions into a new world of profound, constructive organizational change?

The answer lies in the very concept of organization and in the beliefs and values of individuals.

Formation of a Chaordic Organization

Our current forms of organization are almost universally based on compelled behavior — on tyranny, for that is what compelled behavior is, no matter how benign it may appear or how carefully disguised and exercised. The organization of the future will be the embodiment of community based on shared purpose calling to the higher aspirations of people.

Formation of a chaordic organization is a difficult, often painful process, but one also filled with joy and humor. Entirely different dynamics of judgment, behavior, capacity, and ingenuity can evolve. Small shifts in deeply held beliefs and values can massively alter societal behavior and results — in fact, may be the only things that ever have. That is my hope for our future.

I know it can happen. I’ve been there — or at least gone part of the way — during the formation of VISA and other chaordic organizations. It’s very difficult to put in words, for in truly chaordic organization there is no destination. There is no ultimate being. There is only becoming.

Forming a chaordic organization begins with an intensive search for Purpose, then proceeds to Principles, People, and Concepts, and only then to Structure and Practice. It can’t be done well as a linear process. Each of the six elements can be thought of as a perspective, a sort of “lens” through which participants examine the circumstances giving rise to the need for a new concept of organization and what it might become. The most difficult part is to understand and get beyond the origin and nature of our current concepts of organizations; to set them aside in order to make space for new and different thoughts. Every mind is a room filled with archaic furniture. It must be moved about or cleared away before anything new can enter. This means ruthless confrontation of the many things we know that are no longer so.

Purpose

The process can easily begin with a deceptively simple question: “If anything imaginable is possible, if there are no constraints whatever, what would be the nature of an ideal organization to . . . ?” Finishing that question is all-important. It is essential to determine with absolute clarity, shared understanding, and deep conviction the Purpose of the community. From that, all else must flow. It is what will bind the group together as worthy of pursuit. The first attempt nearly always results in platitudes; impressive words full of smoke and mirrors with which everyone can quickly agree without discomfort and easily implement with a bit of institutional cosmetology. To get beyond platitudes, it becomes necessary to agree on what a “purpose” really is.

In truly chaordic organization there is no destination. There is no ultimate being. There is only becoming.

To me, purpose is a clear, simple statement of intent that identifies and binds the community together as worthy of pursuit. It is more than what we want to accomplish. It is an unambiguous expression of that which people jointly wish to become. It should speak to them so powerfully that all can say with conviction, “If we could achieve that, my life would have meaning.” Making a profit is not a purpose. It may be an objective; it may be a necessity; it may be a gratification; but it is not a purpose!

It is not necessary to perfect the purpose, or any other part of the process, before proceeding to the next. It is only necessary to obtain agreement that the present expression of purpose is good enough to permit exploration of principles, and that each expression of a principle is good enough to go on to the next. Every principle will call into question and refine the purpose. Every principle will call into question and refine every other principle. In looking through each “lens,” that is, each perspective of the process, both that which precedes it and that which lies ahead, will be illuminated and improved.

Principles

Conceiving the Principles is an extremely complex part of the process. The same difficulty returns. Platitudes inevitably emerge. It is necessary to reach agreement on what a principle is. By principle I mean a behavioral aspiration of the community, a clear, unambiguous statement of a fundamental belief about how the whole and all the parts intend to conduct themselves in pursuit of the purpose. A principle is a precept against which all structures, decisions, actions, and results will be judged. A principle always has high ethical and moral content. It never prescribes structure or behavior; it only describes them. Principles often fall quite naturally into two categories: principles of structure and principles of practice.

Purpose and principle that can lead to a chaordic organization cannot be devised by leaders and imposed on a community as a condition of participation. They must be evoked from the minds and hearts of members of the community. They are not frozen mandates to be obeyed under penalty of banishment from the community. They are a living set of beliefs capable of evolving with the participation and consent of the community. Properly done, they will never be capable of full realization. “Honor thy father and mother” is a true principle, for we all understand what it means, yet it gives us no instruction as to method. There are infinite ways to honor a father and mother.

The whole of the purpose and principles should constitute a coherent, cohesive body of belief, although it is inevitable that one principle may be in conflict with another. Where conflict exists, decisions should be balanced so that no principle is sacrificed to another. Paradox and conflict are inherent characteristics of chaordic organization.

It is not uncommon for even the most perceptive group to meet bimonthly for three days of intense discussion, for more than a year, before arriving at clarity and agreement on such a body of belief. Long before they are through, they will discover that it is not a somber process, but full of laughter and joy. There will be growing respect and trust. There will be growing commitment. There will be realization that what they are doing is as much about personal transformation as it is about organizational reconception. If there is not, the effort will never achieve its full potential.

People

When a sound body of belief is reasonably complete and agreed upon, the group can then begin to explore the People and Organizations that would need to be participants in the enterprise in order to realize the purpose in accordance with the principles. It sounds simple, but rarely is. When people set aside all consideration of existing conditions, free themselves to think in accordance with their deepest beliefs, and do not bind their thinking with structure and practices before considering meaning and values, they usually discover that the number and variety of people and entities to participate in governance, ownership, rewards, rights, and obligations are much greater than anticipated. They usually find their deepest beliefs require transcendence of existing institutional boundaries and practices. Determining the people and institutions required to realize the purpose in accordance with the principles brings realization of just how narrow and restrictive existing institutions are in relation to the exploding diversity and complexity of society and the systemic nature of seemingly intractable social and environmental problems.

Awareness arises in all members of the working group that they cannot represent only their own views and beliefs, for a good many members of the community they hope to form are not at the table. They must, to the best of their ability, act on behalf of the larger potential community and not bind its hands by trying to perfect the work they have begun. They are really trustees attempting to bring into being a chaordic organization capable of attracting a diversity of others and enabling them to continue its evolution. It is at this point that most groups more fully realize the magnitude of the task in which they are engaged. It is well that they do, for the point of frequent failure lies just ahead.

Concept

With Purpose, Principles, and People well established comes realization that it is unlikely that any existing form of organization can enable those people to achieve the purpose in accordance with their principles. Something new must be imagined; a new concept of organizing relationship. Again, definition helps. By Concept I mean a visualization of the relationships between all of the people that would best enable them to pursue the purpose in accordance with their principles. An organizational concept is perception of a structure that all may trust to be equitable, just, and effective. It is a pictorial representation of eligibility, rights, and obligations of all prospective participants in the community. The feedback part of the process never ends. Developing a new concept calls into question purpose, principles, and people. Every part of the process illuminates all subsequent and preceding parts, allowing each to be constantly revised and improved.

The conceptual part is where the old internal model returns time and again to derail the process. It is impossible to describe how difficult it is to imagine all the permutations and possibilities of human relationships that arise when one truly accepts that organizations exist only in the mind; that they are no more than conceptual embodiments of the ancient idea of community. At this point in the process it is so easy, so comfortable, so reassuring to avoid the difficulty by allowing old concepts to emerge camouflaged in new terminology. Breaking through the old eggshell to stand wet and shivering in a new world of possibilities is a frightful thing. Especially when crawling back in is clearly an option. Extraordinary insights emerge when there is realization that any concept of relationships that can be imagined can be codified and legally brought into being.

Once a group makes its way through Purpose, Principles, People, and Concept and can see the harmony that can be achieved between them, a transformation takes place. By this time, they have filled the practice part of the process with a rich variety of objectives and activities that might be realized if the organization they visualize can be brought into being. The questions shift from “Are we going to do this?” to “How quickly can we achieve it?” Success is by no means assured. The group may fail to communicate it properly to others. They may fail to obtain the resources. They may fail to achieve enough understanding and support from others to bring it into being. If they are an existing organization, they may fail to develop a successful process of transformation. But nothing will keep them from the attempt.

Structure

The most frustrating part then begins. They must shift from conceptual thinking, to which they have become accustomed and grown to love, to the pragmatic, meticulous, grinding work of Structure. By structure I mean the embodiment of purpose, principles, people, and concept in a written document capable of creating legal reality in an appropriate jurisdiction, usually in the form of a charter and constitution or a certificate of incorporation and bylaws. It is the written, structural details of the conceptual relationships — details of eligibility, ownership, voting, bodies, and methods of governance. It is the contract of rights and obligations between all participants in the community.

Many difficult questions arise in the structural process, primarily because it is rare when the deepest beliefs of people fit old concepts of organization. Every such effort raises new structural questions different from all others. How to embed purpose and principles in the constitutional documents? How to create equal legal responsibility of directors and management to guide the organization in accordance with the purpose and principles as well as in accordance with sound financial management? How to create new concepts of ownership not dominated by monetary markets? How to involve all affected parties in deliberations and decisions free of domination by any? How to preserve purpose and principles from capricious change, yet provide adequate means for their evolution? How to embody in the constitution an immune system to the recentralization of power and wealth? How to ensure and protect rights of self-organization? How to equitably balance competition and cooperation? The answers are emerging and are improving with every attempt.

Practice

Long before the structural work is finished, everyone realizes that they need not worry about the practices of the community. By Practice I mean the deliberations, decisions, and acts of all participants in the community functioning within the structure in pursuit of purpose in accordance with principles. They realize they should not bind participants in the new community to any practice, no matter how desirable it may appear in advance. Their responsibility is to bring into being an organization in which all participants can have an active, creative, equitable role in deciding what practices will best achieve the purpose in accordance with the principles, and effectively undertake them. The organizers have long since realized that they are engaged in the process not to command and control, but to act as trustees to bring into being an organization more in harmony with the human spirit and the natural world— an enabling organization aligned with the higher aspirations of humanity. They will be faced by the thousand and one difficulties required to bring it into being and nurture it to maturity, but that will no more dissuade them than the difficulties of birthing and raising a child will dissuade an aspiring parent.

From my experience, profit becomes a barking dog begging to be let in.

When the structure is complete, the entirety of the work results in a charter package, which is temporarily frozen. It is usually in the form of a massive civil contract between an unlimited number of people and institutions which meet eligibility requirements for participation. The contract of participation is often no more than a single page acknowledging receipt of the structural documents and agreeing to abide by them as they then exist or are thereafter modified, which is relatively risk-free. Modifications are determined by the participants, of which they are one. No participant has inferior or superior rights and obligations. The contract creates irrevocable rights, but allows withdrawal at any time should the participant judge benefit no longer outweighs obligation. If sufficient participants accept the new concept and structure, it comes into being, its governance structures are formed, its momentary state of arrested development ends, and it resumes evolutionary self-organization. The process of actualization may be considerably different with respect to an existing hierarchical organization, particularly one constrained by institutionalized monetization. However, the fundamentals of reconception will be much the same.

When such an organization is brought into being, it will inevitably attract the people required for its success, since they will be drawn to the clarity of shared purpose, principles, concept, and structure. With clarity of shared purpose and principles, the right people, an effective concept, and proper structure, practice will be highly focused and effective since human spirit, commitment, and ingenuity will be released. Purpose will then be realized far beyond original expectation. People will come to see that the process is not a closed circle. Achieving purpose beyond expectation enlarges confidence and calls into question the original purpose and principles. And an enlarged and enriched purpose will enlarge and enrich in concept an ever widening and ascending spiral of complexity, diversity, creativity, and harmony — well, let’s call it what it is — evolution. And what about profit? Well, from my experience, profit becomes a barking dog begging to be let in.

Reprinted with permission from Birth of the Chaordic Age by Dee Hock. Copyright © 1999 by Dee Hock. Published by Berrett-Koehler Publishers, Inc., San Francisco, CA 94111-3320.

Dee Hock is founder and CEO Emeritus of VISA International. He is currently founder and CEO of the Chaordic Alliance, a nonprofit committed to the formation of practical, innovative organizations that blend competition and cooperation to address critical social issues. The Alliance also seeks to develop new organizational concepts that more equitably distribute power and wealth and are more compatible with the human spirit and the biosphere.

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Although IT and software development projects may be the most visible areas in which work extends beyond its original parameters, process re-engineering efforts, wide-ranging organizational change initiatives, and large-scale construction projects certainly are not exempt. Take, for example, a small town in North Carolina that is building a reservoir for its municipal water supply. The original estimate for the project five years ago was $5.4 million, with a two-year window for construction. Today, the estimated cost is $8 million. Construction has barely begun and is now projected to take three years.

Given these troubling statistics, it seems fair to say that large projects rarely, if ever, stay within their original specifications and meet their forecast targets of time and dollars. In fact, any program or project that is complex in nature, covers an extended period of time, requires a significant monetary investment, and has multiple components needing to be managed simultaneously is vulnerable, despite heroic traditional project management efforts. This tendency of such projects to expand beyond their initial boundaries and thereby to extend far beyond their forecasts is often called “scope creep.” In this article, we examine this phenomenon by viewing large projects as complex systems. By understanding scope creep in this context, we can begin to identify how and why it occurs. Equipped with this knowledge, empowered people, teams, and organizations can more effectively plan for and mitigate the effects of scope creep by taking a more realistic and dynamic perspective on the project management process.

Scope Creep Dynamics

How does scope creep begin, and what causes it to build on itself over time, leading to costly overruns and delays? Organizations initiate projects to address a perceived need (see “The Dynamics of Scope Creep” on p. 3). For instance, the town mentioned above faced periodic water shortages during times of drought, so it decided to build a reservoir to meet its perceived water needs. In an ideal world, after some delay, the project would be completed within its original budget and on schedule, and the perceived need would be filled (B1).

The amount of money invested in a project limits the amount of work that can be accomplished and therefore generally defines the project’s scope — at least initially. The larger the project, and the more people, departments, and agencies involved, the more complex the governance becomes. For instance, in an IT company, a large-scale product development effort requires input from a number of departments, each with its own management and its own priorities. Several subprojects of the larger effort could end up competing with each other for the skills of testers, database programmers, or technical writers, making the overall governance complex. The competition for limited resources intensifies as the number of subprojects expands, making management of the overall effort more challenging.

When the governance is complex, managers find it difficult to make decisions in a timely manner and to attend to the long-term consequences of each decision. These difficulties threaten the accuracy of schedule estimates. As deadlines draw closer and time pressure rises, people tend to “cut corners” to keep the project on track. In a software development project, for example, cutting corners often means inappropriate parallel development—perhaps developing applications that depend on lower-level modules before the lower-level modules are fully designed. Cutting corners in a construction project could mean accepting the lowest bid without qualifying the vendor, not allowing enough time to coordinate the work of the various subcontractors, or even neglecting to let cement cure properly. In the short term, cutting corners can appear to alleviate schedule pressures (B2), but it is actually an example of the classic “Fix That Fails” archetypal structure. In a “Fixes That Fail” scenario, an action that solves a problem over the short term actually exacerbates the same condition over the long run. Thus, over time, cutting corners generally results in rework, which inevitably creates even more schedule pressure (R3).

Rework also increases cost. As the cost of a project goes up, project managers need to justify the additional expenditures to upper management or to their constituents. To do so, they often find themselves promising new and enhanced features to make the additional expense more palatable. For instance, an elected official might tell an irate group of taxpayers, “Of course a dam costing this much will include a recreation area.” Or the constituents might decide that such a costly undertaking must include a recreation area and pressure officials to add one. The expectations of an IT project might rise when the sales department assures dissatisfied customers, “Oh, we have a new release in the works that will address your concern.” Assurances and assumptions such as these raise customers’ expectations and expand the project’s scope (R4).

As the project’s scope increases, the web of interactions and dependencies among tasks, subprojects, departments, and agencies grows even more intricate. This rising complexity can lead to delays. For example, on a construction project, if one subcontractor has to wait for a second one to finish his tasks, he may need to take on another job in the interim. He then may not have the personnel immediately available to work on the original project when the first subcontractor is finally ready for him. Delay creates even more deadline pressure and reinforces the “scope creep” dynamic.

Such interactions and dependencies also make it difficult to accurately estimate costs. Delays can further compound the problem, making cost estimates even less accurate. If actual costs are much higher than the original estimates, the pressure on officials and managers to justify costs increases, which can further influence the expectations from the project and cause even more scope creep (R5).

The complexity of the governance affects more than the timeliness of decisions. It also affects the ability of decision-makers to see the effects of their decisions — both on other aspects of the project and later in time. With less visibility to downstream effects, decisions that appear to give positive local results can have negative global consequences. Therefore, the quality of decisions can go down — increasing the likelihood of additional rework and creating additional complexity (R6).

Thus, the tendency of large projects to increase in scope finds its roots in two underlying assumptions. The first is that we can manage a project by simply managing its parts. This practice leads us to ignore the systemwide impact of apparently small, local decisions, which in turn can undermine initial time and cost estimates and increase the project’s complexity. The second is that we assume that we can estimate schedules and costs accurately in advance of initiating work. But often, when a project costs more or takes longer than expected, we respond either by assuming that it must include additional features or by deliberately adding more to justify the increased cost or time — compounding scope creep.

Beyond Traditional Project Management

To date, most explanations of scope creep stem from a linear, sequential view of projects and how they are managed. For example, the Project Management Institute defines the five project management phases as initiating, planning, executing, controlling, and closing. This model assumes that one phase is completed before the next one begins, and that we should return to previous phases only when problems occur.

Using this sequential framework, several authors have written that scope creep occurs when the planning phase is incomplete. For example, some suggest that if objectives and project “deliverables” are not fully defined up front or if work breakdowns are unclear, then the project will exceed its original cost and schedule projections. Others attribute scope creep to ill-defined resource requirements or insufficient funding. Another set of explanations focuses on the problems that occur during the controlling phase; for instance, poorly documented changes to the project specifications.

All of these explanations are probably correct to some degree. However, even if a team rigidly adheres to this project management framework and completes each step with near perfection, scope creep can still occur, especially in large, complex projects. Good, linear project management is necessary. However, as the frequency of scope creep shows, it is insufficient to prevent the problem.

The downside of the traditional project management model is that it does not adequately account for the fact that a major project — like constructing a reservoir, developing a large, complex piece of software, or writing a major training curriculum — is actually a large system with multiple interacting parts. According to M. I. T. professor John Sterman, “Large-scale projects belong to the class of complex dynamic systems. Such systems (1) are highly complex, consisting of multiple interdependent components, (2) are highly dynamic, (3) involve multiple feedback processes, (4) involve non-linear relationships, and (5) involve both ‘hard’ and ‘soft’ data” (, “System Dynamics Modeling for Project Management,” section 3, p. 5, http://web.mit.edu/ jsterman/www). In describing problems in these kinds of systems, author Meg Wheatley says, “They cannot be understood sufficiently either before or even while they are occurring; therefore, prediction and control are impossible” (THE SYSTEMS THINKER, V9N10). In other words, the interactions among the tasks, subprojects, and governance structures of a complex project make it all but impossible to fully define the project deliverables or grasp the resource requirements ahead of time.

For example, in software development, managers commonly divide projects into several modules — each of which is to be designed and developed independently and then combined into a completed product. They then break the work on each module into a series of tasks, which can be sequenced and placed on a timeline. It seems logical to think that if these tasks are accomplished in the prescribed way, their completion should constitute the total project. In practice, though, the degree of interdependency among the modules usually doesn’t become fully evident until after the teams have invested much effort in design and development. At that point, the components often require more design, coding, and testing than originally budgeted to make the modules work together.

Equally important, as the interdependencies among the different modules come to light, the scope of the project changes — even if the project plan does not — because the people involved get new ideas about what the product should offer. For example, a software project that began as a rewrite of code to fix a problem evolves when designers realize that addressing the problem makes it easier to implement a customer request that was difficult to implement in the old code. To satisfy the customer, they design the request into the rewrite. A single addition like this one typically does not pose a problem. However, when a rewrite is large and costly, managers may be pressured to add several of these customer requests to justify the project’s expense. The standard approach to project management neglects to take into account such shifts in expectations. So, what began as a simple fix can unexpectedly become a major project to address customer demands.

Sterman identifies two kinds of complexity in projects: combinatorial and dynamic. Combinatorial complexity is created by the parallel and sequential activities that take place in a large, complex project — for example, in a large construction project, all of the permits needed before breaking ground. Traditional project management tools, such as PERT, CPM, and GANTT charts, are intended to help people handle these details.

On the other hand, dynamic complexity is created by the multiple feedback processes, time delays, and nonlinear causal relationships that exist in any large project. Because the interactions among multiple variables over time drive this kind of complexity, it can grow geometrically or even exponentially as additional elements enter the system (see “Increasing Dynamic Complexity”). For instance, the traditional view holds that adding a fourth task to three that are already scheduled would increase the workload proportionally — that is by 33 percent. However, this calculation does not take into account the fact that the new task interacts with each of the existing tasks, actually doubling the interactions between tasks and potentially increasing the amount of work by much more than one-third. For this reason, dynamic complexity contributes significantly to the phenomenon of scope creep and cannot be adequately addressed using standard, linear approaches.

Mitigating Scope Creep

Clearly, we need to broaden our thinking about project management. Fortunately, there are several ways to do this:

Surface Dynamic Complexity. The first key to mitigating scope creep is to find ways to surface the feedback processes, time delays, and non-linear relationships in a large, complex project. Here are a few suggestions:

• John Sterman has demonstrated the value of using system dynamics modeling in large-scale projects in conjunction with traditional tools. This approach can help to surface many of the interactions between tasks, subprojects, and governance structures that ultimately lead to scope creep and can make explicit many assumptions that often remain unspoken. With such information, decision-makers and project managers can then make more informed decisions about changing external conditions, proposed shifts in strategy, resource allocation, impacts of delays, and even the viability of the project over time.
• If using a system dynamics model isn’t practical, drawing causal loop diagrams can help managers identify feedback loops and causal relationships separated by time and space. Discussion of the interactions and dependencies among various work streams can create a richer understanding of the complexities involved.
• With a basic knowledge of systems thinking and causal loop diagrams, decision-makers often recognize many “shortcuts” as “Fixes That Fail.” But because it is difficult to spot patterns of behavior while implementing a project, managers should anticipate and document potential problem areas up front. One way to do so is to identify any systems archetypes operating in earlier projects, document them, and share them with the project team. The team then needs to continually evaluate whether similar patterns are emerging in the present project, and take appropriate actions to keep from falling into the same traps. Anticipating these situations, documenting them in advance, and appointing someone to flag them if they crop up can lead to smarter decisions once the action starts on a major initiative.
• The decision-making process in large projects is often extremely complex, cumbersome, and subject to pressures from the outside. These pressures can include political considerations, the organization’s culture, ingrained management practices, and budgetary constraints. Because of the complexity of the decision-making process, project managers often make decisions without regard for how they might affect the rest of the system. One way to simplify decision-making and to help identify unintended consequences is to use a decision matrix (see Sample Decision Matrix” at www.pegasuscom.com/matrix.html). To do so, make a list of potential outcomes across the top of a page. Then brainstorm the possible solutions under consideration and list them down the side of the page. Discuss the different resulting combinations represented by each “cell” in the matrix before making any decisions. Use a ranking process to determine which cell or cells best meet the desired outcomes.
• Scenario planning offers another way to identify and explore the possible outcomes — both predictable and unlikely — of decisions being considered. For a simple application of scenario planning, see Peter Senge et al., The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations (Doubleday, 1999), pp. 187-190. During the scenario-planning process, project managers and teams might also identify some additional “Fixes That Fail” to avoid.

Rethink Approaches to Budgets and Schedules. We also need to rethink the common assumption that we can make accurate cost and schedule predictions up front in a large project. This expectation is unrealistic, because of the inherently changeable nature of such projects. Therefore, we need a “scalable” approach to budgets and schedules, one in which we regularly review and update time and money estimates. Such reviews should include a timetable for decisions regarding moving the project forward, scaling it back, or perhaps even canceling it. Over time, as we learn more about the work involved, the estimates should become more accurate.

No organization can launch a project without having some idea about the amount of money and time involved. Managers should thus provide a range of initial cost and schedule estimates, along with a margin of error and a review plan with “escape points” as described above. Such estimates and built-in reviews help prevent people from feeling trapped and betrayed when large projects go “over budget” and get delayed.

Use the Original Purpose as an Anchor. There is a tendency to use current expectations as a kind of anchor point when considering changes to the scope of a project. This propensity can be dangerous, because current expectations may have shifted significantly since the project’s inception. In fact, the dynamics behind scope creep are similar to those of the “Drifting Goals” archetypal structure. In “Drifting Goals,” two balancing loops interact to cause goals and standards to decline over time. In scope creep, a series of reinforcing processes constantly “raise the bar” and prevent the project from being finished within its original projections. To help avoid this process, go back to the original purpose of the project and use it as a reference point. Why was the project started in the first place? If you do decide to change its scope, what might be the ramifications?

Follow Good Project Management Practices. Finally, continue to use good project management practices. Many traditional tools remain essential to tracking the progress of any project. However, remember that in a complex system like a large project, the whole is not equal to the sum of its parts; the whole includes the sum of its parts as well as the interactions among all of the components.

Beyond the Old Paradigm

Albert Einstein is often quoted as saying, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” Scope creep is such a problem. To date, most attempts to control scope creep have used linear, additive logic to counteract what is a highly complex, dynamic phenomenon. This sequential way of thinking places the blame for scope creep on poor project management practices. But rather than rushing out to try new project management technologies or blaming people for failing to implement older ones, what we really need is a new way to understand large projects as complex systems. In this article, we have offered approaches that are not visible from the traditional linear approach. We believe that these ideas can serve as learning opportunities and as seeds for yet other solutions. Learning to see large projects as complex systems may not be a revolution, but we think it is a worthy first step toward a possible and necessary evolution in the way organizations operate.

Andrea Shapiro, Ph. D., is an internal organizational learning consultant for Nortel Networks. Her work emphasizes learning, communication, and systems thinking (ashapiro@nortelnetworks.com). Carol Lorenz, Ph. D., of Carol Lorenz and Associates, is an independent contractor who worked at Nortel for a number of years. Her work emphasizes learning, organization effectiveness, and systems thinking (lorenzc@mindspring.com).

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The Baby Boomerang?

According to the most recent U.S. Census, the 76 million children born between 1946 and 1964 — the so called “baby boomers” — are turning 50 at the rate of one person every eight seconds. The boomers now make up slightly more than half of the working population. Because of the sheer size of this demographic group, the average employee age is rapidly rising to about 40.

As the first wave of this generation begins reaching 55 in 2001 and heads toward retirement, the workforce could lose substantial numbers of experienced workers from all walks of life. But most boomers have neither the inclination nor the financial means for early retirement. According to a recent study, 80 percent of those born between 1948 and 1965 expect to work past age 65. Compare that with the roughly 10 percent of the over-65 group who held jobs in 1998.

Organizations seem inclined to let many older workers drift into boredom and stagnation.

The declining value of Social Security and pensions lends fuel to many boomers’ anxious decision to keep on working. The U. S. Social Security Administration estimates that only 2 percent of the population will be financially self-sufficient when it retires, making work a necessity for most. And if Social Security runs out of money by 2030, as currently predicted, employment after 65 will become a necessity for a large number of people.

However, ample evidence exists that, over the last couple of decades, business has given up on many older workers – that is, those over 50, although in some industries, the “cutoff point” is even earlier. In spite of legal efforts to the contrary (culminating in the Age Discrimination and Employment Act), companies are inclined to let older employees go. Why? Because these organizations believe that their graying workforce is responsible for high salaries and medical costs, declining productivity, stagnating career pipelines, and morale problems. Even when older workers are kept on the payroll, they seldom have the chance to sharpen their skills through additional training. Organizations seem inclined to let many older workers drift into boredom and stagnation.

We have found that many senior employees in high-tech firms, newspapers, and insurance companies feel like “has beens.” But because they must work to pay their mortgages and send their children to college, many seasoned workers respond to the lack of opportunity for continued personal and professional growth by “retiring on the job” – they no longer approach their work with enthusiasm or commitment. Thus, they end up fulfilling the low expectations that their managers have for them.

For example, in some news organizations, editors routinely favor younger reporters over more senior journalists, who are said to “lose their legs at 40.” As editors increasingly assign stories to younger reporters, the older reporters drift into unproductive marginality or frustrated opposition to their “arrogant and misguided” superiors (R2 in “From Perception to Reality”). This behavior further confirms the editors’ belief that the older reporters are “over the hill.” Over time, the individuals involved become stereotypes – the angry, ineffectual older reporter and the shallow young editor – playing out the roles that they had struggled to avoid. The caricatures seem so real that some editors refer stories to 23year-old reporters when a savvy, prize-winning, 55-year-old journalist, who has covered the field for 30 years, sits just 10 feet away.

Companies lose, too, when they fail to capitalize on the knowledge and potential of their aging workforce. Older workers frequently have a level of experience, business acumen, and personal maturity that makes for conscientious effort, excellent customer and client service, and better decision-making ability than their younger peers. In many organizations, older workers know the customers and suppliers. They know the internal operating systems and the influence networks, as well as the strengths and weaknesses of the product line. Finally, they know the firm’s strategy, and they know how to get the job done. In short, they are the “institutional memory.”

In an era when knowledge management is a buzzword in every MBA program, the older worker is a knowledge holder and a wisdom maker. Getting rid of senior employees means the loss of insights and can lead to unproductive chaos. But companies overlook many possibilities for mobilizing the productivity of mature employees because of the pervasive myths about over-50 workers (see “Older Workers: Myths and Realities”). And, without an understanding of the dynamics that create — and perpetuate — these stereotypes, both older workers and those who manage them are destined to fall into them.

The Mismeasure of Age

People commonly joke about their lapses in memory by saying that they have “early Alzheimer’s” or that they have “creaky old bones.” But it’s no laughing matter when employers start to marginalize older workers because they are convinced that the post-50 crowd can no longer perform effectively. Research is beginning to demonstrate that mature workers are much more capable of all sorts of exertion than is commonly believed. Those who continue to work are the healthiest of all.

One study tells us that workers between 55 and 65 are as physically healthy as those between 45 and 55. They report to work as reliably as younger employees, and they perform virtually all but the most demanding physical tasks with comparable ability. A review of 185 research papers also found that older people may actually have higher motivation and job satisfaction than younger workers.

What about the idea that people slow down mentally? Longitudinal studies show that, unless a person has suffered a serious health problem such as a stroke or head injury, most of us sustain our intellectual functioning well into our 70s and beyond. Additionally, advances in medical and genetic technology promise to enhance the longevity and quality of life for many people who would have been forced into full retirement a decade ago. Taking the desire to work and the ability to work together, many people well past 65 are more than qualified for continued employment of all sorts.

So, why do so many companies routinely devalue the qualities that senior employees have to offer? Part of the problem may be that managers tend to compare older workers to younger ones. The flaw in this approach was dramatically pointed out by feminist researcher Carol Gilligan, when she challenged traditional theories of human development in her book In a Different Voice (Harvard University Press, 1982). She contended that Freud, Erikson, and Kohlberg, the gurus of developmental psychology, did not produce theories of human development but rather of male development. They neglected to take into consideration that men and women mature differently.

Likewise, in the workplace, older people are generally measured by standards that make them look less adequate than their younger peers, primarily by emphasizing mental quickness over depth of experience and physical stamina. This bias is reflected in the career development literature, which caps at about the age of 40, as though people and their careers could not develop further.

To counter this tendency to devalue the contributions that mature workers can make, we need to measure their capabilities and preferences on the basis of their distinctive qualities. We must view them as different but hardly less than youth. Measures should include older workers’ experience, personal and political savvy, and wisdom. Managers must take into account — and capitalize on — senior employees’ capacity to take the long view, and to keep small setbacks and slights in perspective. Organizations should place greater value on seasoned workers’ ability and inclination to nurture younger workers, and avoid placing them in direct competition with their youthful colleagues. Undoubtedly, there are many other capacities and mental attitudes that older workers possess that we have not yet associated with corporate productivity.

One way to deepen our knowledge of what workers in different age brackets have to offer is to learn about the stages of professional and human development. Students of the life cycle like Dan Levinson, an eminent authority in the field of adult psychological development, report that people in their 20s, 30s, and 40s focus on acting with autonomy, pursuing ambitions, and demonstrating competence. Those in their 50s, 60s, and 70s have a different set of requirements, involving the desire to appreciate their achievements, accept their limitations, and leave their mark on their families and communities. Older workers tend to focus on fine-tuning systems, procedures, policies, and methods so that they will stand up to the test of time. Their ambitions are likely to be consistent with what they know to be their strengths and competencies, so managers can generally rely on them to follow through on their commitments.

Based on these interests and needs, many in the post-50 age bracket may no longer want to work the same job that they have been working and they may not want to put in as many hours. However, there are many roles that they would very much like to — and can — take on. To get the best out of mature workers, organizations need a strategy and structure that leverages the talents and responds to the developmental conditions and needs of this growing segment of the workforce.

New Concepts of Corporate Structure and Work

Once organizations see the value in retaining older workers, how can they take actions to keep these employees – and all of their insights and skills – involved in work? How can mature workers participate in a new sort of way, but still remain immersed in the systems that they know so thoroughly? It is admittedly hard to think of what to do with non-traditional workers within the standard corporate “pyramid.” From the traditional perspective, each employee climbs a ladder, peaks, plateaus, then declines. For example, journalists, dentists, and nurses are generally considered “to go downhill” around 40. The question remains: What can we do with these professionals for the remaining 25 years of their careers?

Management theorist Charles Handy’s conception of the new corporation opens the way to rethinking the place of older workers. Handy’s framework affords businesses the possibility of increased flexibility and cost savings by identifying three kinds of employees:

1. A core group of managers and skilled workers. These people lead the organization and provide its stability and continuity. They tend to be ambitious, totally immersed in their work and their organization, and very well paid for their efforts.

2. Key external resources hired on a contractual basis.These individuals and groups might provide outsourced accounting or legal services.

3. A project-based employee pool. These workers are loosely connected to the organization on a job-by-job basis, allowing the organization to expand, contract, and change shape, according to the demands of the market.

It is easy to imagine older workers in each of these three groups. The traditional core is generally filled by the most skilled, powerful senior managers. Many of those who “retire” return to their long-time employers as consultants and contractors, which offers them greater control over their time. The project-based employee pool provides even greater flexibility for employees who, later in their careers, may wish to labor intensely and then take prolonged vacations, or to work from their home offices instead of being burdened by demands for “face time.” The second and third functions also offer alternative career paths for parents of young children, children of aging parents, and individuals with health problems.

A basic ingredient of this approach is what Professor Lotte Bailyn of MIT refers to as the “disaggregation of work.” Our assumptions about what constitutes “working” are largely based on a model constructed during the industrial era. According to this view, work happens:

• in a particular place (in an office or factory)
• during a certain time frame (usually 9 to 5)
• for a certain amount of time (8 hours)
• in the context of certain social relations (i.e., with a particular group of people)
• with the use of preidentified technologies (i.e., technologies that are owned and approved of by the organization)
• to accomplish a specialized function or goal.

Bailyn and those on the leading edge of career development theory and practice recommend unpacking this cluster of assumptions about the nature of work for all employees.

Many private-sector companies and other organizations are already experimenting with these elements, separately and in combination, through flextime arrangements, telecommuting, intranet and Internet-facilitated group work, rotating work assignments, temporary work groups, and so on. Sources such as Fortune magazine’s annual listing of the “100 Best Companies to Work for in America” often include “best practices” that offer alternatives to the standard eight-hour in-office work day. These policies can easily be refashioned to address the needs and wants of older workers.

Working Wisely with Older Workers

How can decision-makers help their organizations to break free from the negative stereotypes about older workers that inevitably become self-fulfilling prophesies? How can companies find ways to better utilize the knowledge and experience that this group possesses? We suggest the following steps (see “Steps for Leveraging the Older Workforce”):

1. Identify warning signs. Through informal conversation and interviews, determine:

• if a significant portion of the older workforce seems less than optimally productive,
• if there is considerable misunderstanding, miscommunication, and conflict between generations,
• if there is difficulty retaining skilled workers and experienced managers,
• if these problems are contributing to low morale in your corporation.

If the warning signs are present, take actions to address both individual and organizational issues, as follows:

2. Conduct in-depth interviews with older workers.

These interviews should focus on people who can be helped by organizational improvements, rather than on chronic poor performers or entrepreneurial self-starters.

• Explore workers’ present and past interests; their experiences of being underutilized, pressured, ignored, or marginalized; their emotions about their treatment within the organization; and their ambitions.

3. Explore systemic causes of the problem.

• Analyze underlying constraints on productivity and job satisfaction. For example, management may not keep up with the particular abilities and interests of older workers or may let them languish in boring and unchallenging positions. This analysis should derive from a combination of key informant interviews, conducted with a diagonal slice of the organization, focus groups, and a broad-based questionnaire. The tools of systems thinking — such as causal loop diagrams — can be useful here as well.
• Determine which formal and informal systems, cultural values, and organizational dynamics constrain and which enhance productivity and job satisfaction for mature workers and for workers in general.

4. Provide career counseling where needed.

• Offer counseling for older employees to determine how to redeploy or retrain them to revitalize their careers.

5. Compare the present situation with “best practices.”

• Identify best practices from other organizations that might work for you.
• Look for examples of excellence within your business that might be brought into service elsewhere in the company.

6. Design programs for senior workers to:

• Continue to upgrade their skills,
• Shift them into lines of work that capitalize on their old competencies but also demand new understandings,
• Use their experience through teaching, mentoring, or leading cross-departmental initiatives.

7. Develop organizational change strategies for implementing the recommended programs.

• Evaluate the organization’s core beliefs and culture to ensure that any new policies complement current management practices.

8. Once you’ve implemented the new programs, observe whether the corporate culture supports these changes over time.

• Determine if organizational and individual efforts have significantly increased the productivity and job satisfaction of older workers, as well as the productivity and morale of the entire corporation. You should continually be alert for the warning signs listed in step 1 and be willing to cycle through the steps again as needed.

Overcoming the “Pygmalion Effect”

We are all prone to think that what we see is true. Yet everyone knows that we each change according to the context we are in: home or work; friendly or unfriendly; familiar or unfamiliar; supportive or unsupportive; challenging or accepting. Like anyone else, older workers are more or less productive in different environments. The same people who look bored, uncommitted, or incompetent in contexts not geared to bring out their best can be excited, engaged, and extraordinarily skilled in settings that expect, require, and facilitate their performance.

In a well-known research project by Robert Rosenthal and Lenore Jacobson, published as Pygmalion in the Classroom: Teacher Expectation and Pupils’ Intellectual Development (Irvington Publishers, 1989), two teachers were presented with two groups of students of equal ability. One was told that the members of her class were very intelligent and talented. The other teacher was told that her class was mediocre at best. During the course of the year, the first group did well, and the other did badly. The power of expectations on people’s performance is almost impossible to believe, until you see the outcomes of studies like this one. Only by being vigilant and by creating structures that accommodate people’s differences can we overcome this tendency for perceptions to become realities.

So it is with older workers. Raise expectations, provide flexible working conditions, manage them according to their experience, skills, inclinations and wisdom — and they will produce far, far more than the stereotyped senior employee so prevalent in our imaginations. The public at large has a real stake in the success of initiatives that keep older workers at a high level of capacity. Even a 20-percent rise in productivity in the healthcare industry, which has a high percentage of workers over 50, would result in nearly a billion-dollar increase in revenues, efficiencies, and savings. This figure doesn’t include benefits in the form of innovations and quality initiatives.

Imagine the productivity increases that the corporate world would experience by making the best use of the hundreds of thousands of aging boomers on the payrolls. And also consider the society-wide toll that failing to provide meaningful opportunities for seasoned employees to continue contributing and supporting themselves financially may take. Fortunately, by retaining, revitalizing, and retraining the most skilled, savvy workers in the workforce, we can improve productivity — and people’s lives — well into the future.

Barry Dym, PhD, is president of WorkWise, an organization that researches career options for workers over 50. He has 30 years of experience as an organizational development consultant, psychotherapist, author, and teacher.

Michael Sales, EdD, is a partner in New Context Consulting, where he has worked with a number of the leading thinkers in the field of organization development.

Elaine Millam, MA, is vice president of WorkWise and is a change leader who helps leaders focus on organizational health and well-being.

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Responses to Declining Profits

In 1996, after many years of booming growth, the market for video rentals seemed to reach a plateau. Retail giant Blockbuster Video was losing market share to competitive national chains and local video stores. Many speculated that the video-rental business itself was in permanent decline owing to the increasing popularity of secondary media such as pay-per-view. New CEO Bill Fields, hired away from WalMart to revitalize the company, tackled the challenge head-on. Under his leadership, Blockbuster outlets were transformed from mere video-rental stores into what he called “Entertainment Destinations,” featuring CDs, toys, games, snacks, books, and other attractive movie-related merchandise (see B1 in “Entertainment Distractions”).

Unfortunately, this strategy proved to be a “Fixes That Fail.” According to Blockbuster’s in-store research, these other items actually distracted customers from the company’s core business. Video rentals plummeted even further, and the smaller margins on the other merchandise did not come close to making up for the loss of revenue from tape rentals (R2).

A little more than a year into the job, Fields resigned and was replaced by former Taco Bell head John Antioco, who initiated a massive customer research effort. What he found was that Blockbuster customers were frustrated by one thing above all: lack of availability. When they couldn’t get a copy of a new release at Blockbuster, they would look elsewhere. Eventually, viewers began to turn to other sources first. They saw no advantage in going to Blockbuster over going to the local “mom and pop” video-rental outlets.

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Acting quickly, Antioco removed many of the distracting elements from the Blockbuster outlets and began to focus the company on its core business once again. He also went to the movie studios and engineered a new deal called revenue sharing: Blockbuster would buy many more copies of each release than before, at a reduced rate, and in turn would share half the rental revenue with the studios. The studios, already making an average of 30 percent more from tape rentals of a title than from its original U.S. theatrical release, eagerly signed multiyear contracts, more than making up in volume what they would lose in per-tape income.

Questions for Reflection

• What might have been some of the causes contributing to Blockbuster’s loss of market share in the mid-1990s?
• What other fixes besides diversification might they have tried, and what might the consequences have been?
• Do you think the background of the two CEOs had an impact on the strategies they chose to pursue? Could there have been approaches to the problem better suited to the unique challenges of the video-rental industry?
• Are there possible parallels between Blockbuster in the mid-1990s and any other businesses today?
• What might be some unanticipated consequences of Blockbuster’s deal with the movie industry for the video-rental business as a whole?

Consequences, Intended and Otherwise

Revenue sharing seemed to promise to create a virtuous cycle that would increase the success of everyone involved in the video-rental business. Unfortunately, other factors served to limit that success, and the very survival of some of the smaller players is now in jeopardy.

Before we continue the story, let’s take a closer look at the movie industry. A studio first releases a title to theaters through distributors, collecting revenue by charging rental fees for the film (often tied to ticket sales). When revenue from the theatrical release declines, the studio puts the title on tape and sells copies to video-rental outlets -the major chains, such as Blockbuster and Hollywood Video, and thousands of independent video stores. At the same time, the studio makes the tape available for sale to the public through retailers. As rental demand for a video tapers off, the video stores sell the used copies at low prices. Soon thereafter, and sometimes concurrently, the studio releases the movie on pay-per-view. As soon as a movie becomes available on pay-per-view, tape rentals decrease even further, as many viewers choose to take advantage of the in-home alternative to a trip to the video store.

The implementation of revenue sharing greatly increased the number of copies of each new release in participating stores (see R3 in “Good Intentions”). To maximize their investment in inventory, the stores had to sell the used videos before the title became available on pay-per-view. But with so many used-tape sales, demand for new tapes and for pay-per-view dropped. Wanting to avoid a dip in this source of revenue, the studios reacted by reducing the time between releasing a video for rental and offering it on pay-per-view (“the window”) (R4 and R5). With a shorter window, video stores needed to collect their rental income more quickly. They began to order even more copies of new releases, so as not to lose a single customer owing to lack of availability. This strategy succeeded all too well – rental demand was satisfied faster, which led the studios to shorten the window even more.

GOOD INTENTIONS

Revenue sharing unintentionally set in motion a series of powerful reinforcing loops. Participating stores increased the number of copies of each new release that they ordered, reducing the time-frame for satisfying the rental demand (R3). To maximize their investment in inventory, the stores had to sell the used videos before the title became available on pay-per-view. Wanting to make up revenue lost in new-tape and pay-per-view sales, the studios reduced the time between releasing a video for rental and offering it on pay-per-view (R4 and R5). This action increased the stores’ sense of urgency and the number of copies of videos that they ordered.

Further complicating the issue is the fact that the studios do not offer revenue sharing to all outlets. The two major chains, Blockbuster and Hollywood Video, move much higher volumes of tapes and can afford to gain slimmer margins than can smaller outlets. In addition, through a single contract with Blockbuster, a studio forges an agreement with many stores; managing individual revenue sharing contracts with a number of independent store owners would represent a great deal of effort for relatively little return. Consequently, the smaller outlets can’t promise “guaranteed availability” and must pay up to 10 times as much per tape as the major chains. They can’t sell used tapes as profitably as the Blockbuster outlet down the street can — and the Blockbuster outlet has many more copies available for sale.

Because of their participation in revenue sharing, Blockbuster and Hollywood received over 60 percent of the tapes shipped for Saving Private Ryan, although their combined market share was only around 40 percent. Thus, economies of scale and revenue sharing give the major chains an advantage that is likely to grow over time — a classic “Success to the Successful” scenario. As smaller outlets go out of business at an alarming pace, the large chains continue to gain market share — a consolidation in the business that lets them grow even as the industry as a whole struggles with the dynamics launched by revenue sharing.

Will Blockbuster Reign Supreme?

On the surface level, there would seem to be little standing in the way of success for the video-rental giants. However, as we know, any business is a part of a larger system. In this case, the most serious challenge to Blockbuster and its fellow behemoths may not come from within the industry at all.

If there has been one factor rattling the cages of business owners in the late 1990s, it has been the Internet. Tried-and-true business models have become obsolete overnight, and long-time standards have been replaced by rules that change so quickly that even those with the resources to play by the new rules are finding it difficult to keep up. Television talk-show hosts now routinely refer to how many copies of a guest’s book have been sold on Amazon.com, rather than its position on the New York Times bestseller list. Could the Internet fundamentally change the video-rental industry as well?

One of the promises that the Internet holds for film producers is something known as video on demand (VOD). This up-and-coming technology will enable a distributor to send a movie to a requestor over the Internet. There would be no need for physical tapes, and so no customer would ever be turned away because all of the copies had been rented. Additionally, distributors wouldn’t incur the costs associated with manufacturing and shipping tapes. VOD would ultimately render all video stores obsolete.

Tried-and-true business models have become obsolete overnight, and long-time standards have been replaced by rules that change so quickly that even those with the resources to play by the new rules are finding it difficult to keep up.

There are obstacles to this method of distribution. For example, most experts believe that the technology to make VOD viable is still several years in the future. Also, no one yet knows whether customers will be willing to watch movies on a computer screen, if that proves necessary. Nevertheless, many players are currently scrambling for position in what could become the video-rental game of the future. Trimark, a distributor, has formed a subsidiary known as CinemaNow, which has gone online with a preliminary Web site. CinemaNow will provide Trimark’s entire library of movies over the Internet, offering free and pay-per-view options combined with advertising and an online store for movie-related merchandise. A new player, AOL Time Warner, combines a high-bandwidth cable network with access to 20 percent of total U. S. households, an Internet portal with 20 million subscribers, and the entire Warner Brothers studio’s movie library.

In an interesting twist, Amazon.com already allows customers to place advance orders for tapes of new releases before they become available. This allows a customer who is impressed by a preview for an upcoming movie to order the tape even before the movie is released. Instead of standing in line to buy a fistful of tickets for the whole family to see the movie in the theater, the purchaser can merely wait for the tape to arrive.

Gauging the Systemic Impact

Although it’s too early to predict what will come of these possibilities, it’s clear that the growth of different kinds of secondary media will continue to squeeze even the major players in the video-rental business. Thus, while Blockbuster is currently enjoying its comfortable seat within a “Success to the Successful” dynamic, they may face a bumpy ride on a “Limits to Success” archetypal structure lurking just around the corner. For, what good is having the overwhelming share of a market, if that market shrinks out of existence? Just as Blockbuster changed the game rules of the video-rental industry when they introduced revenue sharing, others may develop even newer strategies and technologies – and this time, it will be Blockbuster’s turn to react to this changing reality. Whether the company succeeds may well depend on their ability to gauge the impact of their own actions on the larger system in which they operate.

Richard White is a writer, performer, and director. He is currently the chief specialist in organizational design, learning, and process at the consulting firm Approach Inc.

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