MAKING BETTER DECISIONS USING SYSTEMS THINKING How to stop firefighting, deal with root causes and deliver permanent solutions JAAP SCHAVELING & BILL BRYAN Making Better Decisions Using Systems Thinking Jaap Schaveling · Bill Bryan Making Better Decisions Using Systems Thinking How to Stop Firefighting, Deal with Root Causes and Deliver Permanent Solutions Jaap Schaveling Nyenrode Business University Breukelen, The Netherlands Bill Bryan Cabrières d’Avignon, France ISBN 978-3-319-63879-9 ISBN 978-3-319-63880-5 (eBook) https://doi.org/10.1007/978-3-319-63880-5 Library of Congress Control Number: 2017948291 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Foreword “Yes, you’re absolutely right, we should set aside some time to analyse this problem in greater depth, but what are we going to do now?” We often only see ourselves as useful when we’re doing something. But this is precisely the mindset that lands us in the problems we’re facing, or more accurately: it lands us in the problems we’re facing again. This book is about the need to postpone the doing side of things. To take the time now to think and investigate what’s really happening, to assess whether we’re dealing with a problem that can be solved with our current knowledge or facing an adaptive challenge. In the chapters that follow, we explore the questions we have to ask ourselves to attain a productive mix of action and reflection. Organisations can only durably improve their performance if they are not obliged to waste their time tackling the same problems over and over again. Sometimes the solutions only seem to aggravate the problems instead of solving them and we seem locked into a never-ending cycle: problem—­ solution—problem—solution—problem. An example of a company that went to the brink of bankruptcy is Imtech, a four billion euro European enterprise with a highly diversified technical offering. When the person invited to become president of the supervisory board accepted the position, he knew the situation was serious. But in fact he found it to be much worse than he had ever imagined. In his own words: “The situation was desperate; none of the normal controls functioned; we had to reinvent the company and radically change the basic workflows and reporting systems and do it quick!” Thanks to a considerable amount of acrobatics in the world of high finance, the company was saved in the nick of time. But just two years later, a quarrel between the financers pushed the company over the brink into bankruptcy. v vi Foreword In previous years, the company had grown quickly by means of a­cquisitions and management had lost sight of the vision and the purpose of the company— focusing rather on dealing with day-to-day problems. For Imtech the kneejerk response had become: “Sure, we have sort this out one day, but what are we going to do now?” providing sticking plaster solutions until the same problem, perhaps in another form, interrupted their work again. In the meantime it gnawed away at the roots of the company, because nobody took the time to think. To change this way of working, a different form of leadership is necessary. We need people who will not only address the problem at hand, but also understand the impact of their actions within a bigger picture. They have to be able to grasp the problem in the context of the organisation and its environment. To quote Darwin: ‘It is not the strongest, nor the most intelligent species that will survive, but the one most responsive to change.’ Systems thinking looks at that bigger picture. This approach, originally devised by Michael Goodman and Peter Senge, helps people and organisations better understand the consequences of their behaviour and achieve a better fit with their environment. It creates solutions for problems by tackling the root causes and demonstrating the kind of leadership required. There is a need for people who can sense the complexity and the underlying patterns of our rapidly changing reality. People who have the courage and leadership to go with that flow and bring about changes without knowing everything about the outcome in advance. People who use their willpower to act wisely. People who recognise the moments in life when they can make a valuable contribution. Systems thinking is an invaluable tool in achieving that goal, and managing our organisations wisely. This book is a translation and adaptation of the two Dutch language books Systeemdenken—van goed bedoeld naar goed gedaan: Systems Thinking—from well meant to well done and Systeemdenken voor managers: Systems Thinking for managers. The first Dutch version is in its tenth reprint and has featured on the management best seller list for years; the second version was published in December 2015. The ideas outlined in the book have been applied throughout the world in commercial and non-profit organisations, from local operators to worldwide operating companies. In this version of the book we focus on the leadership aspects, philosophy and principles of using systems thinking in a practical way and propose a number of tools with which you can create your own system loops. By making thinking systemically central to your approach to problem solving, you can work in much closer harmony with your environment now and in the future. Breukelen, Cabrières d’Avignon Autumn 2016 Jaap Schaveling Bill Bryan Contents 1 Making Better Decisions Using Systems Thinking1 2 What Is Systems Thinking?5 Looking at the Whole Picture 6 Unintended Side Effects 7 Uncover the Underlying Dynamics 8 Looking Below the Surface of the Lily Pond 8 Reacting9 Adapting10 3 The Evolutionary Heritage13 Reacting13 Two Systems 14 Theory of Reality 15 Compression of Data 16 Groupsize17 4 Good Management: Dealing Wisely with Dilemmas19 Time Dilemma: Do you Make Short- or Long-term Choices? 19 Scope Dilemma: Do you Choose a Narrow or a Broad Scope? 20 Awareness Dilemma: Do you Choose to Face the Facts or Take Refuge in Fantasies? 21 Dealing with Dilemmas: Leadership and Wisdom 22 vii viii Contents Leadership23 What Should we Understand by Wisdom? 24 Dealing Wisely with Organisations 24 5 A Systemic View of Organisations27 Reinforcing Effects: Why Do Things Get Out of Hand? 28 The Pygmalion Effect: Higher Expectations Lead to Higher Performance30 Exponential Growth 30 Balancing Feedback: Why Things Don’t Budge 32 6 Impatient Managers Create Chaos37 The Effects of Time Delays 37 Systems Thinking and Time Delays 40 What are our Steering Criteria? 42 7 The Value Creation Model45 What Is the Value Creation Model? Why, What, How 45 Creating Value with Distinctive Competences 46 Internal and External Developments 47 The Strategic Function Typology 49 8 The Value Creation Model in Action51 Laboratory for Bakery Ingredients 51 Employment Agency for Surveillance Duties 53 Public Agency 54 Dealing Wisely with Your Reinforcing Loop 56 Pitfalls57 9 What Has Been Done When the Work Is Done?59 The Current Situation 59 The Vision 60 And What Do You Do Next? 61 10 Driving Forces that Generate and Sustain Patterns65 Genetic Disposition and System 1 66 Our Early Years and System 1 67 Our Tribe and System 1 68 The Rational System 2 70 Contents ix Vision71 Reality Check 72 11 Two Driving Forces in Depth: Mental Models and Team Learning75 Mental Models: What Are the Dominant Mental Models? 75 Team Learning: Which Group Dynamics Play a Role? 77 The Results of Our Dive into the Lily Pond 79 12 Looking Under the Surface of the Lily Pond: Applying Systems Thinking in Six Steps81 Going Under the Water Level: Assessing Reality and the Driving Structure 82 Step 1: Tell the Whole Story 83 Step 2: Describe the Behaviour Over Time in Graphs 84 Step 3: Formulate the Focusing Question and Your Scope 85 Step 4: Identify Archetypes or Fixed Patterns 86 Step 5: Increase Your Understanding by Looking Closer at the Driving Forces 87 Step 6: Planning an Intervention 88 13 Pitfalls of Short Time Horizon93 Fixes that Backfire 94 Shifting the Burden 98 14 Pitfalls of Not Looking Far Enough Around You103 Escalation104 Success to the Successful 108 15 Pitfalls of Fear of Facing Reality113 Drifting Goals 114 Limits to Growth 120 Some Examples 122 16 Pitfall of a Combination of Short Time Horizon and Not Looking Far Enough Around You125 Accidental Adversaries 125 Building Trust 130 x Contents 17 Pitfalls of a Combination of Short Time Horizon, Not Looking Far Enough Around You and Fear of Facing Reality133 Growth and Underinvestment 134 Tragedy of the Commons 137 18 Adaptive Leadership141 Sit Still 142 Know the Value Creation Model of Your Organisation 142 Don’t Think You Can Make the System Perfect 142 Sometimes You Have to Begin a New System or Organisation143 Think Holistically: Keep the Whole System in Mind 144 Make an Honest Assessment of the Situation 145 Discover the Hidden Assumptions; Verify if Everybody Is Discussing the Same Subject 145 Bring the Whole System into the Room 146 Look for Actions with Leverage; Don’t Use a Bigger Hammer 148 Ask Yourself the Questions of the System Thinker 149 19 Systemic Pitfalls in Cooperation; The Pitfalls from a Bird’s Eye View151 The Value Creation Model 152 Fixes that Backfire 153 Shifting the Burden 153 Escalation154 Success to the Successful 155 Drifting Goals 155 Limits to Growth 156 Accidental Adversaries 157 Growth and Underinvestment 157 Tragedy of the Commons 158 The Patterns from a Bird’s Eye View on 1 A4 159 Annexe: Language of Systems Thinking 161 References169 Index171 List of Figures Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 3.1 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 6.1 Fig. 6.2 Fig. 6.3 Fig. 7.1 Fig. 7.2 Fig. 8.1 Fig. 8.2 Fig. 8.3 Fig. 9.1 Fig. 9.2 Fig. 10.1 Fig. 10.2 Fig. 11.1 Analysis of work load Six steps in Imtech’s thinking What they failed to take into account The lily pond and intervention levels Group size vs neocortex volume The effect of reinforcing feedback: positive and negative feedback loops Reinforcing feedback loops Coverage of the lily pond: exponential growth Balancing feedback loops 70 hours is the norm Balancing feedback loop Balancing feedback with set point Oscillations caused by continuously correcting in a balancing loop Finding the right abstraction level The value creation model The strategic function typology Value creation model for Bakery Ingredients Inc Value creation model for employment agency Value creation model for public agency Communication of strategy Use of time Levels of learning Playing field of driving forces Manager pushes through 6 7 7 9 18 29 29 31 33 34 34 38 38 41 47 49 52 54 55 62 63 71 72 76 xi xii List of Figures Fig. 11.2 Fig. 12.1 Fig. 13.1 Fig. 13.2 Fig. 13.3 Fig. 13.4 Fig. 13.5 Fig. 13.6 Fig. 14.1 Fig. 14.2 Fig. 14.3 Fig. 14.4 Fig. 15.1 Fig. 15.2 Fig. 15.3 Fig. 15.4 Fig. 15.5 Fig. 15.6 Fig. 15.7 Fig. 15.8 Fig. 15.9 Fig. 16.1 Fig. 16.2 Fig. 16.3 Fig. 16.4 Fig. 16.5 Fig. 16.6 Fig. 17.1 Fig. 17.2 Fig. 17.3 Fig. 17.4 Fig. 19.1 Fig. 19.2 Fig. 19.3 Fig. 19.4 Fig. 19.5 Fig. 19.6 Fig. 19.7 Fig. 19.8 Fig. 19.9 Fig. 19.10 Mental model in action Effects of interventions Trends of fixes that backfire Fixes that backfire Examples fixes that backfire Trends for shifting the burden Shifting the burden Examples of shifting the burden Trend lines for escalation System loops escalation Trend line for success to the successful System loops for success to the successful Trend lines for Drifting goals System loops for Drifting goals Trabant Drifting goals and team work in a plant Drifting goals in a banking company Drifting goals in an appliance company Limits to growth trend line Limits to growth archetype Examples of limits to growth Trends in accidental adversaries Accidental adversaries phase 1 Accidental adversaries phase 2 Accidental adversaries, the partnership ruined Cooperation between levels in the organisation Cooperation or hobby? Trends for growth and underinvestment System loops for growth and underinvestment Trends for tragedy of the commons Tragedy of the commons The value creation model Fixes that backfire Shifting the burden Escalation Success to the successful Drifting goals Limits to growth Accidental adversaries Growth and underinvestment Tragedy of the Commons 77 89 94 95 97 99 99 101 105 105 110 110 115 116 116 117 119 120 121 121 123 126 126 127 128 129 130 134 135 138 139 152 153 154 154 155 156 156 157 158 158 List of Figures xiii Fig. A.1 Fig. A.2 Fig. A.3 Fig. A.4 Fig. A.5 Fig. A.6 Fig. A.7 Causal relationship: same Causal relationship: opposite Generic reinforcing and balancing loops Examples of reinforcing and balancing loops Looping technique Looping technique for a bank Looping technique for an industrial production company 163 163 164 164 165 165 167 List of Tables Table 5.1 Table 19.1 Table A.1 Development of coverage of the lily pond The patterns from a bird’s eye view on 1 A4 Examples of variables related to events 31 159 162 xv 1 Making Better Decisions Using Systems Thinking The environment we live in these days is very different from that which our ancestors 10,000 years ago had to cope with. In those days you had to decide in a split-second whether the shadow behind the bush was your lunch, or whether you were more likely to be its lunch. We must have been quite good at those split-second decisions, because we have survived as a human species. We learned to react before we think. The problem is that we still have the same hard-wired reactions; our genetic make-up has not changed significantly since that period. Unless we become aware of the limitations imposed on us by our evolutionary heritage, we will continue to act before we think and run the risk of behaving like latter-day cavemen. The influence of our evolutionary heritage is such that even modern humanity, when it has to face the basic dilemmas of life, tends to select the first of each pair of options below: • short term doing rather than long term thinking • simplistic scope rather than a comprehensive scope that requires reflection • take refuge in fantasy rather than face a difficult reality Systems thinking is a powerful tool for addressing these dilemmas. The archetypes developed offer us sharp insights into the way we unintentionally create patterns that keep bringing us back to the problems we trying to solve. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_1 1 2 J. Schaveling and B. Bryan Despite our most well-meaning intentions, we often mess things up. Our patterns frequently arise from failing to take a longer-term view and thereby unconsciously limiting our own growth, or adopting the wrong solution and continuing to use it. Other such patterns arise from looking at issues too narrowly, or by spending so much time battling against symptoms or competitors that we never address the root cause of our problems. Still others take refuge in fantasy and deny the changes taking place around them in reality. To make wise decisions you must look beyond the beautiful flowers on the surface of the lily pond; you must investigate what has caused the situation to develop in this way, by looking under the water surface at the root system and the water that surrounds it. If you don’t know where you are heading, all actions can seem equally valid. Without a purpose, all definitions of intelligence are meaningless. For organisations to prosper they must know where they are going. They must identify the key to their success and the engine of their growth. They must know how they create added value now and in the future, and what they want to contribute to the environment in the years ahead. The Value Creation Model is an excellent way of visualising this essential ingredient for survival as an organisation. Organisations do not exist in a vacuum—they must be aligned with the business environment. An organisation needs a vision of what it is now, what it wants to be in the future and how it will continue to create added value for the environment so that it be able to survive. And once you know where you want to go, you have to implement the resulting strategy by involving the work floor. To address the daily problems in the cooperation patterns we create, we present a well-established six step protocol: from incidents, via trends, scoping, mapping patterns, and driving forces to proposals for interventions. Although these steps sound anodyne enough, recording incidents and analysing trends is in itself a major challenge. These steps are about analysing the current state of things, which often involves a challenging confrontation with actual reality rather than the reality we would like to see. Before you can even think about planning interventions, you must identify the forces that drive people’s behaviour. We like to believe that we behave rationally, but in most cases this is a misconception. Because emotionally-driven behaviour is the norm, it is crucial to understand which emotional drivers are dominant in a given situation. The polished person you think you see—even the one in the mirror—is just a caveman in a suit or a cavewoman in a dress. 1 Making Better Decisions Using Systems Thinking 3 The nuts and bolts of the presentation of systems thinking are outlined in the annexe. The last chapters summarise the content in practical form in order to achieve a balance of thinking and doing—a basic ingredient for dealing wisely with our organisations and enabling them to prosper. 2 What Is Systems Thinking? A problem arises that’s costing your company a lot of money. Every day that the problem persists, the losses mount up. What do you do: do you quickly find a solution, or take the time to identify the cause of the problem? Systems thinking helps us deal wisely with dilemmas like this. Systems thinking is all about realising that there are moments when you have to postpone the doing and think. It’s about those situations that require a shift from learning to improve on what you are already doing (single-loop learning), to realising that you have to learn something completely different (double-loop learning). It’s a way of introducing insight into the complexity of organisations, or in a broader sense: of social systems. Social systems are defined mainly by fixed patterns of which we are often simply unaware. We’re so used to them, so bound up with them, that we can’t even see what’s happening right before our eyes, like the proverbial fish that doesn’t know what water is. This is often why organisations can be taken completely by surprise by events that outsiders have often seen coming for a long time. For the organisation concerned, it seems that business has imploded all of a sudden, whereas in fact the process has been going on for quite a while. And you build these patterns together with your environment. If everybody around you sees the departure of customers as a normal part of business, it becomes part of your frame of reference, and you are unaware of it. One customer goes away, and then another and another, and suddenly the bottom falls out of the business. People within the organisation have failed © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_2 5 6 J. Schaveling and B. Bryan to see the pattern, because they see each event as a separate incident: “Who cares? It’s just one customer…” Systems thinking is a tool to help you identify patterns like these, so that the organisation can face the assumptions they have about their environment and begin to tackle them. Looking at the Whole Picture A very simple example of systems thinking is the analysis of how people manage workload. It happens in all organisations: the workload suddenly goes up. A short while ago you could comfortably manage your work, but suddenly it spills over your desk and it’s getting worse. You don’t have the time to properly finish your tasks and you cannot meet deadlines, just like everyone else, who is also overloaded. The problem is often discussed within the group, in a bid to find a way out, and usually it ends with a solemn promise to stick to agreements and deadlines. Agreements are identified as the action point, because that’s the most visible part of the problem. Wherever you see notice boards in conference rooms with: agreed = agreed, you can be sure that the reverse is true …. In systems thinking you factor in the overall context and the situation looks more like Fig. 2.1. The various phenomena are all probably related in one causal relationship. If we’re aware of the relationships, we can think about more nuanced solutions and increase the opportunities for interventions. Insight into the relationships between phenomena enables us to intervene more effectively. In this case it’s probably smart to agree on the priorities and stick to the priorities that have been agreed upon. It’s an example of changing from working harder the way you used to, to working differently. Fig. 2.1 Analysis of work load 2 What Is Systems Thinking? 7 Unintended Side Effects In the foreword we cited Imtech as an example of a company that lurched from one problem to the next. In fact Imtech used quick fixes all the time: they acquired 80 companies in 10 years! The quick fixes of acquiring another company had the opposite effect of what was planned; instead of growing stronger, they pushed the company to the brink of failure. Imtech made the problems worse by deploying the sort of faulty reasoning to which we are all prone: this is a problem; we have to deal with it now. They were probably thinking unconsciously in terms of steps 1–6 in Fig. 2.2. But they did not foresee that acquisitions could have all sorts of unintended side effects in the longer term, as shown in Fig. 2.3. ... we have to do something about it NOW ... 2 We conclude that we have 1 profitability probleem and the cause is clear 3 aggressive acquisition policy The company is too small 4 ... and that will take care of the problem 6 ... but the profitability problem remains because... 5 Fig. 2.2 Six steps in Imtech’s thinking ... we have to do something about that NOW ... ... 2 We conclude that we have a 1 profitability problem and the cause is clear 3 aggressive acquisition policy The company is too small 6 4 ... but the profitability problem remains, because ... ... and that will take care of the problem 5 Problems with the integration of acquired businesses No cash generation Insufficient control tools Fig. 2.3 What they failed to take into account 8 J. Schaveling and B. Bryan Like many other organisations that fail to think systemically, Imtech went bankrupt. Once again this example highlights the need for a change in thinking rather than improving on what you think you know. The straw that broke the camel’s back was a quarrel between the lenders and a refusal to supply an additional amount of money. One can but wonder about the quality of leadership throughout the whole process—not so much of those that were brought in to save the company, but of those who let the situation drift in the first place. Uncover the Underlying Dynamics Systems thinking is about recognising patterns at work and in our daily life. It represents an extensively researched method of discovering and charting the dynamics that cause tenacious and recurring problems in complex organisational contexts. It’s an important tool for creating a shared image of a situation through involving other participants with other viewpoints in the process of clarifying underlying patterns. During that dialogue with participants, a picture may arise that shows a changed environment, which may in turn require an adaptation. With that shared image of the situation, clear action priorities can be formulated to move ahead. Looking Below the Surface of the Lily Pond Systems thinking can be illustrated with the metaphor of a lily pond. With a lily the largest part is hidden under the surface of the water. The beautiful flowers and lily pads catch our attention and on the surface of the pond they seem to be the only things there. But they can only be there because of an integral system of roots, stems, and nutrients in the water and the soil that makes the lilies grow and surface. If we content ourselves merely with cutting away the flowers and the pads to clear the surface, we will always be reacting at an event level and will not change anything structurally, because the underwater part will keep pushing new lilies and pads up. If you don’t take a step back to investigate the underlying structure, events will go on dominating your attention and force you to keep on fighting the symptoms without tackling the causes. While reacting to what keeps coming at you will teach you to improve what you already know how to do (i.e. single-loop learning), exploring the causes of what is coming at you may teach you completely 2 What Is Systems Thinking? 9 Incidents, reacting Trends: Anticipation by seeing trends Intervention: Which interventions are adequate? Adaptation: Being conscious of your basic patterns and driving forces Fig. 2.4 The lily pond and intervention levels new skills that will enable you to adapt to the changing environment (i.e. double-loop learning) (Fig. 2.4). It’s certainly worth spending some time exploring what goes on under the surface of the water, because that’s where you can make lasting changes. It can take you from reacting to events to addressing underlying causes and adapting your organisation to the changing environment. Reacting Reacting is the primary reflex of most individuals and organisations to challenges. Actions are formulated on the basis of existing routines, handbooks, guidelines and the current interpretation of the situation. If solutions don’t work, other solutions are sought within the same frame of mind, via trial 10 J. Schaveling and B. Bryan and error. The reactive mode drives us into a rat race of problem, solution, problem, solution, ad infinitum, and our lives become a series of responses to crises within the same framework of rules and guidelines. Like the lily pond, we only take care of the flowers and lily pads but forget that they are nurtured by an integral system under the water, whereas in fact we should be looking at what lies beneath the surface. If we take one step back, we often see that events form a pattern with a recognisable trend. That enables us to anticipate coming events. This is already a real improvement on reacting, especially if the future is comparable with the past. We can make plans and anticipate events. Trends and patterns are an expression of an underlying structure. Some aspects of the structure are easy to recognise, such as physical layout, policy, procedures, reported relations between persons and departments, allocation of means, reward systems and information systems. Other structural aspects such as culture, customs and unwritten rules tend to escape observation. Anticipation is the awareness of patterns and trends from the past and their projection onto the future. You suppose a trend will continue in the usual way and act to prevent the event from being repeated. But looking at trends does nothing to change the course of events. This way of thinking in terms of reacting to events—even if they form trends—is entrenched in single-loop learning: learning to do better what you already know how to do. Adapting Systems thinking requires a period of reflection; it invites you to take time to look at the system as a whole; but—more importantly—to look differently at the system. Aspects such as culture, convictions, mental models, interpersonal relationships, role flexibility or unwritten rules that are hidden much deeper under the surface often escape observation. Those aspects however are the drivers of the current situation and the reason of resistance to change. To cope with changes in the environment we may have to change our mental models (or ‘glasses’). Our current mode of thinking may be based on a reality that no longer exists or the basis of some of our assumptions may have changed. Rather we need to investigate those assumptions that underlie our procedures and single-loop learning ‘solutions’. 2 What Is Systems Thinking? 11 If we become aware that our old ways (single-loop learning) can no longer help us survive in a changed environment, we become open to fundamental change. This can hurt, because we have to relinquish the certainties we grew up with, and with it a part of ourselves. Interventions at this level involve redesigning the structures and questioning the concepts we’ve been working with. We have to learn new behaviours to adapt to the changed reality. Adaptation therefore requires a much broader scope of definition of the problem. The result of adaptation may be that you fundamentally change the concept you have been working with. For example, when digital timekeeping became very reliable and cheap around 1980, the famous Swiss watchmakers came to the conclusion that they were no longer in the business of timekeeping but in the fashion or lifestyle business. They changed their mental model in time to save a considerable part of that industry. Adaptation in a general sense challenges mental models concerning the social function of an organisation. Is the mission of our organisation still a valid concept in this day and age? Should we not redesign the whole organisation and develop a completely new concept? The deeper we descend into the pond, the more the power of our interventions increases. 3 The Evolutionary Heritage Most managers know all too well that they should spend more time thinking (systemically), but find the idea cumbersome. If you are one of those, you can blame our evolutionary heritage. Reacting After all, it was only 500 generations ago—approximately 10,000 years— that our ancestors searching for food had to decide in a split second whether the shadow behind the bush was their lunch or whether they were about to become that shadow’s lunch. Fight or flight. If you flee too often you perish from hunger; if you misjudge the situation, you will be eaten. In order to survive it was essential to create an actionable image of the situation—and quickly—on the basis of very little information. Reflective individuals, who took a bit of time to think about the meaning of that shadow, never got the opportunity to have children and contribute to the gene pool from which we stem. The way we form our picture of a situation is that we observe (or think we observe) an element and in a split second we complete the picture with information from our ‘frame of reference’. Our frame of reference is the sum total of our experience and our assumptions about how the world functions. These assumptions have either been taught to us by our environment or stem from our own experience. When asked to describe a situation that we’ve witnessed or have been part of, in most cases we don’t even know © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_3 13 14 J. Schaveling and B. Bryan which elements we observed and which we filled in. We’re unable to distinguish between what we saw and what we made up. This is one of the reasons that eyewitnesses of the same event often give wildly differing accounts (and are notoriously unreliable). Without the quick reactions of our ancestors we would not have been here to write or read this book. The problem however is that these same traits have remained unaltered but our environment has changed dramatically. Our ancestors lived in a relatively simple environment and were much more concerned with the present than the future. The world around us now is far more complex and requires much more thinking ahead to anticipate changes. The human brain and its capacities evolved at a time when people lived in small groups of hunter gatherers and that experience proved formative—both emotionally and rationally. We have not yet had the time to adapt our mental hardware (the way our brain is built) and software (the way we use our brain) to an agricultural society, let alone to an industrial global society. Two Systems As we saw above, our capacities can roughly be divided into the emotional and the rational. Our brain developed in several phases in the course of evolution. The emotional system that we share with most animals is the older one in evolutionary terms and functions very rapidly, smoothly and effortlessly. It processes information in parallel (hence the speed) and drives physical responses such as a surge of adrenalin in moments of stress. The neocortex that houses our rationality is the part that distinguishes us from other animals. It is much younger in evolutionary terms and functions much more slowly; it processes information sequentially. Both systems function within us all the time and we are not always aware which of the two has the upper hand. Economic “science” is based on the assumption that people make rational choices. Kahneman among others has demonstrated in numerous psychological experiments that, far more often than we think, we make our decisions emotionally and make up a rationalisation afterwards (see Kahneman on: www.nobel.se). Kahneman has been working on the concept of two systems within us since the early 80s, exploring the fact that we decide emotionally when we think we are acting rationally. Interestingly, at the same time Timothy Galwey used the same approach in sports with his concepts of “Inner Game” coaching, but argued that per- 3 The Evolutionary Heritage 15 formance can only be achieved when you let your intuitive self play. The technique is to assign an observer role to your rational self, without interfering in the actions executed by the intuitive self. If you succeed you may enter “the zone” in which you play effortlessly without rational thought. For the non-sporty, “the zone” is an expression for the state of grace in which you perform at your very best without any effort. Both Kahneman and Galwey make clear that evolution has given us two modes of brain function and that we are often unaware which one governs our actions. Theory of Reality In whatever we do, we create an image of the reality around us; a theory of reality. The idea of “suspending judgement” is unnatural; we always have a mental image. Usually what we call suspension of judgement is our ability not to react immediately to that image. Our theory about reality is formed in two distinct ways: • By induction: we draw conclusions about reality outside our dataset. • By deduction: we draw conclusions about reality within our dataset. Both approaches are fraught with potential errors. Induction involves us observing things and actions and drawing conclusions about how that will continue in the future, or plays out under different circumstances. The famous example from Bertrand Russell where this proves to be very wrong is the turkey that is being fed every day by friendly humans. It draws the conclusion that all days in the future will be the same; after all there is no evidence of the contrary. However in the week before Christmas (or for Thanksgiving in the US) it is in for a nasty surprise!! The hand that has been feeding it, now wrings its neck! A big surprise for the turkey, not for the butcher. If you are drawing conclusions by induction: take care not to be the turkey! Deduction involves us observing things within our sphere and drawing conclusions about the functioning of our environment. We often fail to realise that we have in fact made a selection from the available data and are confident that we have taken all relevant data into account. But that is only an assumption! A problem that hampers both forms of creating an image of reality (induction and deduction) is that when we are presenting data that we 16 J. Schaveling and B. Bryan observe it is nearly impossible to present them as unconnected elements. We tend to weave a story, a narrative, around it. However, a narrative always presents elements in causal relationships that in many cases are completely arbitrary. This situation can cause serious damage when three factors come together: • We feel the urge to do something/anything. • A simple explanation presents itself (or is presented to us). • We are certain the explanation is correct and does not need to be checked. Even though an explanation may seem logical, it always needs to be verified. But once an explanation or causal relationship has been accepted, it can be difficult to see different relationships and reach an explanation that’s closer to the truth. Once we form an image of reality it becomes part of our frame of reference and our observation of reality confirms our ideas: this is our “confirmation bias”. Compression of Data To deal with reality, we have to compress data. There are too many things going on around for us to take them all into account to create an image of reality. Both aforementioned ways of forming an image of reality compress data by assuming causation, and the confirmation bias then validates the narration. We should be concerned about our confirmation bias, because it makes us neglect information that disproves our image of reality. We tend to take an example that confirms our ideas as “proof ” that our ideas are correct. We tend to overlook the silent evidence: like Sherlock Holmes’s ‘dog that did not bark in the night.’ Bookstores are full of management advice and recipes for success in the form of biographies of successful people; but what happened to those thousands, who had the same traits and character and were never heard of? For every success story there are thousands of failures that nobody talks about. We do not naturally look for the silent evidence; we like our images nice and clean. This compression of data makes the world seem more simple and understandable than it is in fact, and leads to a general overconfidence in our knowledge. In a famous experiment by Albert and Raiffa that has been confirmed in various ways, individuals were asked to give an estimate of random variables like the number of dentists in a given town or the height of 3 The Evolutionary Heritage 17 the Eiffel tower, etc. They were asked to give a range for each variable they thought to give them a 98% certainty. For any group of individuals you would expect that the correct answers would amount to about 98%. In reality the level of correct answers is always between 70 and 80%. Note that the experiments were not about the knowledge of the individuals, but about the confidence of the individuals in their own knowledge. We vastly overestimate our own knowledge! As humans we are not very aware of what we do not know; we are focussed on what we think we know and we greatly overestimate our knowledge. This compression of data is a fundamental part of our day-to-day functioning, because we cannot cope with the myriad data around us. We just have to be aware of it and realise what the consequences are for the validity of our images of reality! Groupsize Among other limitations there is a good case for saying that the size of our brain limits the number of people with whom we can meaningfully interact. Dunbar (2003) illustrates that perfectly with the graph in Fig. 3.1, which plots the relative neocortex volume (= neocortex volume divided by total brain volume) against group size for monkeys and primates. The neocortex is the newest part of our brain in evolutionary terms, and is involved in higher mental functions such as reasoning, abstract thinking and language (courtesy Dunbar 2003 and Barrett et al. 2002). In the graph you can see that the maximum group size for meaningful interaction for humans is around 150. It appears that there is a serious mismatch between our emotional and intellectual heritage and the environment in which we live, with urban agglomerations that have completely lost touch with the human scale. Another aspect of our heritage is that we evolved within a (relatively) stable ecosystem in which each year was much the same as the previous year, apart from differences in the abundance of food. In such a system a hierarchical structure was the best guarantee of survival: the elders knew where to find food, the leader protected the tribe and kept order and everybody understood their place within the group. Those who put themselves outside the group did not find mates and were at greater risk of dying early. That heritage has instilled itself in our genetic makeup: we are programmed to trust authority. Trusting authority in terms of systems thinking means respecting the status quo and improving what we are already doing: singleloop learning is our default mode of operation! 18 J. Schaveling and B. Bryan Primates Monkeys Fig. 3.1 Group size vs neocortex volume Put succinctly: evolution has resulted in a human race that has • • • • learned to prefer speed over reflection; two systems of thinking: emotional and rational; learned to compresses data to be able to form an image of reality; a penchant for confirmation and neglecting contradicting or silent evidence; • learned to respect authority, and accepting the status quo. You might say that we manage quite well as cave dwellers in a complex, technical society, but emotionally and socially we have remained cavemen. In order to function and perform in an environment that has become much more complex, and in which our actions have consequences which impact a future that’s much farther away. We need to understand our basic shortcomings. 4 Good Management: Dealing Wisely with Dilemmas In daily life and in management the basic choices are about (1) time: short term versus longer time horizon, (2) scope: narrow or broader scope in terms of organisation and place and (3) awareness: how we deal with reality. Time Dilemma: Do you Make Short- or Long-term Choices? If you ask smokers why they don’t give up smoking they usually answer: “I just can’t seem to do it”, but they probably mean to say that they’re not willing to give up the short-term kick of smoking for a long-term health effect. It is shocking to realise that about 80% of patients who have undergone serious heart operations fail to make the adjustments in their behaviour to improve their health! In the same short-sighted vein, many governments have pursued electoral gains and have let the financial situation run amok, causing a crisis, whose end is certainly not in sight. Every time there’s a choice between fixing a symptom quickly, and preventing the problems structurally by solving the root causes, we choose the former. Only where there’s no alternative do we go deeper… and even then we do it reluctantly. The fire fighter or the rescue worker who puts his own life in danger doing his job is seen as a hero. The inspector who comes to check the safety regulations is regarded as a bore. Every shooting spree in the US is followed by an outcry calling for tighter controls to keep firearms out of the hands of maniacs and other unstable © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_4 19 20 J. Schaveling and B. Bryan people, but for the general public it all fades away within a few days or weeks, while the friends and family of the victims bear the scars for life. The disaster with the cruise ship Concordia off the coast of Tuscany in 2012 will certainly have had little impact on the general non-compliance with the obligatory safety drills for new passengers before the boat leaves the harbour. In some cases not even all crew members will have had the drill. We really are short-term creatures! We could cite an infinite number of examples in which the long term is neglected in favour of the short term. Humans are action-oriented and prefer doing anything instead of waiting, even if they know the outcome will not be effective. Because of our genetic programming we always let the short term prevail over the long term: “What can we do now?” We prefer a simple quick action that creates immediate relief over the real (sometimes very difficult) solution to the problem. We prefer to push that over our time horizon. Who will live to see that in any case? And who cares? With a bit of luck it’ll be somebody else. Scope Dilemma: Do you Choose a Narrow or a Broad Scope? Evolution has not prepared us for the environment in which we live in today. As we have seen, we are hardwired to react immediately on the basis of the information we have at that moment, and to interact with a limited group of people. We therefore tend to define problems so that we can understand them easily and acquire a complete overview. A few examples: • Food aid began with the definition “There is no food”. When sending food did not improve the situation the definition was enlarged to “The food supply is structurally deficient.” • If people in a department do not work together the definition of the problem is often “We do not work as a team”. The solution is “teambuilding”, a goldmine for consultants. If that does not work (as in most cases) the scope gets enlarged to “Have our mission, vision and strategy been communicated properly?” • If an employee does not function properly the diagnosis is often “She needs more training”. If the results of that are disappointing the definition might become “Do we have a good program for coaching and mentoring?” or “Is the head of the department doing her job well?” 4 Good Management: Dealing Wisely with Dilemmas 21 Have we not all at some time or other jumped to a conclusion only to find out later that there was more to the problem than we thought at first and had to reorient our efforts? We tend to opt for a false certainty because that gives us the opportunity to act quickly on something we understand—something our brains can cope with. Broadening the scope requires a great deal of energy and creates uncertainty, so we tend to steer clear of it. Now if we want to approach matters in the sense of systems thinking and to broaden the scope, how do we go about it? What are the right system boundaries? There are no hard and fast rules, but as a rule of thumb you should set the system boundaries wide enough to be sure that they comprise the core of the problem, but narrow enough for you to be able to do something about it. You do not need to have a complete in-depth understanding of the problem, but your perspective has to be broad enough to give you an overview of the consequences of the actions you are taking. Be aware of the fact that we are evolutionarily programmed to keep things simple and to opt for the narrowest possible scope. Bearing that in mind, you stand a good chance of choosing meaningful system boundaries. Awareness Dilemma: Do you Choose to Face the Facts or Take Refuge in Fantasies? If a situation becomes uncomfortable or threatening for us, we tend to use defence mechanisms to protect us (our egos) from the threats of the outside world. However, those defence mechanisms obscure our vision of reality. If things get too complicated, too unforeseeable or too dangerous, we stick our heads in the sand. We have still not evolved past the level of the mussel that closes its shell if the water becomes polluted. Rather than facing the facts, we take refuge in wishful thinking, or resort to solutions we know and understand even though they bear no relation to the problem at hand. In doing so we stick close to the things we know and pretend to be working on the problem. Another defence mechanism is to divide the world into ‘us’ and ‘them’: ‘them from head office and us from the workplace’. To see the world that way is to lose the view of the whole—to seek to escape the reality that it is not only ‘them’ that are responsible for the problem, but also ‘us’. A subtle example of unspoken ‘us’ and ‘them’ thinking is the functioning of many management “teams”. Instead of acting as a team, they form a collection of individuals defending the interests of their own department because they have trouble understanding the exact nature of the relation- 22 J. Schaveling and B. Bryan ships between the departments. That problem is aggravated because they have no formal say in other departments. For instance: a production manager may be of the opinion that the sales manager makes promises to clients that cannot be fulfilled by the organisation. Because of those complex relationships, everybody limits themselves to their own department where things are complicated enough as they are (and their reward system is probably geared to the result of their own department). By remaining within their own sphere, they collectively lose sight of a part of reality. Under normal circumstances, people usually adopt a rational mode of working, but in situations of uncertainty and stress they often regress to ‘asif behaviour’. As-if behaviour is a defence mechanism whereby they act as if they are solving a problem, but in reality are not even trying. It’s an indication that they aren’t facing (or don’t want to face) reality. A consultant may for instance start to work excessively for hour after hour to hide from the fact that she is no longer able to keep abreast of developments in her line of business. Another example of as-if behaviour is the hiring of external consultants and interim managers: it seems like they are reacting to problems (after all: we hired experts…), whereas in fact they should have been reflecting on why management has been unable to solve the problems itself. With some reflection and self-criticism the organisation should be able to solve the current and future problems without the help of external resources. By acting as if they are doing a good job, there is no longer any need to deal with a reality that is too difficult, too frightening or too confrontational to face. The situation gets really serious if you deny this as-if behaviour when you are confronted with it. If outsiders point out obvious observational or interpretation errors of verifiable facts and you deny that they are mistakes. Then you have locked yourself in a mental prison from which it is very difficult to escape. A typical symptom is taking refuge in grandiose fantasies and impossible goals, like a small local bank wanting to become one of the top five banks in the world. Dealing with Dilemmas: Leadership and Wisdom Short term or long term? Limited or broad scope? Fantasy or reality? Those are the basic dilemmas in life. To deal with them we need wisdom and leadership. People who can make an important contribution to society are peo- 4 Good Management: Dealing Wisely with Dilemmas 23 ple that are anchored in the local community, their ‘tribe’, and communicate in a classic human way with others, but who can also contribute to the openness and of their local community through their connectedness to the ‘global village’ and in this way pave the way for advancement. Leadership The way our brains function is an interaction between our evolution and the experience we accumulate throughout our lives. We must bear in mind that our evolutionary heritage of growing up in small hunter-gatherer communities has predestined us to seek, understand and respect hierarchical structures and authority. That authority once provided us with a means of obtaining our food, protected us, created order and solved social conflicts within the group. And in stable environments a hierarchical structure with an inbuilt authority system works very well. However, in times of turbulence, hierarchical structures and invested authority turn out to be suited to yesterday’s problems and are unable to solve problems of a totally different nature. That is where adaptive leadership is required. In times of change yesterday’s solutions will only provide yesterday’s answers. A (major) crisis points to a need to change the rules of the game. In times of crisis, leadership must be adaptive in the sense that the leader creates the structure in which ways can be sought to adapt to the new situation. By definition, change must be experimental, because we do not know the outcome of our actions in a situation we have not encountered before. This experimentation has an evolutionary (not revolutionary) character in which we should be very careful not to throw out the baby with the bathwater. But it always involves some form of behavioural change—redefining ourselves and our relationship with our environment. Systems thinking is a tool to help us exercise adaptive leadership through providing a platform for analysis and a framework for discussion—a platform in the way it approaches a problem, and a framework in the sense that it requires us to ask some reflective questions, not provide answers. It’s vital here to see the distinction between authority and leadership: authority is designed to solve problems we already know how to solve; leadership is required for adaptive challenges to make people take responsibility for the problems of which we form a part. Adaptive leadership is about creating a safe structure so that people can face reality and raise the questions 24 J. Schaveling and B. Bryan that need answering. Again, systems thinking is a tool (and no more than that) to facilitate that process. What Should we Understand by Wisdom? We need to find ways to cope with the inherent limitations of our brain structure. One of the few ways to escape from our evolutionary heritage is to consciously distance ourselves from the kneejerk tendency to do, by taking time out for reflection. Problems are often difficult to fathom because of the distance in time and place between cause and effect. By taking time out, we can better judge those relationships and improve our overview of the problem. That is wisdom. Another form of wisdom is to take the role of an impartial third party. With that you can stimulate reflection in a group. In change processes, different people have different interests and the role of an impartial third party becomes especially essential for the analysis and description of a situation. Wisdom involves accommodating the whole system and stimulating actions that are fruitful for society in the longer term. The application of management wisdom can also be called ‘good stewardship’. The characteristics of good stewardship draw on the following dimensions (Karssing 2011), becoming: • broader by respecting the values and interests of other parties involved and taking more perspectives and alternatives into account, • deeper by better taking into account the history and the consequences for the longer term, • richer by using additional arguments to underpin decisions, • more explicable by basing behaviour on good arguments and taking the expectations of others into account. Dealing Wisely with Organisations The purpose of systems thinking is to deal more wisely with our organisations. Dealing wisely requires a form of leadership that creates safe environments for people to adapt to changes. A useful comparison is the leadership role on a boat. Who has the most influence? The captain, the navigator or the helmsman? They are all legitimate and important roles, but nobody has as much influence as the designer of the ship. He is the one who has influ- 4 Good Management: Dealing Wisely with Dilemmas 25 enced all aspects of the ship: its attractiveness, its manoeuvrability and its safety in problem situations; he is the one who has been working at the level of the roots of the lily. But how many of those who climb aboard realise that? The work on the structure of an organisation—sometimes called the social architecture—is seldom visible; it takes place behind the scenes. What we see now is the result of work in the past, while the work done now will bear fruit in the future. Work on the structural level is not the most visible, but it does have the biggest leverage, even if somebody else gets the applause. Dealing wisely with organisations means focusing on the structure that engenders all of the results. In today’s society with its unlimited ways of spreading information, there is a need for leaders who can help others structure the oversupply of information. It is the structure in the supply of information that coordinates actions without having to give directives. Not making the choice for others, but with others. Leadership is about analysing situations, at local level, at your own pace, and requires thinking about the structuring of your own environment. Systems thinking helps the leader rise above the level of reacting and begin to ask: “Why is this happening?” Dealing wisely with organisations implies focusing on the longer term. Unfortunately most reward systems are geared to the short term and to fighting symptoms. Which is why promotions often go to the good problem fixers, the quick reactors, and not necessarily to the ones who think in a way that’s broader, deeper, richer and more explicable. This is unfortunate, to say the least, at a time when organisations really need this way of thinking. Systems thinking is about stimulating thinking and acting wisely, going a few steps beyond the quick fixes designed to rapidly move the problem off the table. And that implies dealing wisely with the basic dilemmas of life • Short term versus long term; • Limited scope versus encompassing scope; • Fantasy or reality. Organisations and society now and in the future need leaders that can create rather than react and who have the courage to face reality and adapt to it. Systems thinking is an invaluable tool in this process. 5 A Systemic View of Organisations In the Chap. 4 we saw that we tend to react intuitively to problem situations. However, such instinctive reactions often stand in the way of good management. In this respect we are not very good at making open and honest assessments of situations. We often run away from the assessment and jump straight into a solution. This inevitably entails defining the problem in terms of a familiar solution that may bear very little relation to the real situation. We also rarely look over the boundaries of our department or organisation, except to put the blame somewhere else. Above all, we are often too impatient to wait for the results of our actions to emerge. But taking different measures because the results of earlier measures are not yet visible is a recipe for chaos. Looking at organisations from a systems thinking perspective counterbalances these instinctive reactions. Systems thinking sees organisations as living systems in which everything is interrelated. Two very interesting illustrations of this form of interconnectedness are given on YouTube: https://www.youtube.com/watch?v=NJQ4r81DZtY https://www.youtube.com/watch?v=dnjaFNbOR4Q Interestingly, all that complexity is built up from only two basic building blocks: reinforcing and balancing feedback loops. They in turn are built from just two forms of causal relationships: ‘S’ for same and ‘O’ for opposite. In this chapter we will closer look into these building blocks and how they function. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_5 27 28 J. Schaveling and B. Bryan Reinforcing Effects: Why Do Things Get Out of Hand? Something that starts small can grow bigger at a very fast tempo, in what is known as the snowball or spiralling effect. A good product can be sold easily and word-of-mouth advertisement can accelerate its growth. Conversely, if you sell fresh produce and it is criticised in the local newspaper as past its sell-by date, your sales will soon plummet. This snowball effect—whether positive or negative—can accelerate so quickly that people are taken by surprise. It is characterised by patterns such as: more, more, more, less, less, less, faster, faster, faster, or slower, slower, slower. The internet hype and the prices of real estate in the early 2000s are clear examples of more, more, more. Growth continued unrestrained until the moment it was stopped from the outside. In this case it was the financers who wanted to recoup some of their money who caused the trend to change direction from more to less, less and less, resulting in the bottom falling out of the market. The present euro crisis was completely unexpected for most people: in 2006–2007 the sky was the limit and there were experts arguing that our economies and control systems were so robust that this kind of recession was very unlikely to happen. The snowball effect is a reinforcing feedback loop: a process in which the result reinforces the cause, making the result even bigger. The term snowball effect is very apt: if fresh snow sticks to the first core snowball, the circumference becomes bigger, so that on the next revolution even more snow sticks to the ball and on and on, until it becomes an avalanche. This kind of reinforcing feedback loop is the basis of all change and is the engine of growth or decline. This process is shown in Fig. 5.1. If we are dealing with a reinforcing loop the trend will always go up or down, even though the change may be very slow and almost invisible in the beginning. An example: at a certain point in time a given share is being bought above the average on the stock market. Confidence in that share increases, leading to more buying, which in turn increases confidence, which leads to more buying: more, more, more. However, a reinforcing loop also works the other way round: if there is a dip in confidence, people will try to sell the share, leading to less confidence, which in turn leads to more people trying to sell: less, less, less. In both cases the process reinforces itself: • More confidence leads to more buying and more buying leads to more confidence. A Systemic View of Organisations 29 Variable: Amount of stock bought Variable: Amount of stock bought 5 Time Time Fig. 5.1 The effect of reinforcing feedback: positive and negative feedback loops S S Stimulating action R Variable S Stimulating action: buying R Variable: confidence in the stock market S Fig. 5.2 Reinforcing feedback loops • Less confidence leads to less buying and less buying leads to less confidence. In Fig. 5.2, a generic reinforcing loop is shown along with a similar loop for the example given. The R in the figure stands for reinforcing and makes clear that we are dealing with a reinforcing loop. In the figures the variables are connected with arrows designating causality. If the variable at the beginning of the arrow changes in value, the variable at the end changes as well. In a loop as shown above the result is also directly connected to the original cause with an arrow of causality. In a reinforcing loop both arrows of causality are annotated with an ‘S’ for same, because cause and effect move in the same direction. The system is reinforcing, because the effect in turn influences the cause in the same direction as the cause did for the effect. 30 J. Schaveling and B. Bryan The Pygmalion Effect: Higher Expectations Lead to Higher Performance What is interesting about this simple system is that it can describe a multitude of situations that will all show the same pattern in time. If you replace confidence in the stock market with confidence of the teacher and purchase with student performance, you see the Pygmalion effect. This was named after Pygmalion; a figure in Greek mythology, who created an effigy of a woman with so much love that the effigy came to life. The reality of this effect has been demonstrated several times in large scale experiments. One of the most intriguing experiments saw a Harvard University team visit several schools with the announcement that they had developed a method to predict which students would make the biggest progress in the coming school year. The researchers had all the students do a bogus test and then randomly selected a few names. The teachers were asked not to reveal in class who had come out of the test as most likely to improve. At the end of the school year the designated students had improved significantly better than the others. The high expectations of the teacher had stimulated the performance of the students. This Pygmalion effect is also demonstrated daily in management life: employees simply function better when they feel valued and that their competences are being used. Exponential Growth It can sometimes be difficult to see the growth, but by the time the phenomenon has become sizeable, the rate of growth may be too big to handle the outcomes. A clear example of this is the rate at which a pond is covered with water lilies. The surface covered by water lilies doubles every day and the pond is completely covered after 30days. The question is: at what day was the pond covered for half its surface? The answer is easy: the 29th day of course. But what would the coverage be on day 15? It is difficult to imagine that it was only 0,003%! The development of the cover can be seen in Table 5.1. The graphic form of this exponential growth is given in Fig. 5.3. Like the stock market and the Pygmalion effect, the implications of this exponential growth can be generalised. A slow but steady trend can easily be underestimated, such as population growth or the deterioration of living areas. By the time the trend is visible; the reinforcing loop has accel- 5 Table 5.1 Development of coverage of the lily pond A Systemic View of Organisations 31 Day # Cover in % 15 0,003 20 0,1 25 3,1 28 25 29 50 30 100 100 % Number of days 15 20 28 30 27 29 Fig. 5.3 Coverage of the lily pond: exponential growth erated the rate of growth such that the change seems to have come out of the blue—suddenly and dramatically. By now you can only react to actual events on the ground, but the process has already proceeded too far to be controllable. That creates a great deal of disruption that could have been averted by acting on early symptoms. The business environment is full of examples of not recognising important trends and this has been the demise of many a company: • When around 1890 business people were asked what they thought of the invention of the telephone, one of the most common answers was: “What’s wrong with a messenger boy?” • Until 1990 mobile phones were a non-issue for telecom companies. • In 1993 the internet was a completely unknown quantity for the top IT companies. 32 J. Schaveling and B. Bryan • A survey of magazines from 2000 shows that only a handful of companies had or even mentioned a website. • The phenomenon of cheap air tickets was unimportant until early 2000; now low-cost airlines set the trend and traditional carriers are obliged to take them into account. In Europe Ryanair is just edged out of the first place in terms of passenger numbers by the Lufthansa group, but remains way ahead of Air France/KLM. Southwest in the US is the largest carrier in terms of passenger numbers. • The emergence of social media took off in 2006, when Facebook became accessible to anybody over 13. • The radicalisation of Muslim youth was an unknown phenomenon until recently but is now a central national security issue for most European countries. Balancing Feedback: Why Things Don’t Budge Balancing feedback is the basis of all stability in our environment, our social environment, phenomena in nature, in life. Obvious examples include: • If you are hungry, it diminishes your feeling of well being and you correct that by eating something. • If you see that you are driving too fast, you take your foot off the accelerator. • If the water in the glass rises, you stop pouring to prevent it from flowing over the edge (= norm). • Your body temperature stays constant in widely varying conditions; quite a few balancing processes at work there! • Many plants react to damage when they are being eaten by grazers: they send toxins to the damaged areas to prevent further damage. The grazers react by moving further up-wind to prevent being poisoned. • Animals with few or no defence mechanisms have many offspring to compensate for being eaten; predators usually have very few offspring to prevent overpopulation of their species. Wherever there are stable systems, there is balancing feedback. Balancing feedback is a process in which a norm or a goal is pursued. Every steering is a corrective action with a norm in mind, be it knowingly or unknowingly. Corrective action is undertaken when the current performance deviates from the norm. The pressure to change or correct is reduced when the performance approaches the norm as a result of the actions undertaken and the 5 A Systemic View of Organisations 33 S S Variable B Corrective action O Variable: Hunger B Corrective action: Eating O Fig. 5.4 Balancing feedback loops gap between the performance and norm becomes small. If the glass is still empty, you switch on the tap, by the time it gets full, you reduce the flow. A generic balancing loop and a similar loop for the hunger example are shown in Fig. 5.4. Here we find the other arrow of causality; the one with an ‘O’ for opposite. In this case the variable at the beginning of the arrow and the one at the end move in opposite directions: if the variable at the beginning of the causal link goes up, the variable at the end goes down and vice versa. In a balancing loop, corrective action is undertaken to adjust a divergent variable to the norm. This often happens so naturally, so self-evidently, that balancing loops are difficult to identify. Another difficulty is that norms are often so implicit that nobody recognises the presence of the balancing loops. Implicit means that these processes are part of your frame of reference and thus escape notice. As an example, let’s take a firm of consultants with employees who put in more than full-time hours. The management tries to convince people to reduce the number of hours worked, because the good employees who want to spend more time with their families are leaving one by one. The effort fails, because the unwritten (implicit) rule in such organisations is that the real leaders, the real heroes, the people who really care about the firm and want to build a career, ought to work at least 70 hours per week. The norm ‘heroes’ work 70 hours’ has been cultivated by the managers themselves by virtue of the amount of energy and hours they have put into their work. That implicit norm is the criterion by which employees measure the number of hours they work. The trend of hours worked is shown in Fig. 5.5. The balancing loop that drives this process has an external set point in the form of the 70 hours that are seen as the norm. It is shown in Fig. 5.6 where B stands for balancing. 34 J. Schaveling and B. Bryan Hours worked Norm: 70 hours Time Fig. 5.5 70 hours is the norm Norm: Heroes work 70 hours S Actual value: # hours worked O B Difference Corrective action: work more hours S Fig. 5.6 Balancing feedback loop Another example of implicit balancing feedback is resistance to change. If you try to change things in an organisation, you are intervening in an existing situation which often suits those involved and who might even see it as desirable. Any action that disturbs that equilibrium will (nearly) always provoke a reaction to protect the status quo. Resistance to change is neither mysterious nor capricious. It is very often fuelled by the thought that traditional norms and values are at stake. Norms and values are usually interwoven with power relations. If you face resistance, it’s imperative to find out what the reasons are, because obviously not everybody thinks your brilliant thought is so brilliant after all! To remove resistance to change, you have to discover its source. 5 A Systemic View of Organisations 35 Bear in mind that power relations are often a consequence or expression of the structure of the work processes. To a large extent, the work processes dictate the way people communicate and determine who has the best view of important information. That is why a restructuring of the work processes is often the only way to implement change. 6 Impatient Managers Create Chaos There’s frequently a time delay between an action and the result. And because of that time delay we often fail to see the effect of our actions. Impatient as we humans are, we expect immediate results. If we don’t recognise the time delays between the action and the moment we can expect the results, we may land ourselves in problems by taking too much additional action and overshooting the goal. To correct that we may overcompensate and hold back too much. Time delays play a bigger role in balancing feedback loops than in reinforcing feedback loops, because in a balancing loop we take an action from which we expect a result. The Effects of Time Delays A simple example of over- and undershooting a goal is a shower with a very long hose between the tap and shower head. The time delay is dependent on the length of the hose. The relevant time delay is indicated in Fig. 6.1 by the symbol //. There are always time delays between action and result, but the sign // indicates a significant delay. If you underestimate the delay and act too fast, you overshoot the goal. The value on which you steer is called the set point. If you want a nice shower, your set point will be 36°C. People who regularly stay in hotels always wait before going under the shower: they are testing the time delay! The longer the time delay between the action and the result, the more significant the overshoot effect. If you judge the delays incorrectly, the system © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_6 37 38 J. Schaveling and B. Bryan S Actual value: temperature shower water Setpoint O delay Difference B Corrective action: S supply of warm water Fig. 6.1 Balancing feedback with set point Core variable Set point Time Fig. 6.2 Oscillations caused by continuously correcting in a balancing loop may oscillate around the desired value. In extreme cases the whole system may crash, because boundary conditions have been exceeded. Think of an old fashioned electric cooking plate: the content of the pan does not heat up quickly enough, so you put the hotplate at maximum and by the time things are boiling, the plate is so hot that everything burns. Figure 6.2 illustrates the oscillations that occur if you continuously correct a system with a time delay. 6 Impatient Managers Create Chaos 39 A few more examples of time delays: 1. When costs must be cut, people are quite often laid off. And if that does not provide enough cost reduction, more people are fired. It then becomes apparent that the remaining staff cannot cope with the work and temporary staff and consultants have to be hired, resulting in increased costs. 2. Sometimes financial problems are solved by cutting back on quality or other standards. It takes a while before clients discover that, but sooner or later it comes back like a boomerang. 3. It may take up to 15 minutes before the change in the rudder position of a big tanker leads to a change in direction. If you do not immediately see a change in the course of the ship do not take more steering action, because when the change finally becomes apparent it will last a long time. 4. The same applies to changes in the work process designed to improve performance; it can take months before you can see improvements. If you take intermediate action you create confusion, because you are sending out a mixed message, so the employees no longer know what the real purpose is. And if the purpose is not clear for the employees they take decisions that do not necessarily contribute to the goals, or merely wait to receive orders. 5. If there are several variables between action and desired result, it becomes even more difficult to estimate the time delay accurately. This is specifically the case in governance. If the effect of measures taken are weak or come later than expected, other measures are taken that may undo the previous measure. In many countries the education system is a good example of not taking time delays into account. Actions are taken every few years, but the response time is in the order of minimum 15 years! No wonder the system is unsettled. Delays are everywhere; we invest now for the future. We hire a person that will be productive in a few months. It is sad to see that delays often provoke aggressive corrective actions, which usually obtain the opposite results of what was envisioned: instability, oscillations and indecision. People close themselves off from their environment in situations that are perceived as unsafe or unstable and no longer take the initiative or decisions. Again, this is our evolutionary heritage at play: it’s very difficult to keep faith if you cannot see immediate results. When results do not come as quickly as hoped for, it’s also often at this point that higher management barges into the situation and takes actions 40 J. Schaveling and B. Bryan that upset the applecart. And if a little later the results of the prior actions of middle management become visible, higher management thinks their meddling has been effective! Life is unfair… Systems Thinking and Time Delays We do not often dwell upon the fact that time is the fourth dimension. Systems thinking takes account of the effects of time: what was the situation last month, last year, two years ago; what has changed; have these changes come from outside or did we generate them ourselves? What will happen if we continue this way; how far ahead do we want to look? What conditions are beyond our control? It’s very important to be aware of trends. One incident can be a chance event, two incidents should attract your attention, but with three incidents you have a trend. Beware! These incidents don’t necessarily come in the same form, but could be different expressions of the same underlying cause. Of course there are no hard and fast rules for that, but as a manager you’re not paid to solve primary school situations. Look back in time at environmental factors, look at the internal functioning of the organisation, look especially at your own functioning and ask outsiders for an opinion. Make a few sketches and graphs of the trends, however primitive—but make it visible. A few pointers to remember if you are dealing with balancing loops: • Test the efficacy of the corrective action: you have to be sure that the action has the potential to influence the situation and improve performance. • Make an estimate of the time delays. • Reduce or eliminate time delays. If possible, try to reduce the delay between corrective action and the desired performance of the system. If that’s not possible due to the design or nature of the process, reduce the delay between action and a relevant steering variable. Choose a variable that shows the effect of your actions with the shortest possible delay. That does not have to be your target variable: you can see an improvement in the quality of you product (steering variable) long before you see an effect on market position or revenue (target variable). • Do not adopt an aggressive approach; in contexts with long time delays, like the economy of a country, an aggressive approach can lead to instabil- 6 Impatient Managers Create Chaos 41 Irrelevantly high abstraction level You cannot do anything with the conclusions Mastery lies in finding the right abstraction level This is relevant for your situation Irrelevantly low detail level This does not help you either Fig. 6.3 Finding the right abstraction level ity and crash the system. Keep an eye on the response time. The finances of some countries have been eroded by pension obligations resulting from election promises for early retirement for small groups many years ago. Greece is the champion in this field: they designated some 600 professions as onerous, giving the right to early retirement at the age of 45, including (seriously) hairdressers, opera singers, taxi chauffeurs. It’s beyond belief. And France is not far behind … Time delays can make you overshoot your target, but you can also make them work for you if you recognise them and work with them. One of the best leverages to improve performance of a system is minimising the delay between action and result. Systems thinking is not a trick or gadget, it’s a way of approaching reality. The scope of your problem definition must be set wide enough to involve all relevant actors and narrow enough for you to be able to do something about it. The art lies in looking so far around you that you can see what is happening around you in relation to the activities you’re undertaking. It’s all about charting the middle course between abstraction and detail. If you chose a level of abstraction that’s too high, you can’t do anything about it. If you lose yourself in details, your actions will have little effect on the problem. This is shown in Fig. 6.3. 42 J. Schaveling and B. Bryan What are our Steering Criteria? ‘Knowing is measuring’; you can only measure usefully if you understand (the purpose of ) the system and know what you should be measuring. Only if and when you know why you want to measure something can you measure it meaningfully. We call that content validity: the knowledge that what you measure is representative of what you want to know. Focus on variables that are representative of the process, not on what is easy to measure. A common fallacy is to focus on money. It is a fallacy because not for nothing do we speak of financial results: they come at the very end of the process when all other things have been done. They are of no use whatsoever for monitoring processes to improve quality or speed of delivery or other important variables for our clients. It is important to choose a steering variable as close as possible to the action, and which you are sure is representative for your target variable. For instance, you want to improve your physical condition and decide to go biking, the easiest indicator is the speedometer, but your heart rate and especially the rate at which it drops after an exertion is a far better measure. Even better would be the acidification in your muscles, but that’s too difficult to measure. You have to know the system to measure meaningfully. It is not always easy to know what a relevant measurement is. Our attention is always captured by the most obvious phenomena. We tend to look only at the lilies on the surface of the pond. In rowing it doesn’t help to focus on faster, faster—it’s much more useful to concentrate on the quality of the rowing stroke, because that’s what makes the boat go faster. A soccer player practising his penalty shots isn’t training the ball: he’s improving his own movement. The purpose of the training isn’t to put the ball in the net with every shot, but to achieve the perfect movement. If the movement is perfect, the results will follow. As in the classic “Jonathan Livingstone Seagull”, when Jonathan asks the old gull what perfect speed is, he gets the answer: “Perfect speed my friend, is being there.” In daily life the natural order of things is often turned around and those variables that are easiest to measure are taken as the basis of managing and organising. In an effort to reduce time delays, a variable is chosen that’s easy and fast to measure. This is a systemic fallacy. A variable that’s easy to measure does not necessarily bear a relation to response time. Many organisations and managers chose money as a performance criterion. However, those who can use financial data to say anything sensible about the underlying process 6 Impatient Managers Create Chaos 43 are few and far in between. Management pays far too much attention to money and not enough to the quality of the process that produces the result. In summary: we focus too much on money and not enough on the ‘quality of the rowing strokes’ of the organisation. Something that’s easy to measure isn’t always representative of the process we want to influence. Focus in the first place on variables that are representative of the process that brings forth the desired results. 7 The Value Creation Model Every system wants to survive, and to pursue its existence. That can only be guaranteed if the system creates value for its environment. Without value creation for others there will be no transactions and the system will have lack revenue and dry out. Simply put: if you are baking cookies that nobody likes, you won’t be able to sell them and you’ll go bankrupt. In this chapter we will introduce the Value Creation Model, whereby you can specify the way your organisation creates value and what would be the most sensible way to invest resources to improve its viability. In an oblique way, the value creation model is a visualisation of the mission of the organisation; it creates a goal. If there is no goal, if you don’t know where you are going, any action is good and there is no validation possible of the utility of your actions. The value creation model provides those criteria. The founder of this way of analysing business viability is Kees van der Heijden, formerly Professor of General and Strategic Management at Strathclyde (Scotland) in his ground-breaking book on how to use scenarios—‘Scenarios: the Art of Strategic Conversation’. What Is the Value Creation Model? Why, What, How At the basis of all growth is a reinforcing feedback loop, be it in nature, business or any social system. The value creation model is a visualisation of that reinforcing loop and of how a system grows by creating value for the © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_7 45 46 J. Schaveling and B. Bryan environment from which it derives its right to exist. It describes the success formula of a specific organisation which allows it to survive and flourish. It is the motor of growth of the system, the organisation. All organisations, teams, individuals and permanent systems are engaged in an interaction with their environment in which they create value for that environment. In fact the Value creation model is the answer of an organization on the well known three questions of Sinek (see https://www.ted.com/talks/simon_ sinek_how_great_leaders_inspire_action?language=en): Why? What? How? In summary, the Value creation model brings into focus the external needs the organizing is addressing (Why?), what the organization is adding (What?) and how in essence it is organizing internally the production process (How?). Creating Value with Distinctive Competences The core of the model is formed by the distinctive competences—those that enable the organisation to produce goods or services. The specific combination and level of its competences distinguish an organisation from others and give it its competitive advantage. Value creation begins by recognising a societal need and devising a way to fulfil that need. The more specific the competences, the greater the competitive advantage and the better the protection against others who are trying to offer the same product or service. However, the downside of very specific competences is that you are locked into a niche market with limited possibilities to apply those competences in other markets. Organisations in this situation must therefore reflect carefully on whether to innovate and invest in additional competences. There is always a time delay between an initial investment and the moment that investment becomes productive and so the environment must be carefully monitored. Systems do not exist in a vacuum, and any system will lose energy to the environment, which can then cause the reinforcing feedback loop to come to a standstill. A great deal of attention must therefore be paid to the maintenance of the distinctive competences, as they form the buoy that keeps the system afloat. If resources are expended on things that are all very pleasant but do not contribute to the distinctive competences, the continuity of the system will be endangered. It cannot be stressed enough how vital it is to know what you are good at and why customers come to you rather than going anywhere else. You must keep investing in that set of your distinctive competences. 7 The Value Creation Model 47 Internal and External Developments Organisations adapt continuously to internal and external developments. Figure 7.1 shows two distinct loops: the top loop is oriented to adaptation to the outside world while the bottom loop is focused on internal organisation. The latter is oriented towards continuity of the system and comprises the following elements: • Distinctive competences that distinguish you from competitors. • A set of activities: the products or services that the organisation offers in response to a market demand or societal need. • A competitive advantage. • Transaction or value creating customer interaction: through the combination of (a) the organisation’s specific set of activities to meet market demand and (b) the distinctive competences, the environment and organisation become engaged in a joint transaction that creates value for both of them. • Results: the benefit in terms of revenue, brand recognition, market penetration, track record, knowledge, and so on. ... creates a ... Societal need Market demand Adaptation loop Activity set that satisfies the societal need in the form of a product or service Focussed on outside world Distinctive competences Competitive advantage Focussed on organisation, continuity Added Value Result Transaction Fig. 7.1 The value creation model Investment 48 J. Schaveling and B. Bryan • Investment: those needed to maintain and grow the distinctive competences to meet future demand. The bottom loop of the internal adaptation indicates how the organisation invests its resources. Different organisations make different strategic choices, resulting in differentiation between organisations. They can choose whether to: • Improve their distinctive competences and specialise more; • Aim for a larger share of the market with the same competences; • Improve their production process, so that their quality improves and/or their costs go down; • Broaden their competences, so that they can offer a broader package of goods or services. The first three options are improvements on the current situation to assure continuity; the fourth option—broadening—looks like a fundamental change in the character of the company. The upper loop represents orientation to the outside world. Every living system must adapt to its environment to survive. Apart from distinctive competences to satisfy societal needs, this loop comprises: • Societal need: which societal need is being satisfied by the organisation? What is the added value for the parties involved? • Market demand: societal need expresses itself in a market demand for safety, food, knowledge, products, services, etc. The upper and lower loops reflect the dilemma faced by every organisation: • On the one hand, organisations must have the flexibility to adapt to changing societal requirements; if that match is absent, the organisation loses its right to exist. • On the other hand, an organisation needs a form of rigidity to function properly, because costs sunk in investment and expertise cannot be applied to different fields from one day to the next. The way this dilemma is managed depends on the type of activity. 7 The Value Creation Model 49 The Strategic Function Typology The value creation model is a sound way to define what differentiates you from others—your identity and your capabilities—but that can only be done when placed meaningfully in the context in which you operate. In essence, thinking systemically involves looking at relationships. The distinctive competences of your organisation are determined in the context of the environment in which you operate. It might be seen as a system of concentric circles: you are in the middle, around that is your organisation and around that is the market environment, which is itself embedded in a context of societal developments and legislation. Thinking systemically implies setting the scope small enough that you can do something about it, but wide enough that it comprises the essence of the problem. Let’s limit ourselves to the organisation and its environment. Those two interact: the organisation and the environment influence each other and must be aligned. The strategic function typology (Simon, 1989) is a valuable tool to determine which core activity and distinctive competences fit with the working relation between the organisation and its environment and evaluate whether all the elements are aligned. The strategic function typology distinguishes four very different types of context for working relationships, as is illustrated in Fig. 7.2. Relations with customers Capacity Product Type of the supply Task • Ministries • (Semi) government institutions • Staff services • Jobbers with principal’s technology • Printers for money, passports • Suppliers who depend on 1 or 2 principals Fig. 7.2 The strategic function typology Market • Consultancy bureaus • Contractors • Real estate agencies • Employment agencies • Jobbers with own technology • Project developers • Producers of products or proprietary services • Shops 50 J. Schaveling and B. Bryan The horizontal axis differentiates the type of relationship you have with your clients. The character of the relationship is determined by whether you have the freedom to choose your clients or not. If you can choose your clients in a free market, you are operating in a market organisation. However, if you are limited to only one organisation (or very few) and are bound to follow their instructions, you are working in a task organisation. Think of the difference between an independent consultancy (market organisation) and a staff department (task organisation). On the vertical axis, the differentiation comes from the question of who has ownership of the output. If the organisation is the owner of the output you are working in a product output organisation. If the client is the owner of the output, you are working in a capacity output organisation. In this matrix it becomes clear that important characteristics of a business operation, such as competitive advantage, risk profiles and client approach, are very different in the contexts in the different corners of the matrix. It is also clear that they require different distinctive competences. Mixing different contexts is very risky, because you are competing in completely different fields. The examples in the next paragraph illustrate the differences. 8 The Value Creation Model in Action This chapter will show examples from practice of the value creation model. It will show how the value creation model can be used to analyse problems with value creation and assess what the organisation has to do to flourish. Laboratory for Bakery Ingredients Bakery Ingredients Inc. has a strong market position in the bakery sector, offering a whole range of additives to facilitate the baking process. It started out by acknowledging that industrially baked bread did not have the consistency and aroma of bread like ‘grandma used to bake’—which was in fact what people wanted. The founder had a technical scientific background and came from a family of bakers. He started to experiment with yeast additives and other products from the bakery business. Through his contacts in the bakery business he convinced others to try his products, and that was how his company started. It now has some 20 employees with a high level of specific knowledge and the company has a strong reputation in the bakery business. The founder has ambitions to grow the company and is considering looking to do contract research for a major dough supplier. But before we can judge the merits of this plan, we have to look at the value creation model. Based on the above we can draw up the value creation model of Bakery Ingredients Inc. (Fig. 8.1). In the top right, we see that the distinctive competence of the founder is his network in the bakery business, which has enabled him to create market © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_8 51 52 J. Schaveling and B. Bryan Societal need: 'bread like grandma used to bake it' Creates a market demand for bakery ingredients Offer of specific bakery ingredients Distinctive competences: invested capital, explicit and implicit knowledge, patents, market knowledge, reputation Investment Competitive advantage Result Added value Fig. 8.1 Value creation model for Bakery Ingredients Inc demand. From there he developed activities that enabled the distinctive competences to grow. Consequently, the distinctive competences form a web of hard and soft elements that is difficult to copy. That web consists amongst other things of implicit knowledge, working procedures (explicit knowledge), patents, research facilities, good contacts with clients and a good knowledge of the market and his clients’ problems. These distinctive competences have created a competitive advantage leading to transactions. From the value creation model, we see that the protection of the business lies in the further development of the knowledge position and the legal protection of that position with patents. That way the company can create more value for its clients. The company can grow further by increasing its sales in this specific segment of the market. That brings us back to the founder’s plan of supplying research capacity to big clients, because that appears to be a way to make easy money with zero risk. However, from the strategic function typology it follows that there are very good reasons not to do it: Bakery Ingredients Inc. is a product market organisation and doing research for third parties would change the character to a capacity task organisation. If he accepts the offer to work for others, he is not investing in his distinctive competences and market position and will thus erode his position. The value creation model and the strategic function typology help to judge the strategic decisions of how to use resources. 8 The Value Creation Model in Action 53 Employment Agency for Surveillance Duties A few years ago an entrepreneur seized the occasion to start a business in the market for surveillance duties. At the time the market was dominated by two companies that deployed surveillance personnel for very diverse tasks such as surveying large exams for education training companies, standing guard at places where dangerous work occurs, such as fire hazards, or on railways or roads and other similar duties. On the basis of his outstanding skills as a sales person he created a niche in the local market for surveillance services. His first order came in even before he had hired any personnel! At first he concentrated on surveillance for fire hazardous work, because that was where he had his best contacts. By very carefully selecting his personnel and providing good training for the fire hazard work, he rapidly penetrated that market segment. People from the competition came to apply for jobs with him. Because of his good reputation and his very low overhead costs he could bid at very competitive price levels and the company grew fast. However, to satisfy demand he occasionally deployed non-qualified personnel, which gave rise to some serious complaints. He now seems to be losing clients … . The employment agency is a capacity market organisation and the value creation model looks something like Fig. 8.2. This company took off because the founder was knowledgeable in the surveillance business and a skilled sales person. He had unwittingly stumbled upon a success formula: recruiting good guards and providing further education. Although it’s not a very highly skilled profession, not anybody off the street can do guard duty. The person must share at least some core skills: • An ability to concentrate throughout his shift, on the alert for incidents that may or may not happen. • An ability to stay calm and take the right action if something happens. The company had distinctive competences in the form of professionalism and education, resulting in a good reputation. Because of its low overhead it could tender at very competitive prices. That combination of low price and good reputation constituted an enormous competitive advantage. But at a certain moment in time growth became a goal in itself and the company began to falter. The founder apparently did not realise the importance of the quality of his surveillance personnel. 54 J. Schaveling and B. Bryan Societal need: reliable surveillance services Market for placement of reliable surveillance personnel Distinctive competences: training, good employment conditions, identification with the company, market knowledge, reputation Offer of trained guards Investment Personal Skill: Selling Competitive advantage Result Added value: Placement of guards Fig. 8.2 Value creation model for employment agency This case is a good illustration of why we must always keep an eye on distinctive competences. In this case the founder can still remedy the situation. The actions to be taken follow unambiguously from the value creation model: • Recruit the right people and give them a good education; get them to double up a few times in an apprenticeship. • Screen your guards carefully. • Insist on quality to ensure a good reputation. • Accept only orders that you can fulfil with the qualified personnel you have available; saying no never hurts your reputation. Public Agency A public agency is responsible for the infrastructure in the region. To fulfil its responsibilities, it requires a range of competences. But in order to keep their budget and maintain their position, their competences must be of such a level that they are distinctive competences. These competences include on the one hand professional expertise such as water works, road building, 8 The Value Creation Model in Action 55 building of bridges, and project and programme management, and on the other hand relational skills to pick up on the requirements of the public, be able to manoeuvre within the political constraints and work with other public agencies. The public agency in terms of the strategic typology is a product task organisation, because it owns the design of their output and they have only one principal. The value creation model is not only applicable in the business environment, but applies to public agencies as well. The value creation model looks like Fig. 8.3. In this figure we see that its distinctive competences enable the agency to execute projects in a way that is appreciated by their principal—the government—and the public that makes use of them. That appreciation secures the budget and their monopoly position is not challenged. You also see that the quality of the work performed increases the demands of the public. The public agency can meet these demands with its expertise by making good plans for infrastructure. With the budget the agency can maintain and improve the distinctive competences to meet the demands of Societal need: good infrastructure, aesthetic, affordable Initiate and plan improvements of infrastructure Distinctive capabilities Monopoly position not questioned Execution of approved projects Appreciation of public and authorities Fig. 8.3 Value creation model for public agency Budget 56 J. Schaveling and B. Bryan changing times. In that way continuity is secured, if not in quantity, then at least in quality. Dealing Wisely with Your Reinforcing Loop The value creation loop is in essence a reinforcing loop with societal needs as an external reference point. But nothing grows forever and sooner or later a counteracting force will manifest itself that slows down the growth. Do not let yourself be taken by surprise by such a development. If such a counterforce arises, you can consider one of the following interventions: • Sometimes you need to accelerate and invest heavily to stimulate the reinforcing loop, but sometimes you may have to deliberately slow the growth down. Experience, learning on the job and professionalism are needed to make the right choice. Ultimately management is about making choices in circumstances of uncertainty and it will always remain a gamble, but systems thinking helps reduce the risks of that gamble. If you have to slow down, gradually reduce the energy input to the system, and flatten the curve. Think of taking your foot off the accelerator instead of applying the brakes. • Be alert for early warning signals. Think of the rose bushes that are planted at the ends of rows of vines; roses are more prone to disease and in this way alert the wine grower that treatment is needed. • Always look at the fringes of the system; because that is where you have a chance to observe phenomena that may be harbingers of change. Good sales people often sense the changing preferences of their clients, but head office is frequently slow to realise the value of the signals. • If you realise you are dealing with a reinforcing system, manage the growth by means of a balancing feedback loop. Be aware of the intrinsic characteristics of a reinforcing loop: if you stop the growth, the virtuous loop may turn into a vicious loop. Actively seek feedback to discover unintended side effects in order to prevent runaway developments. A virtuous feedback loop expresses itself in continuous growth. You must keep up the effort to maintain that situation, just as the organisation must adapt to the ever-changing environment. Competitors may have copied your success formula or come up with a better solution that undermines the position or continuity of your organisation. Discuss the (strategic) identity 8 The Value Creation Model in Action 57 of the organisation systemically using the value creation model—that is the description of the success formula of the organisation to survive and flourish. Pitfalls When you become aware of the value creation loop of your organisation and are conscious both of the organisation’s contribution to society and of why society rewards that, you have already taken a major step towards better management. But beware of complacency; there are plenty of pitfalls to make life difficult. These are the result of three human failings that result in nine archetypical dynamic structures of the ways in which we obstruct ourselves. These will be described in Chaps. 13–17 where we will look at the effects of not looking far enough ahead, the consequences of only reacting to what flies in our faces, and the damage caused by our anxiety when it comes to facing reality. But first we have to focus on what we want to improve, our vision in relation with a hard look at current reality. This is the subject which we will address in the next chapter. 9 What Has Been Done When the Work Is Done? In carrying out any activity one universal rule holds true: Know your vision (concretized in a value creation model) but if you want to improve, you have to know reality, you have to know how and what you are doing right now. Any organisation that wants to advance must take a hard look at current reality and not take refuge in strategy or project plans. The Current Situation Begin by assessing: “How are we functioning together at this moment?” This confrontation takes courage and audacity—people are often inclined to run away from social confrontation. Do not press ahead too quickly with questions like: “How shall we improve it?”, but concentrate on the question of how things are going at this moment. Improvement starts with accepting the reality of the current situation and not the situation as we would like it to be. The following questions are helpful to facilitate the discussion to assess the current reality: • What is the situation? What results are visible? • What is happening and what do we expect in the future if there are no big changes. • What do we have and what is lacking? • Why do we have what we have and why are things happening in this way? • Why is the system resisting our efforts to change? © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_9 59 60 J. Schaveling and B. Bryan The Vision What we want must be expressed in a vision. We must be very clear to verify that we all share the same vision instead of merely assuming that we agree. A powerful methodology for the development of a vision is the “Futuring method, the art of anticipation” developed by Herman Rottinghuis. This methodology is a very effective and structured way to think about the future and much more reliable than traditional methods. Futuring recognises the fact that we must distinguish between two different ways of thinking about the future and follow them both: • Vision thinking: you make your own future! – Visualising a path from the present to the future is very different from looking back from the future to the present moment. The problems that seem like mountains seen from the present look like a molehill if seen from the future. If many people want to go somewhere passionately enough, they will get there! Vision thinking is a method to help groups of people to see a valuable and dignified future. Their vision becomes their passion. • Scenario thinking: the future happens to you! – What do you do if …. An important part of the future is beyond the reach of what you can influence. However, you can identify those developments that are relevant for you without attaching a probability to them. And you can prepare for any of those eventualities. The problem with traditional methods is that they make no distinction between what you can and cannot influence. A strategic plan is usually made up of three variants; an optimistic, a pessimistic and a ‘realistic’ version. The implicit assumption is that the planners can predict the future! That is an eminently false assumption that often leads to wishful thinking and will not prepare you for the vagaries of fate. Both are fatal misconceptions of course. The strategic dialogue in the futuring process comprises the following steps: • What type of company are we? Our present self-image: where do we come from, who are we within our environment? What is our current vision? • Future self-image: who and what would we like to be? Building a vision. • Future environments (scenarios): what will our environment allow us to be? In this step the vision is tested with the following questions: 9 What Has Been Done When the Work Is Done? 61 – What are the limits to the growth of our organisation? – Is our vision robust in each of the scenarios? – What are the critical success factors in each of the scenarios and what options do we have? – What do think about each of the options? • How do we plan the road to the future; what do we want, what can we dare to do, and what are we able to do? If we agree on the vision, we must describe the desired results as specifically as we can: • Concentrate on results instead of the steps needed to achieve those results: following a safety training is not the same as creating a safe working environment. • Designate specific results: for example a safe working environment, with ‘zero accidents’ as an indicator and a positive perception by employees of the safety situation. • Describe the expected results in a positive form: a ‘safe working environment’ is not the same as ‘having no accidents’. • Agree upon how you will achieve the results, because whether everybody means the same by the shared vision really shows up in the details. Much wasted energy can be traced back to descriptions of what we have and what we want that are too vague in the first place. Many interventions are only indirectly linked to the results we want to obtain, and many actions are carried out on the basis of sheer habit, the latest management fad, or just because we think it’s what the boss wants. And What Do You Do Next? We must understand that in organisations everybody has their own interpretation of what is meant by the vision and what has to be done to make it a reality, because there are several points where differences in interpretation can occur. To simplify the discussion we will look at only two groups of management: the group responsible for watching over the mission, vision and development of the strategy, and the group that is responsible for the safeguarding of craftsmanship and the proper and safe execution of the strategy. In diagram form that gives us Fig. 9.1, in which the sequence why— what—how returns each time. 62 J. Schaveling and B. Bryan Strategic Mgt Mission Why are we here? Vision What do we specifically want? Strategy How do we realise that? Operations Mgt Why are we pursuing this strategy? Projects How are we going to achieve that? Which projects are needed? Implementation What do we have to do specifically to realise them? Fig. 9.1 Communication of strategy An excellent presentation of the importance of addressing the why question is given by Simon Simek in the link below: https://www.ted.com/talks/ simon_sinek_how_great_leaders_inspire_action?language=en. The meaning of his use of the words Why, How, What is slightly different from the meaning we use in the table, because we use a few more levels and descend a bit deeper in the level of detail, but the essence is the same. Management has to communicate the reasons for activities, so that they can serve as a compass, a guiding star for everybody involved in the company. An important source of misunderstanding about the implementation of strategy is that strategic management approaches it as a “How?” question, while operations management approaches the same issue as a “Why?” question. Besides, the why—what—how are inextricably linked. Limitations in the ‘how’ have repercussions on the ‘what’ and that is linked back to the formulation (not the essence!) of the ‘why’. It may well be that completely different methods have to be found to make the ‘why’ a reality. But even if there are no serious limitations, we must realise that we can only be sure of having the same images of reality if we also agree on the final execution. This is in no way an encouragement for strategic management to get involved in the formulation of the execution (on the contrary!), but as a precaution they must be well informed of the correct communication of the strategy. In this area most managers transgress in terms of the usage of time: management should spend its time in the areas where difficulties arise and that is hardly ever in the area of strategy (Fig. 9.2). 9 What Has Been Done When the Work Is Done? 63 Strategy Time spent by management Tactics Where problems arise Implementation Fig. 9.2 Use of time Maybe the choice of management to lock itself up in an ivory tower of strategy formulation is an unconscious flight from facing reality. It is important to listen to the suggestions and opinions of people on the work floor carefully; they are the ones that have the biggest problems with an unclear strategy. In the confrontation with the nitty and the gritty lies the reality check of strategic dreams. However, major changes have almost never come about by being reasonable or through mutual understanding. Real changes arise from pushing through the vision of an individual (or a group) that is not resigned to accepting the status quo. It’s not about playing by the old rules, but changing the rules. The good strategic manager must accept a great deal of uncertainty and flexibility about the eventual shape of her vision and the way to get there, while the good operations manager who finds himself in a situation where the rules of the game are changing, must muster the courage and be prepared to help create the new rules of the game. 10 Driving Forces that Generate and Sustain Patterns Before we venture into interacting with an organisation to adapt it to changing demands, we have to have a look at the factors and forces that generate and sustain structures and patterns in the current situation. In terms of the lily pond we are talking about the root system, the water temperature and quality, the nutrients in the mud, the oxygen in the air and water; there is no end to the questions that could be posed. Identifying and choosing effective interventions depends on how well we understand the underlying structure, because all resistance to change will be generated from there. When investigating an existing situation and interviewing people, we will be presented with explanations and stories that all sound reasonable and rational enough. But look at it as the collective of system 1 and system 2 at work: what you are hearing are the system 2 rationalisations of the working relationships that have been created by system 1. All stable underlying structures are created to satisfy the needs of the collective system 1 and changing these structures very often creates a great deal of anxiety. The driving forces within an organisation are the collective efforts of all participants to realise the implicit goals of the organisation within the limits of a situation that satisfies our system 1 needs. This implies that driving forces can be analysed from the perspectives of • The functioning of both systems 1 and 2. • The quality of the goals of the organisation and its relation to reality. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_10 65 66 J. Schaveling and B. Bryan To obtain an image of the driving forces underlying the way we create patterns that drive us to thinking in the short term, with a narrow scope and without a good reality check, we need to address the following questions: 1. Are we aware enough of the natural human traits that evolution has endowed us with, and that Kahneman so aptly called system 1? 2. Do we create enough situations that system 2 can function in an appropriate way? 3. Do we have a viable value creation model that supports our shared vision? Are the implicit goals compatible with the officially stated goals? 4. Do we have both feet on the ground and do we check the reality content of our thinking? The first two questions relate to respecting both systems 1 and 2: natural behaviour and thinking are complementary, but if we do not consciously create room for both, our tendency will be to favour our older system 1, because system 2 is relatively new in evolutionary terms and thus less developed. If system 1 is not given the attention it needs, it will force system 2 to attend to the very short term—a notion that seems not to have reached most MBA or other management studies. The needs of system 1 are developed on three levels: • Genetic predisposition. • Our early years. • By our groups (our tribe). If these levels of system 1 are not adequately addressed you can be certain that your attention will be focused on the primitive aspects of the basic dilemmas we discussed: the short term instead of the long term, a narrow scope rather than a comprehensive scope and wishful thinking instead of facing reality. Genetic Disposition and System 1 Our genetic disposition is very important; it is our foundation. We have survived natural selection because of our genetically encoded characteristics. On the genetic level we find for example the natural tendency to react to danger or uncertainty with flight, fight or freeze. To be able to deal with the outside world we must be in good shape. That implies the necessity for healthy lifestyle factors such as sufficient nurture, sleep, movement and relaxation. 10 Driving Forces that Generate … 67 To minimise uncertainty, we tend to be conservative and behave in ways that have proven successful in the past (and our system 2 provides us with the rationalisation in the form of confirmation bias). This reluctance to embrace uncertainty also makes us very loss-averse: we react much more emotionally to loss than to gain. This conservatism also fosters our preference for the status quo that is usually kept in place by an authority structure. Cialdini (2007) used these genetic characteristics of system 1 to devise basic techniques to influence people. One can also interpret these techniques as the conditions one has to fulfil to satisfy the needs of system 1, which is a precondition to having a functioning system 2. You cannot think rationally or in the abstract if your system 1 is crying out for attention in the form of food, security, or rest. Under those conditions you are bound to think in the short term with a very narrow scope, and accept what you think to be true. Building on Cialdini we suggest the following conditions to satisfy system 1, so that it does not absorb too much attention: • • • • • • Having a structure of authority. Feeling part of a group. Feeling reciprocity. Feeling abundance. Feeling respected. Having changes occur gradually. Our Early Years and System 1 The second level of development of our system 1 is the way we incorporate our experiences in the first years, from the prenatal stage till somewhere in adolescence. All kinds of personality disorders have been correlated to very early exposure to war, famine and other forms of stress. Exposure to toxins like smoke or pesticides are likewise correlated to disorders. The sad case of severe neglect of a child results in retardation of brain development which can no longer be compensated after 4–5 years. The earlier in age a characteristic or behavioural choice has been made, the more difficult to change it. A theory that tries to make sense of the effects of the experiences in our early years is that at a very young age we create a “script” for ourselves: a kind of plan for our life as reaction to internal and external experiences. Script choices arise because we have a tendency to repeat ourselves and scripts give us security, create order, serve as a compass and a guide for us 68 J. Schaveling and B. Bryan and create the possibility for growth and development. On the other hand our script makes us behave in predictable patterns and reactions that may sometimes limit our observation, creativity and activity. A script is our mental model, our vision of life and it acts as a kind of mental prison we create for ourselves; a prison, but one that is very dear to us and without which we would feel uncomfortable. In the vast majority of cases these script choices blend in with the environment and you would be unable to attribute some forms of behaviour entirely to childhood experiences. But there are of course examples where these scripts give rise to forms of behaviour (or script decision) that are not appropriate for the situation. For instance, children of shopkeepers that were always told to be quiet when a client came, may have interpreted that as “I am not important” and behave in a submissive way. One child could for instance make a life choice such as “Always accommodate others”. All very well if you work in the hotel business but it can lead to doing what others think is important or what is done by the group instead of taking a stand and showing autonomy. It may even degrade into a neglect of common sense norms, with someone who does not dare to stand up for their convictions. Another example is of children who have to take responsibility for their younger siblings at an early age, and draw the conclusion “I am not allowed to be a child”. Another child could for instance make the choice of “Be strong, don’t show emotions, don’t doubt”. This could have benefits but it is also the main ingredient of a burn-out, because the lack of doubt pushes us to short-term ‘hero’ behaviour instead of admitting that we do not know what to do right now. In non-pathological situations too, we have to be aware of our script, our mental prison, so that we are not governed by that script, and are able to react to situations in ways less subject to predetermined limitations. The oft-mentioned ego or narcissistic tendency of many leaders generates much energy and power which is very helpful in such positions. However, it can be a pitfall if you really think that being the leader is the only important aspect of the job and forget the much more important stewardship part of your job. Our Tribe and System 1 The third level of development of system 1 is influenced by the group we belong to. Humans are herd animals through and through, and we let our behaviour be guided by what the group does. An example of this concerns the chances of teenagers smoking: 10 Driving Forces that Generate … 69 – If a teenager has a parent who smokes, he is twice more likely to smoke than others – If he has 2 friends who smoke, there is a 1 in 2 chance he will also smoke – If he has 3 or more friends who smoke, he will be an exception if he does not smoke Another example is the reuse of towels in hotel rooms. There is a significant difference in the effectiveness between the use of the two following texts: "Help save the environment" "Join your fellow guests in helping save the environment" The second appeals to following the lead of many others and is especially effective because that lead is set by others who are similar. People want to belong to a group; without social contacts people die, even if they have enough to eat. For organisations to thrive it is important that people have enough contact with others; that they feel that they belong to a group, experience psychological safety and inclusion and have a social identity. In the absence of these conditions people get lost and lose touch with reality. The downside of a strong group identity (or any expression of belonging to a group) is stereotyping, discrimination, peer pressure and groupthink. We must realise that these are “normal” phenomena, as groups are by definition exclusive and are part and parcel of the group animal. Only by accepting this fact and by addressing our belonging to a group can system 2 intervene when negative group phenomena become counterproductive, by raising the questions and staying with them until they have been adequately solved. This is important because we might otherwise regress into focusing only on our own group or team and forget that we need to invest in the success of others to attain collective long-term objectives. In the chapters on archetypes we will encounter typical situations in which we need to widen our scope. We cannot change our personality (Swaab, 2014) because genes, environment and coincidence have developed our brains, which are conservative, but we can learn to deal with our genetic and personality factors and change our behaviour a little bit. However, to be able to change our behaviour we first have to become aware of the way our personal system 1 is influenced at the three levels: 70 J. Schaveling and B. Bryan genetic, early experiences and group. Awareness and recognising the symptoms of system 1 behaviour make us capable of controlling our reflexes and avoid the pitfalls of “primitive” behaviour. Primitive is used here in inverted commas, but only to indicate that it does not involve higher order learning capabilities such as analysis or reflection. This awareness is essential to our personal development and to recognise the patterns in which we operate, if we are to become system 2 players instead of the ball being kicked around by the reflexes of our system 1. Our organisations must create the mental space for introspection, giving feedback and openness to different perspectives. If these conditions are fulfilled, we will be able to avoid the pitfalls posed by the basic dilemmas: short term versus long term; narrow scope versus appropriate scope and flight into fantasy versus facing reality as visualised in the archetypes in Chaps. 8–10. The Rational System 2 The rational system 2 should act as a counterweight to the structures and behaviour of the intuitive system 1. But system 2 always faces an uphill battle, because we are often not even aware that we are blindly following our instincts cleverly disguised in notions of “rationality”. The contribution of system 2 to our functioning is: – – – – – – A capacity for reflective thought Controlling impulses Reflection on our own functioning A capacity to think about the future Conscious cooperation with people outside our tribe Higher order learning To create an environment conducive to the smooth functioning of system 2 we have to create the space and the safety to question the “obvious” that was generated by system 1. In Chaps. 13–17 we describe general pitfalls in which system 2 becomes the victim of accepting the obvious. All the contributions of our system 2 emanate from our pre-frontal cortex, which is the most newly-developed area of our brains. One can distinguish higher and lower levels of learning (Anderson, Krathwohl & Bloom) as illustrated in Fig. 10.1. 10 Analyze Driving Forces that Generate … 71 Evaluate Create Apply Understand Remember Fig. 10.1 Levels of learning The lowest three levels are shared between both systems, but the highest level corresponds to the capabilities of system 2. Systems thinking is one of these higher-order skills. Vision What is our real goal? What is the raison d’être or purpose of this organisation? As we have seen, we assume far too easily that we all agree on the goals we want to achieve, whereas in fact everybody is pursuing their own goals. Stable systems always produce the results they implicitly desire. And that can mean results that have nothing to do with explicitly stated goals. For instance a system can be used to avoid social confrontation. Committees are often used for this purpose. This question must clarify which results we really want. Does the organisation have a vision and does this vision show the added value for society? Is the vision based on the formulation of a viable “Value Creation Model”? And is the vision a shared value? Does management spend time talking about and explaining to everyone in the organisation at his own level what the vision means for them? It is one of the most important tasks of management to communicate about the vision so that it really becomes a shared vision. Vision is the anchor point for system 1 and 2 to organise its activities. The practical value of a well shared vision is that individual initiatives will be 72 J. Schaveling and B. Bryan guided by the same sense of direction and go the same way. The vision of an organisation can therefore become a very strong driving force. In the absence of a shared and well understood vision the chances are that people will go their own way, thinking that their choices are contributing to the goals of the organisation. Reality Check A higher-order functioning is the capacity to check the reality content of the visions discussed; to keep both feet on the ground. Lofty ideals and enthusiastic visions are all very well, but when the rubber meets the road, real results have to be produced. Reality checks are done by creating feedback loops, organising them, using them and maintaining them. How often and how thoroughly do we discuss questions such as: • Are we doing the right things? • Are we doing them the right way? • What is really happening? Reality checks are about facing the current reality and naming mistakes and successes, but they also require the addressing of subjects normally consid- Fig. 10.2 Playing field of driving forces 10 Driving Forces that Generate … 73 ered off-limits for discussion. This requires a great deal of competence and courage; the courage to give each other serious feedback. The quality of the regular reality checks is a good measure of the competence of an organisation to avoid the standard reflexes of short-term, narrowscope and wishful thinking. In Fig. 10.2, the tensions between the driving forces have been visualised as a playing field. 11 Two Driving Forces in Depth: Mental Models and Team Learning This chapter elaborates on two items from the discussion in the foregoing chapter: mental models and team learning, as they perfectly illustrate driving forces. Mental Models: What Are the Dominant Mental Models? If you do not understand somebody, or you think they are acting irrationally, you may safely assume that their behaviour is perfectly logical to them but that you have not yet discovered their inner logic. And usually that is because you’re not party to the mental models of other people. In describing any current situation everybody describes the issue from their own viewpoint. “From your personal viewpoint” is a crucial factor because it is our mental models and opinions and those of others that create the situation. Mental models are our convictions, assumptions and our internal dialogue about every aspect of ourselves, others and life in general. They are the lenses through which we see the world and interpret that reality. Examples of mental models that frequently occur are: • • • • “That may happen to others but not to me.” “They are out to get us, let’s strike first.” “Let’s take care of today, tomorrow is another day.” “Managers run the company so I do not have to take the initiative.” © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_11 75 76 J. Schaveling and B. Bryan Some famous examples from the business environment of eminently mistaken mental models (with the benefit of hindsight) are: • “There is no reason to assume that anybody would want a computer in their home”, Ken Olson, CEO of Digital Equipment Corp. in 1977. • “Who in the world would want to hear actors talk?” H.M.Warner of Warner Brothers in 1927. But just as famous an example of how you can overcome the limitations of your own mental model is the invention of the Post-it stickers by Spencer Zilver. “If I had thought about it too long, I would never have done the experiment, literature was full of indications it could not be done.” Mental models are often self-reinforcing. A simple example: a manager and an employee have legitimate complaints about each other and both persist in their behaviour, confirming their assumptions about the other. In fact they collude in perpetuating the situation. This is illustrated in Fig. 11.1. A mental model is a kind of armour to protect yourself from uncertainty and give yourself permission to see the world around you in such a way that you are always right, and above all to maintain your self-esteem. Our mental models give us stability by protecting us against all kinds of new ideas, developments, and so on, and in that respect are limiting. At the same time they are very useful tools in keeping our life organised, although they may also keep us from investigating new ideas and insights. The loop of a mental model has three basic elements: (1) a conviction or opinion, (2) actions and (3) results that reinforce the convictions. This is visualised in Fig. 11.2. Manager pushes his opinion through Manager thinks that employee is not interested R Employee feels frustrated Employee withdraws and gives no comment Fig. 11.1 Manager pushes through 11 ... confirming... Two Driving Forces in Depth … 77 Mental model: organisations are machines ... therefore ... Investment in 'dashboard' measurements Improvement of performance on the short term ... and so ... Focus on parts instead of relations Fig. 11.2 Mental model in action Our mental model can hamper us considerably because it is incomplete. We are quick to say that something cannot be changed or improved but from sports we know that a certain limit can become a truth in its own right and form a formidable barrier, until the limit is broken. Some examples: • Bob Beamon’s 8.90 metre long jump was seen for 23 years as absolutely unattainable, now it is merely ‘good’; • three minutes for the 1,500 metres was an insurmountable hurdle for a very long period of time; • in the pole vault 6 metres was an absolute barrier for a long time; • in cycling the limit for the average speed in time trials on flat circuits was thought to be around 55 km/hr, until it was broken by Indurain. Since then speeds have crept up every year. Limits in sports, as in business, are very often nothing but limits in our thinking. Team Learning: Which Group Dynamics Play a Role? In the investigative process of systems thinking we sometimes encounter taboos. Which subjects are we not allowed to address? Do we really value the diversity we have and do we make full use of it? Do we really dare to look at the whole picture? We often leave people out of the group, because “they only cause trouble” and we want to “work constructively toward a solution”. 78 J. Schaveling and B. Bryan Yet those were the very people we should have brought on board! By not inviting them we are only preaching to the converted and we can be sure of substantial resistance when we want to implement the solution. People are not that rational. Descriptions of the situation or the interventions presented move people on an emotional level much more than a cognitive level. People will not question whether or not an intervention was well supported with data but will react emotionally. “Will I still belong to the group?” or “What will my department look like in that situation?” Posing critical questions may seem very rational but is often an attack or survival reaction on a subconscious level. People are taken hostage by these emotional or survival reflexes without even realising it. The chances of falling back on ‘old’ behaviour increase in cases of anxiety or uncertainty, when important issues are at stake, or if the group has high expectations. The logical, rational level is often at odds with the subconscious reaction of avoiding anxiety and uncertainty that makes us run away from reality. People’s outward and visible behaviour is often the result of these subconscious dynamics. Some examples: • dependency behaviour: the leader suddenly becomes very important and you don’t take any decisions any more. The reaction to uncertainty is: “Let’s ask the boss”; • ducking: acting as if you are involved but in fact you are only trying to keep a low profile; • formation of project teams: “Yes, these are great ideas for interventions; let’s get a project team to work on it!” (So that we don’t have to make difficult decisions now). Dare to ask what the purpose was of the project team; • fleeing into strategy sessions because you don’t dare to discuss the here and now of the situation and your relations in the group (the flight forward). In situations of great uncertainty and pressure, individuals start to say what they think the others might think. This is called groupthink and is detrimental to nuanced reasoning, because the group only wants to see one option for action and is not willing to investigate alternatives. The effects of groupthink are disastrous for the quality of the investigation of an item. One or more of the following phenomena will occur: • the alternatives are insufficiently investigated; • the goals are not clarified; 11 Two Driving Forces in Depth … 79 • the risks of a preferred alternative are insufficiently explored; • rejected alternatives are not reinvestigated; • the material presented is agreed on too quickly and further information is not actively sought; • information is presented and used selectively; • no plans are developed for changes in the situation. To prevent groupthink from happening or running unchecked, it is essential to review how a team or group performs the task, how they cooperate and what the relationship is between the two. The Results of Our Dive into the Lily Pond With this exploration of the phenomenon of driving forces in organisations we have looked at the root system in the lily pond. That should give us a better view of the structure of the issue at hand and help us to better understanding the situation. 12 Looking Under the Surface of the Lily Pond: Applying Systems Thinking in Six Steps We have looked at a few general aspects of organisations and their environment which should put us on a firm basis to interact meaningfully with them. Systems thinking is a very useful tool to structure that interaction, because it recognises the complex nature of the phenomena that have generated a situation. That the situation is complex is obvious from the fact that you have to spend so much time on it; otherwise you would not consider a systemic investigation of the causes. Dealing with complexity involves moving down step by step from the level of events (situations that you can videotape or otherwise record) to the level of the structures that cause the events to happen and the level of convictions that create the structures—the driving forces we discussed in the Chap. 11. We propose an iterative six step model that forms a protocol for going through these levels. Following the protocol prevents you from prematurely drawing conclusions for which there is no factual basis. Jumping to conclusions in most cases only leads to conclusions that concur with what we would like reality to be, not necessarily what reality is. The six steps are presented sequentially, but we do not intend them to be an expression of linear cause and effect thinking. They are iterative, exploratory steps in time. The steps are: • Step 1: Tell the story. • Step 2: Describe the behaviour of the system in time in graphics. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_12 81 82 J. Schaveling and B. Bryan • Step 3: Formulate the focusing question. • Step 4: Identify structural explanations. • Step 5: Verify if you sufficiently have taken the driving forces into account in identifying the structural explanations. • Step 6: Plan an intervention. The steps can be visualised in the’lily pond’ of Chap. 2. Events are the visible part above the water but below the water level is a whole system of patterns, structures and convictions that cause the events to occur. The first five steps go through the layers of understanding consecutively. Generation of an intervention formally takes place in step 6 but practice shows that each of the steps is an intervention by itself. For instance simply telling the whole story usually gets things moving. Going Under the Water Level: Assessing Reality and the Driving Structure The flowers and pads represent what has happened (step 1) and what the trends of those events are (step 2). It then becomes important to consider why the events are relevant (step 3). If the reaction is ‘So what?’ don’t bother. But if you do care, formulate the focusing question that makes it clear why the (series of ) events are important. In step 4 we link the variables in loops and design a dynamic structure to explain the phenomena we are seeing. Subsequently in step 5 we have to take into account the considerations of Chap. 6 and have a close look at the driving forces and mental models, what we really want to achieve and how this contributes to our vision. This is the place to stress the fact that the steps really have to be taken with and by the people involved, not just the consultant who interviews all the key players and then comes up with a set of conclusions. Systemic thinking and working means that you work with the system as a whole, involving the whole group. An ‘expert approach’ is usually an expensive way to put the blame somewhere else, because you know beforehand that the proposals of the ‘outside expert’ will end up in the wastepaper basket. You are investigating and trying to understand the problem as a group, because you are probably all part of the problem and the solution. It was the collective mental models that created the situation so you must clarify those before you try to solve the problem! 12 Looking Under the Surface of the Lily Pond … 83 Step 1: Tell the Whole Story What happened? What happened as seen from the viewpoint of everybody involved? The lilies are the events and their appearance forms the patterns of those events. It is important to get a clear view and ascertain what really happened—not what we would have liked to have happened or anything that better fits our worldview. The purpose of this step is to get all the verifiable data onto the table; that is to say data on which everybody agrees and data on which not everybody agrees. ‘Data’ here also includes the emotions and feelings of the people in the situation. If somebody says she was very frustrated by the events, you may take that as a contributing factor. Telling the story involves assessing current reality. This can be a confrontational event because we have to look at things the way they are and not how we would like them to be or how we have told others they were. Something’s going on—a remarkable event has occurred; people are beginning to grumble; clients are taking their business somewhere else, et cetera. The first step is to describe the issue: the crucial questions in this first step are: • What happened exactly? Identify the facts, thoughts and feelings that caused some people to feel the situation to be a problem. • What are (some of ) the most remarkable events? Determine the facts that were experienced by people as significant. • How do the various stakeholders see the events? • Why is this an issue for us? When we are specifying a problem and telling the story, we want to know the facts and reasoning behind it and the perception of all involved of what happened. We are looking for events that illustrate a trend or pattern in time. We are looking for data that are the expression of an underlying structure or system pattern. This sounds simpler than it is because our thinking is full of automatisms to reduce the complexity around us to a simple black-and-white picture. From our evolutionary heritage we have the custom to present facts in a narrative, as a story. That automatically implies that causal relationships are woven into the presentation of (perhaps unrelated) facts. This is in no way malice: it is just much easier to remember things in a pattern (whether the supposed relationships are there or not!). 84 J. Schaveling and B. Bryan We tend to present the solution while explaining the problem. That’s all very natural because we often describe a problem in the terms of the absence of a solution we already know! It’s tempting to express the problem as: “There are too few salesmen”, instead of “Our sales figures do not match our expectations”. This step already requires a change of mindset because our normal reaction is to jump to solutions or actions and therefore opt for prescription instead of description. Be wary of the neat, consistent, coherent, stories that point toward one single conclusion with no doubts or open ends. Those stories probably indicate that something is being hidden, consciously or not, or that a solution is being disguised as a problem. Either way it stops us from thinking. Every stakeholder tells the story from her own viewpoint, seen through her mental model. Most of us have the tendency (consciously or not) to depict our own role a little bit differently from how others would describe it. In describing a problem it means that we easily place the responsibility for failure outside of ourselves. What we are looking for is a description of: what happened, what is interesting, what makes me wonder? We want a story that enables us to get closer to understanding the problem. It is important to have diversity in the group, to involve the people who you know will perceive the situation differently. An organisational problem is always a social construct and there is no scientific method for defining such a problem. Much time must therefore be spent on legitimising the description from the perspective of those involved. Too often for a project leader or manager the mental model “I want to succeed” or “I am responsible for the solution” prevents them from bringing people together that have deviating opinions: “that only creates a lot of fuss!” You must dare to scrutinise your own definition of the situation instead of regarding it as ‘the situation’. The situation described is never ‘the situation’ The purpose of systems thinking is to stimulate thinking and adaptive learning. Not to generate the quickest solution but to generate the best structural solution. Step 2: Describe the Behaviour Over Time in Graphs In this second step the most important variables must be plotted against time. This is important to achieve a good grasp of the subject under discussion. Plotting over time like this forces you to look at the changes in the 12 Looking Under the Surface of the Lily Pond … 85 values of the variables but also to look at the changes over time in your way of thinking about the subject. Limit yourself to a few of the most important variables. In the annexe it is explained how to achieve an initial approximation of the most important variables, using the clustering method. What are the trends in the events you have described? Concentrate on verifiable historical facts. It is important to generate a clear picture of the behaviour of the system over time because this gives us information on the underlying dynamics. Mark the present on the time axis and draw the expected trend with the unchanged policy with a dotted line. The graphs give us an indication of possible structural patterns. In the Chap. 5 we saw that balancing and reinforcing loops show very different behaviours over time. Reinforcing loops have an upward or downward trend and balancing loops tend to make the variable oscillate around an equilibrium value. If you have a combination of balancing and reinforcing loops, you will probably end up with an undulating pattern with an upward or downward trend. Therefore on the basis of the course of events in time you can already say something about the nature of the dynamics. For that reason it is important to chronicle facts and events as they are and not as you would like them to be. Step 3: Formulate the Focusing Question and Your Scope In the previous two steps we determined the current state of reality. The most important events were described and we saw the development over time. In step 3 we formulate the focusing question: what do we want; in what sense does the situation have to change? A good focusing question describes the patterns in the context of what we want to realise. However, the real question is whether we really know our goals. We often take the notion of ‘goal’ in our stride and take it for granted. In Chap. 9 we discussed the difficulties around vision and goals. Goals must be very clear, because the old wisdom still holds true: “If you do not know where you are going, any road is good” or expressed differently: “Without a purpose behind the action the notion of intelligence has no meaning.” The purpose of step 3 is to inject direction into our investigation. We know that everything is connected to everything else but as the classical 86 J. Schaveling and B. Bryan German expression puts it: “Limitation is the mark of the master” (In der Beschränkung zeigt sich der Meister). What do we want to focus on? A focusing question describes the problem in one or two sentences and indicates the ambition of the solution, but not the solution itself. A good focusing question is: 1. focused enough to channel us in the direction of an effective solution; 2. but not so limiting that it suffocates creativity. Good questions often have the form: Why does problem X or trend Y occur in spite of our efforts to solve the problem or change the trend while Z is our goal? As a rule of thumb avoid”how” questions and stimulate ‘”why”’ questions. Step 4: Identify Archetypes or Fixed Patterns This step can be carried out in two complementary ways: by means of archetypes or the looping technique. Archetypes are social system patterns that arise from our evolutionary heritage; our tendency to have a very limited time horizon, to look no further than our own doorstep and our anxiety about facing reality. These archetypes cover a wide range of situations we encounter in daily life. Of course they are just rough approximations of the infinite possibilities of human interaction, but the images form a very practical working hypothesis that can be adapted to the specific situation at hand. Looping technique is elaborated in the annexe. We discussed the first archetype in Chap. 7: the value creation model is an archetype that must underpin every durable organisational endeavour. The differentiation is based on the specific working environment, but they all without exception have a loop reflecting their relationship with society and a loop reflecting the internal organisation. The other archetypes will be discussed in the Chaps. 13–17. In Chap. 13 we look at patterns that arise from not looking far enough ahead: • Fixes that backfire: the cure is worse than the ailment. • Shifting the burden (Addicted to fighting symptoms): merely tinkering with events does not leave you enough time to look for the deeper cause. In Chap. 14 we discuss patterns that arise from not looking far enough around us: 12 Looking Under the Surface of the Lily Pond … 87 • Escalation: my solution is your nightmare. • Success to the successful: resources are invested in proven activities; killing off new activities that not yet have had the time to prove themselves. In Chap. 15 we discuss patterns that arise from our anxiety about facing reality: • Drifting goals: performance does not meet the norms and this is corrected by lowering the norm. • Limits to growth; nothing grows forever and growth will create its own limitations. And in Chaps. 16 and 17 we discuss patterns that arise from combinations of short time horizon, not looking far enough around us and fear of facing reality: • Accidental adversaries: an action for your own benefit obstructs the partner with whom you have built up a cooperation and sours the relationship. • Growth and underinvestment: the potential for growth is never realised, because there was never enough certainty to invest and now the space for growth has been filled by others. • Tragedy of the commons: the exhaustion of a common good, because nobody feels responsible for it. For the looping technique follow the instructions as given in the annexe. Step 5: Increase Your Understanding by Looking Closer at the Driving Forces In step 4 we described the structural explanation in the form of feedback loops that characterise the situation. Before formulating the interventions in step 6, we take a step back and review the driving forces that are sustaining the structure. In terms of the lily pond we are taking a look at what takes place under the water level. Parallel to the five disciplines for organisational learning we very often use the following five questions to identify the driving forces (most of which have been dealt with in the Chaps. 10 and 11): 88 J. Schaveling and B. Bryan 1. Shared vision: What results do we really want? How will those results help us to realise our vision? Do we all share this vision? What is our real goal? What is the raison d’être or purpose of this organisation? In the question we verify if the Value Creation Model that legitimises the organisation has been shared and understood in the organisation. 2. Personal responsibility: What is my/our personal responsibility? To what extent am I responsible for the way the system functions now? Am I a part of the problem or part of the solution? How far am I responsible for the way the system functions now? In what way am I contributing to the continuation of the present situation? Beware the phenomenon of attribution: we see ourselves as victims of a situation instead of actors creating the situation and are ready to shift the blame onto the big bad world out there. Reflection on our own behaviour is important because that is the behaviour we can change. After all, it is possible to change your own thinking but not that of others. 3. Mental models: What are the dominant mental models that created the present situation? In the Chap. 11 we touched upon the phenomenon of mental models and group dynamics and its implications; in the following chapters we discuss mental models that are frequently associated with specific archetypes. 4. Team learning: What group dynamics play a role? These first five steps of applying system thinking have constituted a dive into the muddy waters of the lily pond and by now we have refined our understanding of the situation and the forces that created it. If in the course of this process our perceptions have changed significantly, we may have to reiterate the steps in the light of that new understanding. Step 6: Planning an Intervention Planning interventions is about (1) generating ideas for interventions, (2) checking the influence of the interventions on the system, (3) estimating the time delay and (4) letting the dynamics work for you. In a way, this 6th step is rather artificial, because systems are stable but not static; they evolve. And our way of looking at the system changes. For example, it is important to realise that step 1 is already an intervention in the system, and it is equally essential to define a separate step with a focus on the formulation of interventions. 12 From decrease or stagnation to growth Looking Under the Surface of the Lily Pond … 89 Desired From unstable to stable Actual Actual Desired Fig. 12.1 Effects of interventions Bear in mind that after the inventorying of relevant events we looked (step 2) at patterns in time. Interventions usually are meant to either change a stagnating trend into growth, or a rampant growth of an undesired effect into a downward trend, or a wildly fluctuating trend into a more stable trend line, as illustrated in Fig. 12.1. If we simply look at the relations between the variables, only 3 types of interventions are possible: • the breaking or weakening of an existing causal relation; • the reinforcing of an existing causal relation, for instance by reducing time delay; • establishing a new causal relation. Of course, through our understanding of the situation we come up with ideas for interventions but these ideas must be tested against the frame of reference we have built for the structure and its supporting values. What policy is needed, which specific actions? In this step we are looking for structural changes: interventions that once started can manage themselves to deliver long term improvement. The planning of effective interventions is aimed at: • intervening in the loop with the strongest feedback because that is probably the dominant loop in the system; • intervening in the balancing loop that feeds the problem (the present way of managing the problem), so that the system can improve itself by its reinforcing loop, or another balancing loop that presents a better steering; 90 J. Schaveling and B. Bryan • improving the internal structure of the system to better deal with external events and forces (making the system more robust); • interventions that can be accomplished by the participants themselves; • interventions with a leverage: big impact with little work. Problems arise because of the present way of tackling the problem (the balancing loop) entails an undesired side effect. It’s in this balancing loop that you must intervene. This is a major deviation from traditional thinking that advocates that what has worked in the past will work again. In fact, you must make this change because the old way of thinking and steering has brought you into the situation you are in. Interventions cannot always be abrupt because the system may have come to be dependent on symptom fighting and may break down if it brought to a sudden halt. Think of the dependency of an operational department on staff support. If you take away staff support abruptly, the operational department may run into the ground. In this case the best way to intervene is to gradually reduce staff support to let the operational department learn to take care of its own problems. Because interventions are aimed at changing the structure of causal relationships, it is important to think through the consequences of the dynamics. The creation of a new causal loop in a system is like changing the wiring in a control system; it creates a new chain of cause and effect. It is better to create good boundary conditions than to take specific measures. Target the sources of the powers that act, such as the reward system, the way of managing. The effects of a system that rewards risk aversion will ensure that no risks are taken and if you are in an environment where you need initiatives and experimentation, you have a problem. If you do have to take a specific action like increasing or decreasing staff, it’s better to formulate it on a strategic level by setting performance goals rather than a headcount, so that the situation can be managed autonomously at local level. Again for the record: wishing that people should think differently is not an option for an intervention. If for instance your customers find your location difficult to reach, you can probably think of several reasons why they should not think that way but this is not a possibility for intervention—it is merely wishful thinking. Only if reality is visibly changed by a different location, another entrance or better road signs, will thinking change. The moment we have drawn up the inventory of intervention possibilities, we use the following checklist: 12 Looking Under the Surface of the Lily Pond … 91 • If the action produces greater results than we expect, is it still desirable? • How will the system resist; which elements of the present situation must remain? • What are the undesirable side effects and how can we reduce them? • What are the results for others if we have solved our problem; will they experience undesired side effects? • Can we implement this strategy ourselves? The interesting part of systems thinking is that the structures and thinking through of the reactions of the system to the interventions offer a kind of virtual world; we can practise before we commit ourselves to it. In this respect the field of system dynamics, the numerical elaboration of the causal loop models should be mentioned. This is a very practical extension for models that require off-line experimentation to better understand the system. It is beyond the scope of this book to discuss this application. 13 Pitfalls of Short Time Horizon In the next chapters system models are presented of the way we usually shoot ourselves in the foot. They are called archetypes because they always come back in some form. However practical it is to know these archetypical dynamics, we have to be extremely careful: our minds have the tendency to see a pattern even in completely random data. Be very precise in checking if the dynamics you see are supported by facts! People can survive about 72 hours without water. If your present water hole dries up, you will have to find a solution quickly, within 72 hours. That time horizon was about the only long term thinking that had to be done to survive in the age of our hunter gatherer forefathers. And as we have barely passed the emotional and mental caveman stage, it comes as no surprise that we usually do not think much further ahead than the mentioned 72 hours. That limitation is a threat to any business or value creation model. In our daily life and working routine our attention is always captured by things that have to be done now, that cannot be postponed. Tackling those urgent cases is easy: you do not have to think about priorities: do! Our society admires doers. However, if you want to get out of an unwanted situation, you have to realise that the current way of working which brought us into this situation is probably not going to get us out of it. As we discussed in Chap. 4, we have to be conscious of our choice of the time horizon: wide enough to encompass the results of our actions and close enough to be sure that we are dealing with our own results. In this chapter we discuss two archetypes that describe problems for our value creation model that arise from a too short time horizon: fixes that backfire and shifting © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_13 93 94 J. Schaveling and B. Bryan Problem symptom Applying fix Time Fig. 13.1 Trends of fixes that backfire the burden. If you learn to recognise the situation you can intervene in an early stage, which usually comes down to broadening the time horizon. In these archetypes we stress the time element among others. Of course it is not wrong per se to do, but it has to fit in into a whole, so that it serves our purpose. Widening our time horizon creates the possibility to view our activities as part of a whole. By giving into our reflexes to only look after today, we run the risk that individual actions do not have a role in realising our vision. Fixes that Backfire A company solves its budget problems by letting go of personnel; loses valuable employees, who take along some of the customers and income and problems only increase. The pattern that underlies this is fixes that backfire. The central theme of the archetype fixes that backfire is that we take a reasonable measure to remedy an unwanted situation, but after the ‘fix’ the problem comes back—sometimes in a different form—stronger than before. Taking more of the same actions only worsens the situation. Apparently we have not been able to identify to root cause and our actions do not improve the situation. A situation like that is characterised by a trend line as given in Fig. 13.1. 13 Problem symptom O S Pitfalls of Short Time Horizon 95 S B Quick fix R S Unintended side effect Fig. 13.2 Fixes that backfire As you are trying to solve a problem, you are taking corrective measures. That is evidently a balancing loop. Apparently the result of that action has some undesired side effect that reinforces the initial problem, so there must be a reinforcing loop as well. The generalised structure is given in Fig. 13.2. Some Examples: 1. To improve the safety situation in a production unit, the manager takes strong action against people who have accidents. As a result the number of accidents decreases, but the accidents that do occur are more serious. Looking into the matter, it turns out that the minor incidents were no longer reported. The repressive actions had actually deteriorated the safety situation, because it encouraged hiding of the smaller incidents. 2. In the ’70s the American government launched a huge program to improve the health of the American population. On the basis of wrong information fat was designated as the food to avoid. The result has been a substantial decrease of the consumption of fats and oils. However the consumption of sugar and refined hydrocarbons has increased enormously giving rise to an epidemic of obesity and diabetes and the general health has deteriorated. 96 J. Schaveling and B. Bryan 3. An even older example is from the 30s where the tobacco industry recommended smoking as a method to lose weight: “Better fit than fat!” We do not have to explain what the unintended side effects are. 4. The drama of the German Wings airplane disaster was caused by a suicidal pilot crashing the plane into a mountain. The German laws on privacy are the strictest of all countries, as a result of their recent memories of the East German secret police (Stasi) fretting in the personal life of everybody. A doctor will be taken to court if he divulges any information about a patient. An unintended side effect was that the employer Lufthansa was not informed about the very dangerous character of the mental illness of one of their pilots. 5. In the beginning development aid consisted mainly of sending food and clothing. Both had the unintended side effect that local producers could not compete with the free distribution of food and clothing and went out of business. Therewith the problem was institutionalised. 6. A municipality had good sports facilities for the elderly, who could exercise and do cardio training, weight training and a heated pool for those who had joint problems. Some 500 senior citizens used the facility. The community council found the exploitation costs too high and increased the entrance fee substantially. Now many of the elderly had to make ends meet with a small old age pension and could no longer afford to go. The number of users fell to about half and the deficit of the facility went up instead of down. In the end the facility was closed. After a short while costs started to go up in a totally different corner: costs of care for the elderly who were no longer mobile with all the related illnesses. The reduction of costs on the sports facility and as unintended side effect a much bigger rise in costs on another budget. The system loops for the examples given above are shown in Fig. 13.3. In the terms of systems thinking the corrective action to remedy a problem that seems very reasonable at first sight is represented in the balancing loop at the top. The unintended side effect that reinforces the cause is represented in the bottom reinforcing loop. All those well meant actions: repressive policy, eating less fat, smoking to lose weight, privacy protection, helping poor people, cost saving all had bad side effects that could or could not have been anticipated. The hiding of accidents, the obesity epidemic, suicidal pilots on airplanes, the failing of local producers, the decline of the health of the elderly was never intended, but some of it could have been anticipated, had we looked a bit further ahead. 13 Accidents B Unsafe situations R Shortage of primary supplies B B Less fat Abuse of private data B Legislation privacy R More sugar Danger for society R Hiding illnesses Repression Heart problems Hiding incidents Obesity Sending primary Desire for supplies fitness R Local producers out of business Pitfalls of Short Time Horizon 97 B Weight loss by smoking R Illnesses, a.o. lung cancer Municipal budget problems Appeal for support from municipality B R Savings on sports facilities for the elderly Deterioration of health among the elderly Fig. 13.3 Examples fixes that backfire In daily life we need to be able to recognise the situation that a sensible measure (and of course you have thought about the consequences) has no effect or worsens the situation. That is the moment to stand still and think about the unintended side effects that plays tricks on us. Then perhaps we can conceive an action that solves the original problem without the unintended side effects. Dominant mental models that drive/create fixes that backfire are: • • • • This is a simple problem; the solution is clear. We don’t have time to lose, do it now. I am being paid to solve problems. Our solution is correct; we only have not applied it forcefully enough. Generic interventions are: • See to it that everybody realises that all relevant decisions have both short and long term consequences. Identify the driver of the problem symptom and try to tackle that. • Take into account that all negative long term effects will be labelled as coming from outside, but make clear that they are of our own making. • If you have to use a short term solution of which you know that it has negative side effects, try to limit those consequences, communicate about them and work energetically on the structural solution. 98 J. Schaveling and B. Bryan Shifting the Burden This archetype could also have been called: “Addicted to symptom fighting”, but the name shifting the burden has been around too long to change it. Fighting symptoms is easier than tackling the root of the problem and gives a quicker (apparent) result. That instant gratification is why so many organisations never get around to really solving their problems; they are stuck fighting the symptoms. And of course time spent ‘fire fighting’ cannot be used to solve the root cause. If for instance a production department calls on the help of staff personnel and does so repeatedly, the capacity to solve the production department’s problems diminishes and they have to rely more and more on the staff. Symptom fighting is addictive, because it gives instant gratification; just like smoking or snacking. Doing the real work of solving root causes takes far more time and there is no guarantee of gratification, so organisations are reluctant to engage in it. Just like other addictions, symptom fighting gives us a kick: if for instance you have managed to tackle a symptom through your heroic efforts; you get a round of applause! The problem becomes a good friend behind whose broad back you can hide your incapacity to solve problems for real. This dynamic breeds fire fighters, who are admired for their heroics. The other side of the coin is that they are more appreciated than the people who do a good management job and prevent the problems from arising. This may well explain the underrepresentation of women at the top of companies: women are usually better at preventing fires and therefore do not have to fight them, which makes them stand out less. As with all forms of addiction, the dependence on the drug becomes stronger and the capacity to pull yourself out of it decreases as Fig. 13.4 shows. The system loops for this archetype are shown in Fig. 13.5 In the upper loop you reduce the problem by remedying the symptoms; the quick fix or the easy way out. Being a corrective action, it is a balancing loop: the more symptoms, the more fixes; the more fixes, the fewer symptoms. The real solution lies in the lower balancing loop, where you tackle the root cause. However, the outer loop inhibits you from spending time on the root cause, because you use all your time fighting the symptoms. As the outer loop is a reinforcing loop the situation gets worse over time. 13 Capacity to solve problems Pitfalls of Short Time Horizon 99 Problem symptom Quick Fix Time Fig. 13.4 Trends for shifting the burden Symptom fighting S B O O S Problemsymptom delay R Side effect that inhibits structural solution B Structural solution S O Fig. 13.5 Shifting the burden It is a sad picture of our society that the big money is earned in the top loop by the pharmaceutical industry, the tobacco industry, the drinks industry …. A little pill, a cigarette, a drink to compensate for the lack of 100 J. Schaveling and B. Bryan discipline in pursuing a healthy life style. We have a strong tendency to prefer the quick fix over the structural solution. In the lower loop of the structural solution Alcoholics Anonymous, the anti-tobacco lobby and disciplined doctors, who advise you on a healthy life style and prescribe very little medication, are languishing. Some examples of shifting the burden. 1. Public confidence in the banking sector has been seriously undermined by repeated scandals. In an effort to reduce the damage in the Netherlands the banking community introduced a so called ‘banker’s oath’. This quick fix impressed nobody outside the banking world and will do nothing to restore confidence. Unfortunately the oath will probably create the impression within the banking community that the sector has tackled the problem, so that they can continue to divide customers’ money among themselves. The structural solution would have been to improve service, lower the cost for clients, improve returns for clients, reduce risk for clients and adapt the salaries of the top to match society’s evaluation of their contribution rather than how they perceive that contribution themselves. These are difficult processes that require a lot of courage and time. If that type of change fails to materialise, we can be sure that the crisis of confidence will remain. 2. An established firm experiences ever more problems in the changing environment they are working in, but they manage to remedy those problems quickly. If performance drops, the employees put in more hours to fix it. Ever more of those small problems occur, but because they are fixed satisfactorily (with a quick fix) the company reputation remains good. Working pressure increases and little mistakes creep in. Because of the increased working pressure attention is more and more focused on the here and now and thinking about the future becomes more and more difficult. You can confidently predict what will happen if policy does not change: incidents will increase and market appreciation will diminish. The structural solution of adapting the company to the changing environment is postponed and will maybe come too late! 3. One situation already mentioned is that of a production organisation in which the involvement of staff creeps up and tasks of production are performed by the supporting staff. If the problems are resolved well on the basis of the advice, the threshold of reliance on the staff becomes ever lower (upper loop: quick fix) and in the end the staff are called upon for 13 Sticking plaster solutions like "Banking oath" Pitfalls of Short Time Horizon 101 Fire fighting Staff involvement O S S S O Lack of societal confidence O More refined quest for possibilities to pocket bonuses S O Level of adaptation to developments O Time for vision or strategy O S delay delay. S Reflection and testing against societal norms O and values S Production upsets Staff expertise .delay O Adapt organisation to societal developments S S Capacity to solve problems O Fig. 13.6 Examples of shifting the burden every little trifle, because production personnel are no longer capable of solving their own problems. The hiring of interim managers and advisors often follows the same pattern. This is a fundamentally wrong situation: staffs do not have responsibilities; they only have tasks. Responsibility always rests with line management. If production is dependent on staff, decisions are being taken by people who do not carry the responsibility for them! The structural solution is to wean production off their dependency so that they can solve their own problems and increase their level of knowledge so that they can give sensible assignments to staff. For daily life it is important to learn to recognise the presence of addiction. The loops of the three examples are given in Fig. 13.6. The first symptom of this archetype is often increased working pressure, which originates from the postponement of implementing the structural solution. The problem becomes visible when a request for additional personnel comes; that in itself should switch all warning lights to ‘red’! Check first to see if there is a greater output or whether a lot of hot air is being pumped around. A very effective but controversial measure is to reduce personnel when working pressure increases, leaving everybody with enough time only to do the essential things and no longer generate hot air. As a manager you must know your business, have the courage to accept a bit of chaos at the beginning and accept responsibility for the issues that are not being picked up. The dominant mental models that drive situations of shifting the burden are: • We cannot accept delay; we have to react to the problem now. • It has always worked. • Who has the time to work on something that might not even be the solution? 102 J. Schaveling and B. Bryan • We promise to do this only once. • It takes too long to implement the structural solution. Ideas to prevent organisations shifting the burden dynamic include: • Identify the structural solution and try to implement it. That requires courage, because you must discuss issues at a deep level. It may even mean accepting the symptoms for some time while the solution is implemented. • See to it that everybody is conscious of the fact that too much time is being spent on short-term issues. • Bring the mental models into the open so that the dependency on quick fixes becomes visible. • Allocate specific personnel to working on the long term issues. • If you have to use the quick fix, limit its use and work vigorously on the root causes. • Establish if the structural solution does not hide a deeper lying cause and really get to the bottom of it. An important question to reflect on in these situations is: “Who benefits from our opting for the quick fix?” Our addiction to the quick fix must surely have its upsides and advantages in the short term. Realising and admitting that is already a good basis for interventions. 14 Pitfalls of Not Looking Far Enough Around You When confronted with a difficult or complex problem, we have a strong tendency to start with the things we can oversee and understand easily and to straighten those out. That survival reflex makes us very alert, but focuses our attention exclusively on what is in the immediate vicinity. When the world we lived in only contained clear threats such as predatory animals and bad weather that was enough to survive. The business jungle is much more complex and only reacting to what flies in our faces is not much help. If we only concentrate on our immediate periphery, we sweep our own doorstep clean. Then at least the situation can no longer be our fault! We might call this the “own doorstep syndrome”. But the dirt we sweep away may well end up on somebody else’s doorstep, who will in turn sweep it away—and sometimes back towards us… To prevent tossing the problem back and forth in this way, we need to take account of the consequences of actions ‘downstream’ in the workflow. Similarly, we can ask colleagues or suppliers ‘upstream’ to make some adjustments to simplify our lives. A few examples: 1. The assembly line for a highly sophisticated piece of technical equipment has great difficulties with some of the supplied parts that do not meet the specifications. The company has measuring techniques to select the parts, but the supplier does not. Belatedly the company decides to let their supplier use their measuring technique so that they can improve their production process and do the selecting themselves. A simple matter of looking upstream! © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_14 103 104 J. Schaveling and B. Bryan 2. A chemical plant that uses several emulsifiers in its production process experiences several problems with the quality consistency of the end product. Looking into the problem, it appears that the stock of emulsifiers consists of several batches of widely differing ages from different suppliers. This situation has arisen for fear of being dependent on a sole supplier. By switching to a single supplier and having them deliver material from just one batch, the variations (if any) only occur when changing to a new batch. A solution is thus found simply by looking upstream and asking a reasonable question. In this chapter we explore forms of danger that come from not looking far enough around you and reacting only to immediate threats. As we have seen, we have a tendency to sweep only in front of our own doorstep. And in most cases the rubbish is swept right back to where it came from. The solution is to find out where the dangers come from so that we can solve them at the root. This means that in analysing the situation we need to look at the surrounding organisations and societal structures in which it is embedded. Here again it’s important to make the system limits broad enough to encompass the essence of the problem and manageable enough for us to be able to do something about the problem ourselves. Escalation Escalation occurs when two competitors do not want/dare to be outdone by the other. If one thinks he is lagging behind, he will put in an extra effort. But the other will also increases her efforts in order not to be outdone. In this way they keep each other occupied but their relative positions remain unchanged in spite of a great deal of effort and resources, as shown in Fig. 14.1. In systemic terms this is about two balancing loops that if traversed in lemniscate fashion will become one reinforcing loop. The corrective action of the one disturbs the equilibrium of the other: one’s dream is the other’s nightmare. The system loops are given in Fig. 14.2. It is a tragedy that we are surrounded by so many examples of escalation, especially in the form of escalation of violence: 1. On May 19, 2015 a quarrel between members of different motor gangs in Waco, Texas escalated into a massacre that killed nine people and wounded 18. It started with a push; escalated with a kick, then somebody drove over somebody else’s foot and the shooting started. 14 Pitfalls of Not Looking Far Enough Around You 105 Relative position of A to B Activity of A Activity of B Time Fig. 14.1 Trend lines for escalation Results of A Results of B S S B1 Activity of A S O Perception of A's position relative to B O S B2 Activity of B Fig. 14.2 System loops escalation 2. In Marseille, France since the beginning of the millennium the number of murders—known as ‘reckonings’—has increased steadily. This increased murder rate is a result of drug wars between Corsican, Algerian and Eastern Bloc gangs. At first only the leaders of the newcomers were targeted, but now the minor local dealers and other small fry are being killed in the fight for territory. The sad part is the banality of the violence, 106 J. Schaveling and B. Bryan so that nobody is surprised anymore if yet another person has been murdered for the sake of a few cents. 3. The insoluble Israeli—Palestinian conflict is also an example of escalation in which ever bigger weapons are used and ever more victims die. Escalation does not always have to be negative if the arena is big enough. In the airline industry, consumer prices have dropped dramatically since the entry of the low-cost companies. In Europe Ryanair started in 1985 in a small way. Then the arrival of newcomers such as Easyjet fuelled the competition. Even though they are fierce competitors they have found a way to exist next to each other through the choice of their destinations and a different formula. For example: Ryanair only services secondary airports, whereas Easyjet services main airports as well like Schiphol Amsterdam, Gatwick London, Linate Milan and Geneva. It is not clear whether this armed peace is the result of consultation or whether the two airlines have observed each other carefully and decided to adapt their strategies. For both of them London Stansted is a very important hub, but Ryanair flies to Sevilla in Spain while Easyjet does not. The dynamic of escalation arises as both parties want to have the safe feeling of having a bigger market share than the other, but that creates a tension for the other. Both balancing loops together are consolidated by the lemniscate pattern into one reinforcing loop. Competitors set out to stay one step ahead of the other, or at least not fall behind. Every time one moves, the other makes a counter movement; A compares their results with those of B and vice versa. This dynamic creates escalating effort to maintain or improve their position relative to the other. This dynamic can even be intensified if competitors start to react on anticipated actions of the other instead of observed actions. Fear can motivate one or more of the parties to strive for dominance over the other(s). The mental models that fuel escalation are: • • • • We have to beat them, we cannot allow them be ahead. If the other gets ahead, we’re lost. If they do that, then we have to do that better as soon as possible. Whatever we are competing for (recognition, economic safety, market share, price) it is always unique and scarce; we have to do everything within our capabilities to destroy the other. It’s a zero sum game. The example of Ryanair and Easyjet shows how you can defuse escalation: investigate whether it’s possible for both parties to live in the same territory and don’t provoke the other into actions that will hurt you. 14 Pitfalls of Not Looking Far Enough Around You 107 Ryanair and Easyjet took their example from Southwest Airlines, which started back in 1971 with low cost airfares in Texas. They are now number one in the USA for the number of passengers carried. In the beginning they started with a clearly defined strategy of not striving for more than 10% of any point-to-point trajectory in order not to upset the big players. And they still refrain from taking on the other big carriers and always settle for a minority market share on the main hubs. Until very recently they catered mainly to the private travel market (the ‘mom and pop’ market) and only within the USA, but now they have acquired a company that’s established in the business and nearby international market. The example of how Southwest Airlines (who actually copied the California-based Pacific Southwest Airlines) developed the 10-minute turnaround at the gate is very instructive. In 1972 they had four planes for 101 return flights per week. When one of the planes had to be taken out of service they had to make do with only three planes for the same number of flights. Their capacity to adapt to that situation by speeding up the time on the ground to an incredible extent has set a new standard in the industry. Talk about leadership! In some cultures, extreme competition and rivalry are regarded as more normal and acceptable than in the continental European culture. Competition is used to improve performance; “Internal competition serves to keep everybody sharp”. Escalation explains why this strategy is effective in the short term. However, be careful that competition does not become a goal in itself, lose its purpose and absorb all the resources that should be used for other forms of improvement such as management, product development and training. Escalation can also create hostile relationships in situations in which neutrality or cooperation would be more advantageous for both parties. Escalation may even lead to the total military, economic or psychological collapse of one the rivals. Is that what you really want; is that really necessary? To manage the dynamics of escalation the following intervention can be relevant: • Investigate whether your perception of your relative position to the other is correct. It would not be the first time an escalation started with a wrong observation. • Check your own mental models and verify the assumptions they are based on. Is this really a zero sum game? What would happen if you did not react? • Look for ways in which all parties can achieve their goals. Check your own goals; has beating the other become a goal in itself? 108 J. Schaveling and B. Bryan • Is there a higher goal for all parties involved? • Invite parties to create a more balanced or de-escalated situation; decelerate your own tempo of escalation, even if this is a unilateral step. In any case it helps to try to engage in a discussion to create mutual understanding. In the business world this is not allowed as it would lead to price fixing, but systemically it is the preferred mode of operation. In the absence of discussion, be the first to delay counter actions in order to move towards unilateral disarmament, without surrendering nevertheless. It takes two to start an escalation, but only one to stop the process. Success to the Successful If an investment decision has to be made and there is a choice between several options, the option that has already proven itself will probably be chosen. This is the central theme of success to the successful. That creates a self-fulfilling prophesy, because projects that get no funding will fail. In other words: success breeds success. The success to the successful archetype stems from our fear that you have to take risks to develop something new. Developing something new always goes with trial and error. There are many examples of success to the successful. Not the best or innovative idea, but the one who succeeds as the first to have a large-scale introduction on the market wins. • The QWERTY keyboard—standard for northern European languages— was developed at the time of mechanical typewriters, specifically designed to slow down the speed of typing and stop the keys getting jammed. Although new and much better layouts for keyboards have been developed and test-marketed, they have never had a chance. • Word as a text programme is not the best that humanity could produce, but better competitors were not backed by Microsoft. • MS-DOS has survived way past its sell-by date, again because of the marketing power behind it, not its inherent qualities. • Electric cars have been around for a very long time, but they are nowhere near the market share of urban transportation that would be logical. And what about the music world? There are many very good artists that cannot make a living with their performances, while they are as good as top paid artists, just because they did not have the luck and the connections 14 Pitfalls of Not Looking Far Enough Around You 109 to have the big exposure. A good example is the violinist who was scheduled to give a concert in Boston. The tickets costing over $50 had been sold out for weeks. The same violinist participated in an experiment and played anonymously in the Boston subway and collected $29.35 in two hours; not enough to pay for a ticket for his own concert. Crosby, Stills and Nash expressed it eloquently in their song: “He played real good for free”. The same applies in the writing world. Bestselling author J.K. Rowling (of the Harry Potter series) wrote a book in a different genre under a different name. The reviews were positive, but the book did not sell at all. Then some literature researcher found out on the basis of usage of words that the writer was Rowling and it became an overnight success. Or take the sports world. In the big golf tournaments in the USA the players have their own well paid caddies, play for an audience of many thousands and a purse of millions of dollars. On the satellite tournaments players are caddied by their family, the audience consists of family and friends and a stray guest and they play for a purse of perhaps a few tens of thousands. The difference between the average numbers of strokes of the two tournaments is less than 1 stroke per 18 holes (about 72 strokes)! Then bear in mind that nobody can see or judge the difference in the level of skill when they are playing, as they are all very good golfers! But the winner takes it all. In the business world it’s often about an investment decision between a promising and proven option and a promising, but not yet proven option. The trend lines in Fig. 14.3 predict the outcome: The system loops are shown in Fig. 14.4. The left reinforcing loop shows the successful activity that is allocated the majority of resources on the basis of its past success and by virtue of which the reinforcing loop will be ever more successful. The loop on the right features the less attractive activity that gets allocated ever less resources and—by virtue of the reinforcing effect—will perform ever more poorly. Some examples of success to the successful: 1. A regional bank in the USA had a solid reputation in their area with excellent contacts with their clients. They invested regularly in new services and that gave them a high rate of satisfaction from their clients. At some stage their credit card activities became so successful that management attention turned to this star activity and development in the other sectors suffered. By virtue of their good contacts with clientele, management was open to listening to complaints coming from their client base and was thus able to redress the situation. 110 J. Schaveling and B. Bryan Success of A Success of B Time Fig. 14.3 Trend line for success to the successful S Success of the activity of A S R1 S Allocation of resources to A instead of B R2 Success of the activity of B S Fig. 14.4 System loops for success to the successful 2. A European company in the financial service sector had a very broad product portfolio as a result of acquiring smaller competitors. Because of differences in the specific product portfolios of the constituent parts it was very difficult to put together a consistent pricing policy. A policy that is good for one portfolio can have negative consequences for another. As the biggest portfolios had the biggest vote, the lesser performing portfolios struggled more and more and some had to be liquidated. In this case management was too late to intervene. Again the winner took all. 3. In a huge European conglomerate with several different business units the financial results of the building division lagged behind the other business 14 Pitfalls of Not Looking Far Enough Around You 111 units. It would probably require significant resources to make the building division profitable again in the long term. Here the board of directors was faced with the strategic choice of spinning off the building activity or allocating enough resources to make the unit profitable again. 4. Hotel room booking habits have changed dramatically the last years and the majority of hotels are now booked through booking sites. By aggressively expanding the choice of rooms so that there is something for every budget and every taste Booking.com seems to have created the momentum to attract ever more customers. As in the writing or music world: the winner takes it all. In the success to the successful archetype two or more projects, groups or individuals compete for resources (money, time, attention, space, food, et cetera) that are controlled by an external party. If A has the first or biggest success, he will get more resources, because he has already proven to be successful, to the detriment of the others who have to get by on decreasing resources and are therefore likely to underperform still further. Another reason to allocate more resources to A, causing the others to continue to fail. The typical mental models that drive the success to the successful archetype are: • • • • • • This is the right investment. It’s always good to bet on a winner. If they’re successful, they must be managing their resources well. The less successful are themselves to blame. You have to reward success. Competition for resources will improve everybody’s performance. The remedy for this kind of situation is to support the weaker or weakening activity by decoupling it from the common source of financing and giving it an autonomous source of funding. In the first example, the banking management separated banking and credit card activities completely, so that they could both pursue their own goals. In the second example from the financial service sector, the weaker activities could have been put at arm’s length so that they could follow their own pricing policy without repercussions for the units in the main group. New activities need time to prove themselves, which is why you must always reserve a part of investment resources for renewal. The opposite is also true: if you are a highly innovative enterprise where everything is about 112 J. Schaveling and B. Bryan renewal; don’t forget to allocate an independent budget for maintenance of the existing activities. Food for thought when designing interventions for success to the successful situations: • The people responsible for allocation of resources do not always realise that allocating to one activity undermines the other activities. • The perception of success is an important factor in securing resources. • The causes of success or failure are not always clear. • Potential to perform is sometimes confused with actual performance. • The relation between the success of one activity and the demise of other activities is not always clear to everybody. When about to intervene: • Take care that everybody realises that current investment decisions influence future decisions. • Investigate whether decisions have created self-fulfilling prophesies and check how the failure or success of one activity influences the other. • Make goals explicit and clear and stress the desirability of everyone’s success. Allocate resources on the basis of the characteristics of every individual activity. • If there is a coupling in the allocation for several activities, investigate how you can reduce the interaction. Managing two activities at the same time turns out to be difficult in practice: it’s difficult to make both activities successful, and one or the other activity fades away. Even if both loops are maintained, there’s no guarantee of equal attention. Good intentions do not always have good effects. 15 Pitfalls of Fear of Facing Reality Whenever the situation becomes threatening, we feel tension, uncertainty and fear. Evolution has endowed us with primordial reactions to escape from these threatening situations in the form of fighting, fleeing or freezing, and these reactions are firmly embedded in our emotional system (system 1, see Evolutionary heritage). However, working in an industrialised world does not give us those options. We therefore unconsciously create defence mechanisms that mimic our evolutionary choices to suppress our fears and thereby give ourselves the impression that we are in control of the situation. Instead of facing reality we disconnect ourselves from current reality and regress into as-if-behaviour. On the surface that behaviour gives us the impression of dealing with the task at hand, but in reality we are running away from it. As-if-behaviour comes in many forms: – – – – working long hours on subjects that are not related to the task; failing to specify targets; creating committees to “look into the matter”; hiring consultants/interim managers/top executives etc. to solve the problem for us; – fleeing into grandiose visions and strategies to attain them; – rationalisation to convince ourselves that we are doing the right thing; – and in the most serious cases an outright denial of current reality. All these as-if-behaviours are a manifestation of our rational self (system 2) to make sense of our emotional flight from reality. A serious problem with © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_15 113 114 J. Schaveling and B. Bryan as-if-behaviour is that it is unconscious (we are not aware we are doing it) and in groups it may become contagious: people adapt to the behaviour around them. Usually it takes an external agent to escape from this fantasy bubble in which we have hidden to confront reality. In this chapter we will explore threats to the value creation model that arise from our lack of courage to make an honest assessment of reality: drifting goals and/or norms and not seeing limits to growth. Fear narrows our worldview, clouding the clearness of our value creation model, which may cause us to neglect the maintenance and investment in our core competences. This touches on a core value of systems thinking: assessing current reality openly and honestly as it is, not what you would like it to be. Is and should be are usually far apart! The following general truth remains valid: if you do not know what the situation is now, you cannot improve it. Keep your target in focus— the vision upon which your value creation model was based. Drifting Goals It is difficult to admit that we’re not doing things right. If we fail to achieve the standard, it is easier to lower the norm than to improve our performance. Customers begin to complain, but we manage to convince ourselves that they’re wrong, because we’ve always performed well. It’s not us who should change; they should change and stop nagging. The drifting goals archetype arises if the gap between norm and actual performance is bridged by lowering the norm instead of improving performance. The trend lines in Fig. 15.1 draw a clear picture: the performance of the company gradually declines and everybody finds it normal and rationalises that with “The standards are way too high!” The system loops of drifting goals are given in Fig. 15.2. The core of this pattern is an observed gap between the actual performance and the norm that applies. The gap is closed by lowering the standard driven by the thought that the standard is not realistic, or much too ambitious, as illustrated in the upper balancing loop. The gap should of course have been closed by improving the performance (the lower balancing loop), but the lowered standard takes away the incentive to improve (the outer reinforcing loop). The company will soon be confronted again with the norm, but the pattern has been established that norms are there for others, not for you, because you have always done it right. Because changes are slow, you don’t notice over time that things go awry. 15 Pitfalls of Fear of Facing Reality 115 Norm Performance Time Fig. 15.1 Trend lines for Drifting goals Some examples of drifting goals: 1. In the former East Germany the pride of every citizen was to own the only car produced in the country: a Trabant. Even when it was first designed, it was barely up to Western standards, but instead of improving, the quality got worse over time. The prevalent thinking was along the lines of “It’s human to make mistakes” and “We can’t control everything”, which led to the idea that quality norms were unrealistically high and should be adjusted downwards, or perhaps they were not even aware that they were lowering the standards. And as there were no other cars available, there was no reality check for that norm. This loop is so generic that it is difficult to put specific variables in the figure. Nobody exerts pressure to lower the norm, because nobody is even aware that there is a gap between norm and current performance. If there was a norm, it was certainly never checked! (Fig. 15.3). 2. In a chemical plant it is important that all operators can function at all work stations in order to limit the total headcount and have flexibility in the absence of personnel. Chemical plants usually operate round 116 J. Schaveling and B. Bryan O Pressure to lower the norm Norm B1 S Gap S R O S Current performance S B2 Corrective action S delay Fig. 15.2 System loops for Drifting goals Pressure to lower the norm O Norm B1 S S Gap with external reference The absent external reference R O S Corrective action B2 S delay Fig. 15.3 Trabant Current performance S Pitfalls of Fear of Facing Reality 117 15 Pressure to lower the norm S Reluctance to comment on eachother's work S O Norm (all operators perform all functions) B1 S GAP S O Teamwork S O Real interchangeability of operators S B2 Learning from eachother S Fig. 15.4 Drifting goals and team work in a plant the clock seven days a week and shifts have a good deal of autonomy in assigning workstations to the personnel present on that particular shift. At this particular plant, however, the interchangeability had deteriorated to the point where it existed only in name. Everybody was supposed to be able to do all the jobs that had to be done in the plant, but the least qualified were assigned to the easier functions. Attempts to create more flexibility, with a rotation system for instance had no effect and the gap between the capable and less capable operators only increased. In a context of shifting work in which all operators were on the same wage scale it was not considered collegial to comment on each other’s work and therefore nobody learned from each other. The analysis of the situation with the shift supervisors and a few senior operators can be visualized as in Fig. 15.4. It’s a classic drifting goals pattern but as indicated with the dotted line tendency to withdraw from team work. That was the leverage point for an intervention. There was no need for large scale instruction programmes, 118 J. Schaveling and B. Bryan which would have met with resistance anyway: “Are you telling us that we don’t know our job?” Instead it sufficed to change the shift composition so that it was impossible to avoid team work. And that could be done very simply by having an odd number of operators on an even number of work stations; it thus became virtually impossible not to work as a team and to discuss with each other how the work should be done. The gap between differences in interchangeability disappeared in a few months and because everybody was now effectively working in teams, the good operators no longer covered for their weaker colleagues and the laggards could be transferred to more suitable jobs. After that it became possible to work on greater uniformity over the shifts, which improved the quality of the product. 3. Account managers at a banking firm were having trouble conforming to the new tightened norms of the financial authorities. The workload became so intense that procedures were avoided and mistakes were made: the gap between performance and norm. That created extra work for the control department, who then constantly pursued the account managers to correct the mistakes. That again cost time which was already in short supply. The problem was solved by saying that the procedures weren’t that important anyway and it was not a problem if there were some small mistakes in the files: the norm slipped! In Fig. 15.5 the situation is sketched in the system loops: the upper loop shows the pressure to lower the norm. However, the financial authorities do not accept such lower standards and the corrective action needed to be to improve the quality of the work of the account managers to the level of ‘right first time’. When the first time right was implemented, the workload decreased. 4. An appliance company in India diversified its activities into a new area. The sales targets were set to meet market penetration targets, but they were not reached. The sales department tried to address the problem by lowering the sales target instead of looking for more structural solutions, such as more specific targeting of clients or hiring effective sales force because training will take time and meeting the sales target will not be attained in the short term (Fig. 15.6). Drifting goals archetypes can also arise in situations where different departments are judged within a company according to differing criteria that may be in competition with each other. For instance: the sales department is judged on sales volume and production on environmental criteria that limit volume. The typical mental models that drive drifting goals dynamics are: Pitfalls of Fear of Facing Reality 119 15 Procedures are not that important after all! O Requirements of files B1 S GAP S R O S Enforcement of procedures B2 Quality of files S S Delay Fig. 15.5 Drifting goals in a banking company • The people who create such norms have no idea what it takes to realise them. • We usually achieve the norm, but in this special case we have to content ourselves with less. • We have to achieve our own norms. • It’s not worth the cost. • It’s counterproductive to demand such high standards; people will only be frustrated. What can be done to prevent norms slipping? To start with it’s essential to have an external reference point. See to it that the norms are anchored in a system that is not under pressure to change them, usually some system that is not connected to the organisation. Any standalone system will corrupt itself. Instances such as inspection authorities for schools, food quality, health care, labour conditions all have a function as an external reference. You need a devil’s advocate to remain sharp. Moreover you need a system within the organisation to measure the quality of the performance and compare it to the external norm: 120 J. Schaveling and B. Bryan Window dressing to set the norm at 80 O Sales target 100 B1 S Gap S R O S Improved sales performance B2 Current performance: 80 S S delay Fig. 15.6 Drifting goals in an appliance company • Keep your vision and the corresponding norms in focus. • If the current performance is not up to standard, concentrate on designing and implementing corrective actions. • Check if the system is not suffering from conflicting goals or pressure and create some coherence between those factors. Drifting goals has an opposite: the situation whereby the norm is consciously increased and the gap is closed by improving performance. In this way, the quality for cars and electronics has improved beyond imagination. Limits to Growth Sometimes you hear or read about ventures that succumb to their own success. The cause can be typified as limits to growth. The central theme of the archetype limits to growth is that an activity grows rapidly at the start, but the growth flattens out as a result of the limitations that are created by the 15 Pitfalls of Fear of Facing Reality 121 Performance Limitation Time Fig. 15.7 Limits to growth trend line Limitation to growth Engine of growth S Activity O R Performance B S Limiting factor S Fig. 15.8 Limits to growth archetype growth itself. A famous example of such a situation was “People Express”, an airline company in the early 80’s that succumbed to their success. The company was so successful that the success took the organisation completely by surprise. It was not prepared for the enormous demand it had created. They tried to manage the demand with the resources they had at that moment, but failed to that in such a spectacular way that they went down with a few weeks! Limits to growth is a model that shows how the growth of an activity generates the restraints to stop the growth. After a quick start the growth stagnates or even turns to a downturn as shown in Fig. 15.7. The ‘S’ curve is characteristic for limits to growth. The performance increases and the sky seems to be the limit. After a while the success starts to turn against itself and generates its own limitations that slow down the rate of growth. The quick start is characteristic for a reinforcing loop and the subsequent slowing down indicates the presence of a balancing loop that is coupled with the engine of growth. The loops of the limits to growth archetype are shown in Fig. 15.8. 122 J. Schaveling and B. Bryan Some Examples 1. A shop in an industrial park has found the right moment and the right assortment of goods and clients are very positive. The resupply of their stocks is well organised and they have a catchy advertisement campaign. Growth takes off like a rocket. Clients come in droves to the shop, but they cannot park their car and growth flattens. Further investment in advertisement or supply has no sense; they have to find a solution for the parking problem. 2. A high-tech company provides a unique service with a unique support by highly qualified personnel. Demand is bigger than can be handled by the current staff. It is very tempting to temporarily recruit less qualified personnel to satisfy demand. However, that does not take away the limit to growth; it disrupts the engine of growth (the high quality)! The limit to growth is in effect the quantity of qualified personnel; the engine of growth is the quality of service and consequently the quality of the personnel (or personnel structure). We have seen this example for the employment agency, but it holds true for lawyers, accountants, content providers: if quality is your engine of growth, you may not make any concessions to it. 3. A small company had built up a good reputation in the production of MP3 players. In spite of the excellent quality and very reasonable price, sales are decreasing. They work even harder, but sales keep going down. Working harder on the engine of growth has no use in this case; the brake is formed by the becoming obsolete of the product concept. Only a renewal of the product range can save the company. In terms of systems thinking the engine of growth is formed by the reinforcing loop on the left side of the figure and the limitation on growth is situated in the balancing loop on the right hand side. The limitations in the given examples are: • Physical, as in the first example (not enough space). • Organisational (not enough qualified personnel). • Or changes that come with time. More general limitations can be formed by: • External factors like market size, availability of raw materials • Internal factors like employee capacities, technology, financial limitations 15 Pitfalls of Fear of Facing Reality 123 Availability Good R Turnover B Limitation in management parking space Unique service R Market position B Demand for personnel Obsolescence own product Excellent product R Sales B Competing products Fig. 15.9 Examples of limits to growth • Actions of competitors or political guidelines • Individual limitations by mental models, willingness to change, capacity to learn. Figure 15.9 shows if we fill in the variables of the examples in the generic form. In daily life it is important to recognise that you have found yourself in a situation, where working harder on what created growth at first is not going to help. You have to look at the limitations that slow you down. An additional difficulty is the time delay between the actions that have been taken to stimulate growth and the appearance of the limitation. Our ‘time blindness’ hinders us to recognise that causal relationship. Restaurants are eminently at risk of running into a limits to growth situation. It takes some time for the restaurant to build up a good reputation. If they do not manage their growth themselves by limiting the number of meals they serve, the decline of quality will do it for them and the good reputation is very quickly gone. Mental models that often drive the creating of a limits to growth situation are: • • • • Growing is good, growing faster is even better. The harder we work, the faster we grow. Problems are caused by the general economic situation, not us. Our shareholders expect us to grow; they will not accept anything else. For limits to growth archetypes the interventions are in two categories: • Manage your own growth; otherwise others will do it for you! Do not grow faster than you can manage to comply with demand. Identify the goals of the organisation, so that growth will always be subservient to them. • Invest in reducing the limiting force and anticipate on the next limitation, preferably before the limitation makes itself felt 16 Pitfall of a Combination of Short Time Horizon and Not Looking Far Enough Around You In cooperating very often we see the situation that one of the partners does something for his benefit that unintentionally hurts the other’s interests, and relationships may suffer. The two parties may become accidental adversaries. In this chapter we will introduce this archetype. Like other patterns accidental adversaries can threaten cooperation because we tend only to react to what flies us in the face and those reactions may make others trust us less. For co-creation trust is an important condition. Having no trust in the others is an important pitfall. How to address situations of no trust or less trust will therefore be the second important topic of this chapter. Accidental Adversaries In the ‘accidental adversaries’ archetype cooperation comes into being voluntarily, because it’s profitable for both parties. A problem arises when one of the partners solves a local problem in an unfortunate way. If he sweeps his own doorstep and unthinkingly shifts the dirt to the doorstep of the other it may cause frustration and sour the relationship. The trend line of the benefits of cooperation is given in Fig. 16.1. To clarify the pattern of accidental adversaries, we build it up in three phases. In phase 1 both parties perform activities for each other that the other cannot very well do themselves. This way both benefit from their cooperation and the benefits increase as a result of the reinforcing loop as indicated in Fig. 16.2. The double bar in the loop indicates a time delay; it takes time to build up a relationship based on trust and success to materialise. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_16 125 126 J. Schaveling and B. Bryan Advantages of the partnership Unintentional obstructive actions Time Fig. 16.1 Trends in accidental adversaries S Activity of A on behalf of B Success of A S R1 S Success of B Activity of B on behalf of A S Fig. 16.2 Accidental adversaries phase 1 Partnerships of consultants or doctors are typical examples of such cooperation. Through their cooperation their work is more interesting and time constraints are more easily managed. Phase 2 starts if some unexpected incident happens. Each of the partners can choose to improve their own success, but in the long term that turns 16 Pitfall of a Combination of Short Time … 127 S Activity of A on behalf of B O Success of A S S B1 Fix for the results of A S R1 Fix for the results of B O B2 S Success of B Activity of B on behalf of A S Fig. 16.3 Accidental adversaries phase 2 out to be a sticking plaster solution. Take a consultancy partnership as an example: A takes on a project that clearly is not within his expertise without even mentioning it to the others. If the others hear about it (and they will in the end) they will feel much less inclined to contribute or share projects that come their way. In Fig. 16.3 this is indicated as using the quick fix to solve a local problem. In the framework of the cooperation partners use sticking plaster solutions to quickly remedy a problem. If for instance you are called upon as a business unit manager to improve your results, you will focus on your own business unit regardless of what happens to the other units. You will improve your results, but when this working for own benefit becomes common, it will trigger phase 3, see Fig. 16.4, in which the partnership erodes quickly and the benefits dwindle just as quickly. We have arrived at the last part of the trend line of increasing mishaps and decreasing benefits. In the example of the consultancy partnership the partner who quickly took care of his own business (in B2) will probably not be involved the next time projects have to be tendered for and turnover will drop to the old levels and projects will be less appealing. The figure looks a bit more complicated that it really is: the balancing loops indicate the quick fix that each of the partners uses to remedy their local problems. The solution A chooses for her problems in the longer term turn out to be quick fixes that aggravate her problems because they are detrimental for the others. Therefore B also chooses to fix their own problems 128 J. Schaveling and B. Bryan S Activity A on behalf of B R1 S Unintended obstruction of B's success O O Success of A B1 S S Fix for the results of A S R2 O Fix for the results of B O Unintended obstruction of A's success S B2 S Success of B R1 Activity B on behalf of A S Fig. 16.4 Accidental adversaries, the partnership ruined and no longer contributes to the partnership. The balancing loops B1 and B2 (the corrections of the problems) are connected with the negative link to the success of the other. In that way it creates a tipping point for the grand reinforcing loop that started the cooperation and turns it from a virtuous loop into a vicious loop. Unfortunately trust breaks down much faster than it can be built up and a cooperation that has taken years to build can be annihilated in a few weeks. A hidden form of the accidental adversaries archetype often plays out between different levels in the hierarchy in companies. Cooperation across levels can be triggered by providing means, building a shared vision and creating transparency, so that priorities are clear and people can autonomously take decisions, commitment is created, the learning capability of the organisation increases and result improve. This reinforcing loop is visualised in Fig. 16.5. It takes some time to build up this type of reinforcing loop, but it can be an invaluable tool for the development of a company. If everybody knows what he is working for and applies his capabilities to realising a shared goal, an organisation can be much more than the sum of its parts. The whole seems to be quite robust, but there are some pitfalls that not everybody knows how to escape. Sometimes it’s difficult for a boss to take the long route and adapt priorities to his new information by supplying the information and explaining why priorities have to be changed. Instead he uses his hierarchical power to change the priorities by decree. It’s only logical, after all. Unfortunately, that spells an end for clear priorities. People thought they knew the priorities, but they are suddenly overruled. 16 Pitfall of a Combination of Short Time … 129 S Development of S shared vision Transparency S Result of the company Clarity of priorities R S Involvement and commitment Learning capabilities of the organisation S S Fig. 16.5 Cooperation between levels in the organisation Subsequently each employee has to work out the other priorities for themselves. They then usually resort to doing what they are good at, assuming it will contribute to company performance. The result is that everybody acts as if they are working towards a shared goal, but in fact everybody is working away at their hobby as illustrated in Fig. 16.6. These situations are often virtually unnoticed. The manager thinks the employee has understood the nuances of the changes and the employee thinks so too! Everybody subsequently goes their own way and is annoyed by the lack of understanding of the other. The employees suppose they are valued for their expertise and will use it whenever they have an opportunity; and so every problem becomes a nail for their hammer. The mental models that drive situations of Accidental Adversaries are: • • • • • We benefit from the cooperation and so do they. To help ourselves we have to take actions that help our activity. This action bears no relation to cooperation. They make it difficult for us, while we stick to the agreements. They’re doing this on purpose! Why don’t they stop it; can’t they see it’s hurting us? Faced with an accidental adversaries dynamic, consider the following: • Every incidental correction can have unintended effects for the other and can be misconstrued; keep the other informed! 130 J. Schaveling and B. Bryan S S Development of shared vision Transparancy O Result of the company O S B Use of hierarchical power R S O Clarity of priorities Doing what you are good at B O Involvement and commitment Learning capabilities of the organisation S S Fig. 16.6 Cooperation or hobby? • During the cooperation it may become evident that different conditions are valid than at the moment of conception of the cooperation. • If a partnership runs aground it is likely that some will opt for a victim or bogeyman role. Interventions in an accidental adversaries archetype are usually too late, because trust has been severely damaged, but if you are in time to repair things, consider the following: • Admit that there have been incidents and damage. Install a feedback system for the dissemination of information and ask your partner how your actions hinder her. • Get to know your partner and her working environment better so you can better anticipate the effects of your actions on her environment. • Identify the mental models that can disrupt cooperation. • Confirm the importance of the cooperation, reinforce mutual understanding and identify common goals. Building Trust This chapter has discussed accidental adversaries; a pattern that can threaten the success of our value creation model, because we tend only to react to what comes at us. We look merely at what happens in our direct vicinity 16 Pitfall of a Combination of Short Time … 131 instead of taking a broader scope to find out where the dangers come from. To look further around us however takes trust. For co-creation trust is an important condition. Trust can be defined as an attitude of accepting vulnerability, because you have positive expectations of the intentions and behaviour of the other, in order to improve the collective yield. Trust means taking a risk because you assume that the other will not abuse it. Trust in somebody increases as the predictability of his behaviour increases and predictability can be improved by making arrangements. If the other has more confidence in you, it will facilitate (implicit or explicit) arrangements, giving you more freedom to act. The other will give you the same freedom to choose what you think is appropriate. In a situation where trust is lacking there are two methods to achieve a workable relationship: • entering the zone of discomfort, having a very open, usually very difficult discussion; • the tit-for-tat method. Entering the zone of discomfort means engaging in the difficult conversation in which you give feedback to the other about when and how exactly he has undermined, or worse, abused your trust. Outline the situation and time exactly, describe the behaviour you observed and give your interpretation of that behaviour and the impact it has had on you. Say what it has done to you. Don’t make reproaches, don’t designate a culprit, but only indicate what the behaviour of the other does to you and why you thus have less trust in the other. Cooperation is fragile as Hannah Arendt puts it so eloquently, because it is characterised by its irreversibility, its unpredictability, its uncontrollability and its indeterminacy. Next you can have a conversation to find out what the matter is, what the reasons are for some behaviour, excuses may be offered and solutions can be sought to make the relationship workable again. Don’t make up too quickly, do not be in too much of a hurry to leave the “zone of discomfort”, but don’t wallow too long in it. Give the working relation a chance to re-establish itself and activate the reinforcing loop again in a virtuous way. It’s water under the bridge. Forgetting is difficult, but you can forgive. The other method is “tit-for-tat” (Axelrod, The Evolution of Cooperation, 1981; Ball 2004, 505 and further). This method involves cooperating with the other if he does the same to you, but if he carries out an action 132 J. Schaveling and B. Bryan that hurts you, you immediately carry out a counter action, mirroring his actions. A more forgiving form is ‘one-tit-for-two-tats’ whereby you indicate after one false move from the other that you are annoyed, but only mirror his action the second time. You show that you are willing to cooperate even if he does not cooperate the first time, but that you will not be trodden upon. This is an effective way to build cooperation; you don’t have to be friends to build cooperation. It can even work between two antagonists. Important rules to establish cooperation in this way include: • Don’t be jealous of the success of the other, but do what you have to do. • Be civil, don’t be the first to abandon ship. It’s beneficial to cooperate as long as the other cooperates. Avoid unnecessary conflict as long as they do the same. • Reciprocate the cooperation and desertion, avoiding escalation. Be forgiving after the tit-for-tat manoeuvre. • Don’t be too smart; don’t look for all the variations in the chess game. But focus on transparency. Be clear in your behaviour so that the other can adapt to your behaviour. Understanding these patterns of trust and cooperation makes it easier to judge what you need to keep the cooperation stable. If the people involved comprehend the mechanics of cooperation it’s much easier to build. Both methods are necessary: after a tit-for-(two)-tat(s) you have to enter the “zone of discomfort” together. If you don’t do the first (the tit after the tat) you will be trodden upon, if you don’t do the second (entering the zone of discomfort) you will not develop structural solutions for the establishment of cooperation, giving rise to addiction to fire fighting, escalation and accidental adversaries. So if you want to stimulate trust and cooperation: • Make the future more important than the present or past by making cooperation important for the long term. • Change the reward systems so that cooperation is valued more than individual performance. • Stimulate the values, knowledge and capabilities that foster cooperation. Working and thinking systemically means that you have to develop ways of treating each other that foster trust in the long term and make cooperation possible. 17 Pitfalls of a Combination of Short Time Horizon, Not Looking Far Enough Around You and Fear of Facing Reality Certain companies let their quality levels deteriorate and blame the competition for their decreasing turnover, or their sales managers for not doing enough to improve performance. A similar phenomenon occurs in firms where the management has grandiose visions and performs many scenario analyses, but doesn’t take the time to realise those visions. It’s a form of analysis paralysis; the lack of entrepreneurship to dare and to invest with no prior guarantees. This happens so often that it is called the archetype of “growth and underinvestment’, which will be described in this chapter. Growth and underinvestment is the result of a combination of short time horizon, not looking far enough around you and fear of facing reality. Another result of this way of dealing with our basic dilemmas is the archetype ‘tragedy of the commons’ which is named (as the story goes) after the Boston Commons, a place where everybody could let his cattle and sheep graze. Soon the Commons had no grass left and it was of no use to anybody anymore. In present day terms: a common resource is depleted, because everybody feels entitled to use it. A situation well known to all of us. Next to growth and underinvestment, tragedy of the commons will be described in this chapter. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_17 133 134 J. Schaveling and B. Bryan Growth and Underinvestment Investing in new opportunities is always exciting, because you don’t know whether you will be successful. However, if you wait until you have more certainty by carrying out additional analyses or wait for trends to develop; you can miss an opportunity for growth. The central theme of growth and underinvestment is waiting for certainties to emerge, before investing in existing activities. In a sense it is an expansion on the limits to growth archetype we discussed in Chap. 15. An activity grows until it meets some limitation. To lift the limitation investments have to made, but the decision makers wait till they have greater certainty before deciding to invest. In a market economy you will very seldom get those certainties so you can only invest on the basis of your vision and the confidence you have in your project. If that’s lacking, you lower your ambitions (or quality standards) and let the opportunity slip away, because somebody else takes the risk and occupies the share of the market you were planning to occupy. The opportunity has gone and once again you will never be certain enough to invest in the next opportunity if that ever comes. The trend lines in Fig. 17.1 show the rising performance that is related to a successful activity; the trend flattens as the activity comes up to the limitation of growth and the necessity of an investment to lift the limitation becomes Limitations to growth and necessity to invest Plodding along To liquidation Time Fig. 17.1 Trends for growth and underinvestment Pitfalls of a Combination of Short Time Horizon … 135 17 Engine of growth Activity S R Limitation of growth S S Performance O S Capacity S Addition of capacity Limitation B1 Available capacity B2 Investments Pressure to lower the norm S O Perception of the necessity to invest S S B3 Norm O Investment criteria Fig. 17.2 System loops for growth and underinvestment clear. If that decision is not taken the company will cease to grow and it will either barely survive or slowly drift towards liquidation. The system loops for growth and underinvestment are shown in Fig. 17.2. The upper two loops are identical to limits to growth with the limitation (available capacity) in the balancing loop on the right. The lower loop indicates how the limits should be managed: investing in extension of capacity to lift the limitation and keep the activity growing. The venom lies in the lower right loop: you lower your ambitions, which then makes further investment unnecessary. You have abandoned your vision and others, whether clients or competitors, will fill in the future for you, which is never a formula for success. Some examples of growth and underinvestment: • Two brothers were the directors of the family business in building materials that their father had built up. Ten years previously the brothers had taken it over from him and had big plans for expansion, but the business was still the same size and prospects were gloomy. In the meantime in the neighborhood three new building materials companies had grown to a size that left little room for them. In the previous few years they been very close to making a big investment, but every time they had decided to wait for the right moment, because at the time there was little growth in 136 J. Schaveling and B. Bryan their turnover. That waiting was always justified, because other companies settled and caused their turnover to decrease. In the same vein they had also made a mistake concerning new materials on the market. At first they did not want to incorporate them in their product range, and when they finally decided to move to a bigger scale, growth and margins had dwindled. By catering personally to their customers they could stay afloat. But they were reluctant to jump into new adventures with new materials or other target customers, because the outcome was highly uncertain. • A big company in franchise management services had a highly specialised department that supported their own business. This department was given the opportunity to offer their service on the free market. But because the mother company kept on growing, the clients had to wait a long time before being helped. New employees needed a training time of approximately six months and by the time they were trained the internal demand had already grown. The decision to invest in an increased rate of growth for the department to create a temporary overcapacity was not taken and possibilities to establish a solid position on the free market were squandered. As in the first example: if you do not invest in anticipating demand, you will always be too late, and clients will find another solution for their problems. For those involved: it’s never easy to recognise these situations in daily business life. For outsiders it’s fairly simple if they have seen a few years of the company history, as in the given examples. But if you’re in the midst of that situation and know all the details and risks intimately, the tendency is to wait until the mouse pops his head out of the hole before you pounce. However, that is the moment to stay true to your vision and test the current situation against it. Your vision is a form of external reference point that should prevent you from slipping. In planning interventions you need to take some of the implications into account of growth and underinvestment. • You need money to earn money; if you don’t invest you will not get a return. • Growth has to be managed strategically by anticipating limitations. • Invest before you feel the pain. • If you don’t manage your own growth, others will do it for you: competitors by taking away market share and clients by staying away. 17 Pitfalls of a Combination of Short Time Horizon … 137 What can you do to prevent missing chances for growth? • Anticipate limitations in growth (especially capacity) and plan the investments needed to alleviate them. • Limit your activities to stimulate growth until the capacity is in place to handle the demand; if you don’t manage your own growth, somebody else will do it for you. • Stay true to your vision. Determine how your investment plans and performance criteria match your vision. • Determine what the mental models are that rationalise a decrease in performance or the postponement of investment and challenge them. Tragedy of the Commons The archetype tragedy of the commons stands for the situation where a common good is used and needed by everybody but nobody feels responsible for it: “Why should I refrain if others don’t do it either?” And at the end of the day the resource is depleted. Task organisations (see Fig. 7.2) are susceptible for this problem, like internal departments that do not have the freedom to hire new employees or refuse projects. If the demand on a support department becomes too heavy, staff gets overworked, gets sick or leaves They can protect themselves by cutting corners so that quality goes down, or they can behave so grumpy that customers stay away by themselves. All these ways negates the possible added value of the expertise. The driver that causes depletion is that no one of the users that need the resource bothers to look after the status of the common resource. The trend for tragedy of the commons is shown in Fig. 17.3. The trends show a line for the total activity going up; a line for the yield per activity of the users that quickly goes through a maximum and a line for the capacity of the resource that remains stable for a while and then collapses. This archetype consists of several reinforcing loops representing the individual users that make use of the resource and using an ever increasing portion of its capability. This usage goes on till the moment the limit of the capacity of the resource has been reached and the system collapses. The system loops are shown in Fig. 17.4. 138 J. Schaveling and B. Bryan Total activity Capacity of the resource Yield per activity Time Fig. 17.3 Trends for tragedy of the commons Some examples: 1. The oceans are being depleted of fish. The biggest sinners are all sitting around the table and say they are behaving very ecologically responsible, but it are the others who misbehave. Because there is no one with the final responsibility who can enforce the ‘agreed’ rules, nothing happens. Everybody knows that something has to be done, but nobody wants to the first to refrain. And so the negotiations drag on. 2. A support department for automation had been expanded from two to four persons and had succeeded in attracting real good people. At first nobody was interested, but when the introduction of changes with the first clients went really well, suddenly everybody wanted to be helped first and kept up a strong pressure to get their time. They kept the automation people from their work with their nagging and vented their frustration on them. And then one day … Three of the four people quit; they had enough of it. 17 Pitfalls of a Combination of Short Time Horizon … 139 I'm first !! S Net gain for A S B1 I'm first !!! O Activity of A Constraint R1 S Total activity O Available capacity S Activity of B O !! I'm first !! R2 B2 S Net gain for B S !!! I'm first !!! Fig. 17.4 Tragedy of the commons 3. The use of parking spaces for the handicapped by able-bodied people is also an expression of the “Me first!” syndrome. A sign at one of the parking spaces for the handicapped expressed it succinctly: “Being a jerk is not a handicap; go park your car elsewhere!” 4. At buffet meals there are always people who take a big heap of the best pieces, so that others cannot be served and then leave them on their plate. The returning theme is that everybody takes care of himself first and does not bother about the question if something remains for the others. In daily life we have to learn to recognise the situation that a resource may be overburdened if no action will be taken. To recognise it before it is too late and pose the question what to do to prevent depletion! The problem is that there is nobody who feels called upon to pose that question. Usually the users come to the conclusion after the fact that they should have thought about it. In the case of internal services it is the head of the department, who has 140 J. Schaveling and B. Bryan to ask his superiors to step in and regulate access to the resource. On the other hand it is a primary management responsibility of good stewardship to turn over the assets entrusted to you—the people working for you—in better shape than when you took responsibility. Protection of your employees is your responsibility; wearing out personnel is very bad management. Mental models that give rise to this archetype are: • • • • • This resource is there to be used. It is overhead, so I have already paid for it. There is capacity enough, if there is a problem I will hear of it. I am only one of many. If I push harder, I still get my piece of the cake. In this archetype there is basically only one intervention: a central authority has to regulate access to the resource and limit its use. That authority can be a higher hierarchical level, or a collective of users, but it can also be someone who buys the exclusive rights to use. Depletion of the resource cannot be averted by one or a few of the users. Only the collective could be able to do that, but that requires strong leadership and a shared vision. From this basic intervention we can deduce some possibilities to prevent depletion: • Give information on the limitation of use of the resource and the individual share in it. • Develop a common sense of shared ownership • Stop access to the resource if it is endangered to give it time to revive. 18 Adaptive Leadership If you want to make systems thinking part of your daily life you have to exchange a few of your old knee-jerk reflexes for those of the systems thinker. In a nutshell it comes down to taking the whole into consideration instead of the parts, choosing the definition of scope widely enough, letting time work for you instead of against you and staying focused on dealing with reality. In the description of the shortcomings that stem from our evolutionary heritage we mentioned that there are always two of us: our emotional, intuitive self and our rational self. In organisations most of the day-to-day processes are engrained in the ‘tacit knowledge’ of the organisation. They are performed in an intuitive way. The role of management is not to interfere with these processes, but to monitor/observe whether the processes still fulfil the required purpose. If the processes begin to produce results that deviate from the required results, management should share those observations with the operations people and require them to come up with adaptations to redress the situation. Giving orders to change by management is usually a tiring and futile exercise: operations people know the processes intimately and much better than management. The only time management has to specify new procedures (in broad lines) is when a radical change has to be made: the rules of the game have to be changed. In the previous chapters you learnt how to evade the pitfalls. In essence this involves assessing the true nature of the situation and understanding how things are interconnected. In this chapter we discuss how to look systemically at situations and examine the reflexes of the system thinker. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_18 141 142 J. Schaveling and B. Bryan Sit Still Reality is always more complex than we think it is. All previous experience makes you see the situation as you have encountered it before (confirmation bias) and you may have overlooked information that could be vital for understanding the current situation. Wisdom consists of knowing that you only see a fragment of reality. However, that realisation should not withhold you from deliberate action. Your thinking should enable you to assess the reach of the actions you envisage. You may have decided to leap, but at least you have thought about it beforehand. (The man who started the Gulf war thought he knew, but in fact had no clue!) Know the Value Creation Model of Your Organisation For any organisation to develop they need a sense of purpose and it has to be clear what its right to exist is based on. That right to exist is visualised in Chap. 7 where the value creation model describes the added value to society. Formulate your distinctive competences, how you use them and how you invest the proceeds of your transactions. The value creation model is the basis for the formation of your vision and strategy that control your daily management. In essence the value creation model answers the question: “What’s your purpose in doing X and how do you keep your capacity to do that up-to-date?” Don’t Think You Can Make the System Perfect One purpose of systems thinking is to develop a feeling for the organisation, learn to live with the system and start making sensible changes. Systems thinking is a powerful disincentive to making quick and ill-conceived changes, because it clarifies the unintended side effects. Be careful before you intervene. Understand that the system has developed to optimise its existence within the given boundary conditions. If the boundary conditions don’t change the system probably won’t change either! The system has emerged from the mental models that created it and these are anchored at a deeply emotional level and therefore difficult to change. So it’s much better to learn to cope with them. 18 Adaptive Leadership 143 Don’t try to make the system perfect. Avoid the temptation to think you understand the whole system! Start with a change you think you can manage, then let the system stabilise and then take stock. Small experiments also teach the organisation to adapt to changes. Those experiments may help you in designing bigger changes at the next step. But if nothing happens; don’t take a bigger hammer: the problem may not be a nail! It’s difficult not to give into the hectic tempo that seems to be required for any change; every system has its own optimal rate of growth and change. Complex social systems do not simply accept the changes that are thrown at them: the Iraq disaster is a painful reminder of this. Understanding this should not be an excuse not to do anything; systems thinking does not say ‘don’t act’, but ‘act differently, based on a different kind of thinking’. Systems thinking is not only a greater challenge, but also has greater power than traditional thinking to tackle serious problems. Sometimes You Have to Begin a New System or Organisation Systems adapt to fulfil the function for which they were designed. If for instance an organisation was designed to be a university hospital, it has developed to take care of sick people in combination with an educational function. If the organisation does not function properly, systems thinking can offer options for improvement. However, if the character of the organisation has to change fundamentally to become a market organisation, for instance, an entirely new organisation must be considered instead of trying to adapt the current set-up. We increasingly see that organisations experience the greatest difficulties where they are forced to change to a purpose for which they were not designed. As a society we are addicted to heroic change managers, CEOs that are brought in with very high salaries and who promise mountains of gold, but whose interventions have almost zero effect in the longer term. There is an immense range of possible interventions and of course we should start out by using them to achieve our goals, but sometimes we have to admit that starting over is a better option. Creating structures from scratch is easy, but once an organisation has found an identity of its own, making big changes becomes difficult. Of course we do not advocate starting new organisations and throwing the others away as a way of governance; this book gives many examples of the adverse effects of short term thinking. As Arie de Geus (one of the 144 J. Schaveling and B. Bryan founders of the systems thinking discipline) correctly points out, we must make the choice between: • managing an organisation to maximise profits and have the organisation last for 20–30 years; • or managing the organisation to let it excel at what it does and function in harmony with a changing society and have it last for many decades, yielding more over a longer period for its stakeholders (shareholders included) and leaving a lasting heritage. Think Holistically: Keep the Whole System in Mind Of course there also are straightforward problems with a linear cause and effect relationship. But don’t count on it, such problems rarely come alone. A systemic view of the situation not only takes account of the problem that has taken our attention hostage, but puts the problem in its context. The difference between looking at the problem as an isolated case and viewing the problem in its context is similar to the difference between: • classical Western thinking, which sees the whole as the sum of its parts and each part can be repaired and optimised; and • more holistic classical Eastern thinking, which assumes that the whole is (much) more than the sum of its parts and that everything relates to everything else, so that a problem is always related to another part in the whole. Bear this in mind next time another trivial problem arises; conduct a quick scan to check if there have been more of these trivial cases to keep you from your work. That places the problem in a context. If indeed there have been more of these seemingly unrelated cases it is time to stop doing and start thinking (systemically). Organisation changes often don’t go further than moving boxes and squares within an organisation chart. Splitting or combining departments rarely has any impact on performance or growth. Splitting an elephant does not make two elephants and combining an elephant with an antelope never yields slender athletic elephants. Organisations are systems with reinforcing and balancing loops that form a living whole with an identity through the interaction of the constituent parts. It’s like a body that you can’t amputate with impunity. The ‘moving boxes’ management style tears departments 18 Adaptive Leadership 145 apart or combines them with other departments because they ‘complement each other’ without having investigated if the result will have any serious chance to prosper. That usually creates a mess that’s difficult to clear up. The fact that it still succeeds sometimes is more a tribute to people’s great capacity for self-organisation than the wisdom of the intervention. Leaders have to go further than merely moving boxes around. Good leaders try to fathom the whole before intervening. It may or may not be good to split a department to change its identity if a change from within is not feasible anymore. Make an Honest Assessment of the Situation However simple it may seem, making an honest assessment of a situation is one of the most difficult procedures in an organisation. That has to do with our being human, our defence mechanisms, the vested interests and our inability to deal easily with social confrontation. In an assessment (or reality check) we try to establish how we got into the situation we are in. Of course that begins with describing the most relevant variables over the most relevant period. What has changed, what were the measures that (could) have had an influence, what external factors have changed (Beware!!! Don’t hide behind external factors), what contribution was made by everybody? And don’t forget your own role in that. This is the most dangerous phase, because there’s just one question on everybody’s lips: “Who’s to blame?” If you give into that temptation, the assessment turns into a political whitewashing exercise. So keep asking neutral questions: what happened, what was the occasion, what was different, what did we expect to happen? Making an honest assessment is also inhibited by our tendency to formulate a problem merely in terms of the absence of a familiar solution. “Not enough sales? More salesmen!” That blocks further investigation into the root cause of the problem. Discover the Hidden Assumptions; Verify if Everybody Is Discussing the Same Subject Does it sometimes happen to you that you fail to understand what has got into otherwise sensible people? That you have no clue as to what motivates them? You supposed that the other—on the basis of the same information— 146 J. Schaveling and B. Bryan would come to the same conclusion, but apparently that is not the case. People very often don’t understand each other, but in companies and organisations it’s difficult to admit; we’re supposed to know the vision, the strategy and the priorities, right? All too often that is not the case for the simple reason that we all have different sets of data and interpret them with different frames of reference and mental models. As we have seen, frames of reference are the set of convictions, images, and ‘data’ (it is clear that …) that you carry unconsciously with you and that makes you see things as you see them. That does not say much about how others with other frames of reference see them. Frames of reference mean that everybody creates their own reality on the basis of the same data and therefore that reality differs from one person to the next. A beautiful illustration of how we can be in different worlds on the same place is Escher’s famous lithography of the spiral staircase, see http://www.mcescher.nl/?s=Relativiteit&lang=nl. The staircase is infinite, the beginning and end are the same and all the people are walking down the stairs. But one group is walking clockwise and the other group counter-clockwise! They not only see their world differently; their world is different. They probably can’t imagine the other people they encounter are also walking downwards. If they could only talk to each other and explore the differences in their worlds! To verify if we share the same image of reality as the other we must climb up and down the so called ladder of inference. That implies concurring on which verifiable data you will use and from which data sets. Indicate which assumptions from your frame of reference you use to interpret the data. Because everybody has such different frames of reference, this is the only way to avoid misunderstandings. This way you verify whether what you know is ‘true’. It is not easy to figure out the assumptions that make up our frames of reference, because we are usually unaware of them. Only by asking open questions and probing them and asking the other to do the same to us can we get clarity about those differences. The most direct way is to repeat the ‘why?’ questions. Bring the Whole System into the Room The definition of a problem formulates the boundaries of the scope. If we qualify something as a leadership or marketing problem we are already steering toward a solution and leaving alternative solutions ignored. As well as 18 Adaptive Leadership 147 people from our department we should also invite people from other departments, a client, a supplier or a boss to discuss the situation. Inviting others to think about things can be refreshing and helps clarify our own assumptions and mental models. Even though we may experience something as a problem, we also have to consider the question of who benefits from the situation. Not out of malice, but simply because it suits them. There’s more than just drawbacks to that addictive little drink or pill; there are those who earn a lot from it! The principle of ‘getting the whole system into the room’ provides more perspectives. If representatives of the whole system are brought together, a richer picture will emerge of the current and future situation and solutions can be proposed that serve everyone. If everyone looks at the situation from their individual point of view and acts on it, only partial solutions can be designed that probably create problems for the one next door. One small risk of bringing everybody together is that some with a different perspective may yield to the social pressure to concur with the majority so that you accomplish the opposite of what you envisaged: you have reached a consensus about the correctness of an incorrect opinion. Doing preparatory and additional interviews can reduce this problem. This principle of bringing the whole system into the room and difference in perspective can be illustrated with the ancient parable (c. 200 BC) which goes something like this: In a distant village, a long time ago, there lived six blind men. One day the villagers announced, “Hey, there’s an elephant in the village today.” They had never seen or touched an elephant before and so decided, “Even though we won’t be able to see it, let us go and feel it anyway.” And so they went down to the village to touch and feel the elephant to learn what kind of animal this was. They described it as follows: “I get it, it’s like a pillar,” said the first man touching the leg. “Oh, no! It’s like a rope,” argued the second after touching the tail. “Not at all! It‘s like a thick branch of a tree,” the third man spouted after feeling the trunk. “Nonsense! It’s like a big fan” said the fourth man feeling the ear. “I think it’s like a huge wall,” opined the fifth man, patting its belly. “You’re all wrong! It’s obviously like a solid pipe,” said the sixth man with the tusk in his hand. A heated argument ensued as to who was right in describing the big beast, with each man insisting on his own point of view. A wise sage happened 148 J. Schaveling and B. Bryan to hear the argument, stopped and asked them “What is the matter?” They said, “We cannot agree on what the elephant is like.” The wise man then said calmly, “You’re all right, and you’re all wrong. Because each one of you only touched a part of the elephant’s body, you only have a partial view of the animal. If you put your partial views together, you’ll have a real idea of what an elephant looks like.” But even seeing the whole elephant does not guarantee that the problem is understood, because the elephant is just one animal in one context. Many difficulties arise from the interaction between parts and these parts may be inside the animal, or have to do with the environment in which it lives. In a company you may have to look at specific relations between departments; other problems have to be looked at on a regional or national level, or at the level of the industry or industry branch. It’s essential to investigate those interactions that are the most relevant to the question, irrespective of traditional organisational boundaries. To be able to do that you have to get the whole system into the room and present different perspectives. Look for Actions with Leverage; Don’t Use a Bigger Hammer When introducing a new measure, bear in mind that the old situation has a history and resistance is inevitable. It’s no use pushing harder, finding the sore points and circumventing them or adapting the measure is. Pushing harder only provokes greater resistance and you may end up in a situation in which confrontation becomes a goal in its own right. A good metaphor for leverage is the trim tab, not only because it’s so effective, but also because it’s invisible. The trim tab is a small rudder on the trailing edge of the main rudder. Trim tabs enable the captain to reduce the pressure on the primary rudder so that turning the rudder becomes much lighter, which in turn makes turning the ship much easier. The tab is moved in the direction opposite that of the primary rudder, to relieve pressure on the rudder control. To make a ship turn left, the stern is pushed to the right of course by turning the rudder to the left. The forces on the rudder for mammoth tankers are immense and would cause enormous strains on the whole steering equipment. However, by turning that little trim tab to the right, turning the big rudder to the left becomes easy and light. 18 Adaptive Leadership 149 Systems thinking facilitates the search for interventions with great leverage like the trim tab: small, targeted actions that have important, durable results; a type of action that unleashes the power of self-organisation in a system to improve or adapt itself to the changing world. Strengthening individual parts does not usually contribute much to the system. In general, the type of intervention that improves the system as a whole lies in: • reinforcing the relation between the parts, for instance by sharing information streams, housing them together, exchanging personnel, etc. • creating boundary conditions that foster change, like reward systems, levels of autonomy, information supply, etc. • sharing a vision that directs actions, mainly by talking directly to people, and walking the talk. Ask Yourself the Questions of the System Thinker If you practise systems thinking for some time, you will find yourself more often in a questioning as opposed to directive mode and asking questions in this vein: • • • • • • • • • • • • • What is the purpose of this system? Could you summarise the vision/strategy again for me? Why do we want this? Has this solution been used before; are we fighting the symptoms? What’s the reinforcing loop here? What creates the resistance? Who benefits from this? How do you perceive the problem? Shall we have a look at the data and see if they’re complete and how they’ve changed over time? What are the hidden assumptions? Are we maintaining this problem ourselves? Why do we always come up with the same options; haven’t we limited our scope too much? What are the consequences for the short and long term? 19 Systemic Pitfalls in Cooperation; The Pitfalls from a Bird’s Eye View You are acquainted with the value creation model and the 9 threats that the human mind has in store for it. In this chapter we present a bird’s eye view of the patterns and a few rules of thumb for each pattern. But as always: there is nothing new under the sun: philosophers and writers down the ages have expressed their worries about the “Do something!” syndrome. Marcus Aurelius (121–180) writes in ‘Meditations’: Most of what we say and do is not essential. Eliminate it and you will have more time and more tranquillity. Ask yourself, is this necessary? The French philosopher Pascal Blaise (1623–1662) says in 1645: All of humanity’s problems stem from man’s inability to sit quietly in a room alone. The American philosopher Henry Thoreau (1817–1862) said: It is not enough to be busy; so are the ants. The question is: What are we busy about?’ Don’t confuse activity with results. There is no reason to do a good job with something you shouldn’t do in the first place. Warren Buffet, the famous investment banker put it succinctly: There’s no use running, if you’re on the wrong road. © The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5_19 151 152 J. Schaveling and B. Bryan The Value Creation Model ... creates a ... Societal need Market demand Adaptation loop Activity set that satisfies the societal need in the form of a product or service Competitive advantage Focussed on outside world Distinctive competences Focussed on organisation, continuity Added Value Investment Result Transaction Fig. 19.1 The value creation model The Value Creation Model Figure 19.1. The value creation model depicts the engine of growth and the raison d’être of the organisation. It comprises the following elements: 1. Distinctive competences that differentiate the company from other organisations and that enable it to provide services or goods. 2. A set of activities that provide services or goods in response to a market demand. 3. A transaction is an interaction with a customer that creates value for them both; one as provider and the other as receiver of services or goods. 4. The result is the yield in terms of money, name recognition, market penetration, track record, network, knowledge, etc. 5. Investment in order to maintain and grow the distinctive competences. 6. The implicit or explicit societal need that the organisation has identified as a possibility to create a market demand. 7. Market demand as an expression of societal need. 19 Systemic Pitfalls in Cooperation; The Pitfalls … 153 Fixes that backfire Problem symptom Applying fix Problem symptom O S S B Quick fix R S Unintended side effect Time Fig. 19.2 Fixes that backfire Fixes that Backfire Figure 19.2. Rule of thumb: if your action designed to solve the problem is unsuccessful, don’t use a bigger hammer, but find out what the unintended side effects may be. If measures to remedy a problem (the balancing loop) are unsuccessful and the symptom keeps re-emerging, it’s likely that the remedy is having an unintended negative side effect that’s reinforcing the cause of the problem (the reinforcing loop). Again the situation may be complicated by a time delay between the remedy and the appearance of harmful side effects. Shifting the Burden Figure 19.3. Rule of thumb: if an organisation is constantly fighting symptoms; reserve specific resources to determine and solve the deeper underlying causes. Fighting symptoms can be addictive: you don’t have to think, you can just do! However, the time spent on remedying symptoms diverts attention from finding the real cause and the problem may erode the organisation’s capacity to remedy the underlying causes of the problem. 154 J. Schaveling and B. Bryan Shifting the burden Symptom fighting Capacity to solve problems Problem symptom S B O QuickFix O S Problemsymptom delay R Side effect that inhibits structural solution B Structural solution S O Time Fig. 19.3 Shifting the burden Escalation Relative position of A to B Results of A Activity of A Results of B S S B1 S O Perception of A's position relative to B B2 Activity of B Activity of A O S Activity of B Time Fig. 19.4 Escalation Escalation Figure 19.4. Rule of thumb: check whether your perception of the relative positions is correct and deescalate by postponing retaliatory actions. The dynamic of escalation occurs when parties feel threatened by the other and want to keep up with them at all costs. Actions and counter -actions are often based on unreliable data and mostly fear. Being 19 Systemic Pitfalls in Cooperation; The Pitfalls … 155 Success of A S Success of the activity of A S R1 S Allocation of resources to A instead of B R2 Success of the activity of B S Success of B Time Fig. 19.5 Success to the successful transparent in your actions and communication is a way of defusing the dynamic. Success to the Successful Figure 19.5. Rule of thumb: to give unproven projects a chance of success, investment decisions must allocate resources independently. When investment decisions are made that allocate resources to a proven project at the expense of an as yet unproven one, they create self-fulfilling prophesies and kill off potentially profitable opportunities. Drifting Goals Figure 19.6. Rule of thumb: make certain that the organisation’s performance is measured in a meaningful way and is compared with an independent external reference. Goals start to drift if the system lacks an external reference point. Performance starts to decline and for every complaint a satisfactory rationalisation can be found. If performance is compared to a norm and the performance is insufficient, the norm is lowered, which paves the way for a further lowering of the norm. 156 J. Schaveling and B. Bryan Pressure to lower the norm O Norm B1 S Gap Norm S S Corrective action Performance R O Current performance S B2 S delay Time Fig. 19.6 Drifting goals Performance Limitation Limitation to growth Engine of growth S Activity S O R Performance B Limiting factor S Time Fig. 19.7 Limits to growth Limits to Growth Figure 19.7. Rule of thumb: don’t push the actions of growth too hard, but eliminate the limiting factors. The limits to growth archetype consists of a reinforcing loop—the engine of growth—and a balancing loop which limits that growth. The activity grows rapidly at the beginning by virtue of the reinforcing loop. However, nothing grows forever and growth creates its own limitations that flatten the growth pattern. This ‘S’-curve is characteristic of the limits to growth archetype. 19 Systemic Pitfalls in Cooperation; The Pitfalls … 157 S Activity A on behalf of B R1 Advantages of the partnership Unintended obstruction of B's success S O O Success of A B1 S S Fix for the results of A S R2 O Unintentional obstructive actions Time Fix for the results of B O Unintended obstruction of A's success S B2 S Success of B R1 Activity B on behalf of A S Fig. 19.8 Accidental adversaries A problem in managing this situation is the time delay that often occurs between the actions that create growth and the appearance of limiting factors that slow growth down. Accidental Adversaries Figure 19.8. Rule of thumb: be transparent in your actions and communicate the intentions of your actions. Partners can become accidental adversaries if one carries out an action which unintentionally obstructs the others. It takes a long time to build up a partnership, as trust plays an essential role, but it can be ruined in a short time. The partners therefore have to be aware of and adhere to the underlying rules that govern trust. Growth and Underinvestment Figure 19.9. Rule of thumb: in a market economy there is never complete certainty about the success of an investment decision. These decisions have to be based on vision and entrepreneurship. If investments are needed to grow a business—removing the limits to growth—they should be made in anticipation of the required capacity. 158 J. Schaveling and B. Bryan Limitations to growth and necessity to invest Engine of growth Plodding along Activity S R Limitation of growth S S Performance O S To liquidation Capacity S Limitation B1 Available capacity B2 Pressure to lower the norm S O Perception of the necessity to invest S B3 S Investments Addition of capacity Norm O Investment criteria Time Fig. 19.9 Growth and underinvestment I'm first !! S Net gain for A Total activity S B1 O Activity of A Capacity of the resource Constraint R1 S Total activity O Available capacity S Yield per activity Activity of B O R2 B2 S Net gain for B Time S !!! I'm first !!! Fig. 19.10 Tragedy of the Commons Waiting for greater certainty opens the door to competition and simply creates greater uncertainty in the future. Tragedy of the Commons Figure 19.10. Rule of thumb: if a common resource threatens to be depleted: regulate access to it. The pattern of the tragedy of the Commons occurs when many users claim use of a resource for themselves but do not feel responsible for its maintenance. If the users cannot manage the rules of access and a higher level of authority does not intervene (or is absent) the resource collapses. 19 Systemic Pitfalls in Cooperation; The Pitfalls … 159 The Patterns from a Bird’s Eye View on 1 A4 See Table 19.1. Table 19.1 The patterns from a bird’s eye view on 1 A4 See: Schaveling, J. and Bryan, B. (2016). Making better decisions using Systems Thinking. Palgrave Value creation model The pitfalls of a short time horizon Fixes that backfire Shifting the burden Pitfalls of not looking far enough around you Escalation Success to the Successful Pitfalls of fear of facing reality Drifting goals/norms Limits to Growth (continued) 160 J. Schaveling and B. Bryan Table 19.1 (continued) The pitfalls of a combination of short time horizon and not looking far enough around you Accidental Adversaries Building trust The pitfalls of a combination of short time horizon, not looking far enough around you and fear of facing reality Growth and Underinvestment Tragedy of the Commons Annexe: Language of Systems Thinking You may wish to skip this annexe if you are not interested in drawing your own system loops yourself. Reading this annexe is helpful, but not absolutely essential for understanding the archetypes described in this book. Systems thinking is a way of conversing and thinking, of creating mental images about issues or problems—you could describe it as a conversation about systems in terms of dynamics and feedback loops. And to have a conversation, you need a language. In this chapter the basics of that language are explained and we take a closer look at the two basic loops—the reinforcing and the balancing loop—that were discussed in Chap. 5. Variables and Causal Relations The language of systems thinking consists in the first place of variables. The reason for discussing a problem situation is often an incident: a dismissal, an accident, the action of a competitor, a quarterly result, the loss of an important client, and so on. However, these incidents are not variables as we use them in systems thinking. They do or do not occur and cannot be influenced in this form. A variable is scalable; that is to say: it can become bigger or smaller, less or more, higher or lower. One way to check whether it is a scalable item is by adding a scale to it as follows: • the number of …; • the level of …; © The Editor(s) (if applicable) and The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5 161 162 Annexe: Language of Systems Thinking Table A.1 Examples of variables related to events Event Variable (able to vary) A new account The number of new accounts or The effort on new accounts Promises The number of promises The dismissal of X The number of dismissals The level of functioning of X The work satisfaction of X An accident The level of safety The number of accidents Action of a competitor The level of pressure on prices Arofit in quarter 2 The level of quarterly profits Loss of client Y The level of customer satisfaction The number of customers lost • • • • the quality of …; the height of …; the depth of …; the size of …. Table A.1 shows some examples of variables related to events. Sometimes you have to stretch your brains a little to formulate the right variable. It may be helpful to cluster variables from a detailed level to a higher level of abstraction. But take care not to soar to such a bird’s eye viewpoint that the picture loses its applicability for your situation. Conversations often have a tendency to shoot up and down between an inappropriately deep level of detail and an inappropriately high level of abstraction. Mastery is characterised by the ability to find the level of abstraction that lifts you above daily worries to see the underlying pattern but close enough to the ground that conclusions are specific enough to be applicable to your situation and actionable. Causal Relations: Same and Opposite If we assume that there is a causal relationship between variables, we connect them with an arrow. If the relationship is such that if A goes up, then B goes up, we call that a positive relationship and illustrate it with an ‘S’ (for same) Annexe: Language of Systems Thinking 163 S Level of price Fig. A.1 Profits Causal relationship: same O Workload for service department Fig. A.2 Quality ot the service Causal relationship: opposite at the point of the arrow. If A goes down and B goes down as well it still is a positive relationship with the same ‘S’ The symbol for such a relationship is given in Fig. A.1. In Fig. A.1, A stands for ‘level of prices’ and for B for ‘profit’. We may thus assume that if prices go up, profits go up; if prices go down, profits go down Both variables move in the same direction: if A goes down then B goes down or if A goes up then B goes up. However, if one variable goes up and the other goes down, or the other way around: if one goes down and the other up, we call that a negative causal relationship and indicate that with ‘O’ for ‘Opposite’. For example when A goes up but B goes down or if A goes down but B goes up. Figure A.2 can therefore be read as: • ‘a higher workload for the service department leads to lower service quality’; • ‘a lower workload for the service department leads to higher service quality’. To determine the nature of the coupling (same or opposite) you take only the variables at the beginning and end of the arrow into consideration. In your mind you put a box around it then you look at what happens to B if A goes up or down. If B moves the same way as A, then it is a ‘same’ relationship; if B moves counter to A it is an ‘opposite’ relationship. 164 Annexe: Language of Systems Thinking S Stimulating action R Variable Corrective action B Generic reinforcing and balancing loops Buying shares R S S Confidence in the stock market Consumption of food S Fig. A.4 Condition O S Fig. A.3 S Hunger B O Examples of reinforcing and balancing loops If we now look at the reinforcing and balancing loops we discussed in Chap. 3, we can now add the polarity—the ‘S’ and ‘O’—to the arrows, as illustrated in Fig. A.3. And examples of the loops are given in Fig. A.4. Looping Technique With these variables and causal relations we are ready to discuss an issue in terms of systems thinking if we can describe the relations between these variables. Already in this phase, without further knowledge, we can chart an issue of an organisation in a systemic way using the most important variables. We do this with the looping technique. The variables are the ‘content’ of your story. To formulate relevant variables, it is easiest to use the ‘clustering method’. This method has the following steps: Annexe: Language of Systems Thinking 165 • first let your imagination flow and write down all the factors that could play a role in the issue on separate post-it notes; • then cluster those items that are related; • try to limit the number of clusters to between 5 and 15 in order to manage the level of abstraction of the variables; • name a variable for each of the clusters: a positive, scalable noun or noun phrase; • choose the key variable and stick it in the middle of the white board. This key variable is often the main indicator of growth or success; Cause A Result A Central issue or problem Cause B Result B Cause C Result C Additional variable Fig. A.5 Looping technique Level of appreciation of thouroughness Development of the company Level of innovation at the bank Level of risk taking to innovate Level to which management supports innovation Fig. A.6 Looping technique for a bank Turnover of personnel with initiative Level to which renumeration values innovation 166 Annexe: Language of Systems Thinking • determine which variables influence the key variable (are ‘the cause of ’ …) and indicate that with an arrow; • then determine what variables are influenced by the key variable (are ‘the result of ’…) and again indicate this with an arrow; • during this part of the process new variables will often emerge but that is part of the game. If you have this configuration, then investigate which of the ‘results’ could be the ‘cause’ of the causes. Again it may be possible that new variables pop up. This way of building a system of loops is called looping technique and goes somewhat like Fig. A.5. A scheme like that can grow, because causes may have other causes and result may have consequent effects. The result of such a discussion is a shared image of the topic and a better idea how to tackle it. Example: a banking firm suffers from a serious lack of innovation and creativity that slows down its growth. Incidental actions have not given any result. From the loops in Fig. A.6 you can read that the bank appreciates solidity foremost. And that reflects in the reward system, which in turn incurs that management does not support innovation, so that employees do not feel safe to be creative. In loops it could look like Fig. A.6. Another example: An industrial production company is losing market share. From the looping you can see that the main cause is quality of the product that in turn is caused by the large turnover of personnel. Because of the loss of market share, financial pressure mounts, which triggers authoritarian crisis management. This further brings along the lack of learning from mistakes leading to a poor working climate et cetera. See Fig. A.7 for the visual of this pattern. Sometimes it is not clear what the core variable is because everything is so interwoven. In that case you choose the one you judge to be the most important and build up the story from there. Keep the logical story line and give examples illustrating the causal relationships. Check if the structure explains the phenomena. What are the key causes and consequences of the trends we observe? In short: do the structure and its dynamics explain the situation you are in? The resulting diagrams are often very diverse, not only because our mental models are different but also because our perspective (the reason for building the models) is different. Even if you recognise that your situation fits into an archetype, you still have to set up the loops and fit the variables in the structure as a whole. Annexe: Language of Systems Thinking 167 Production efficiency Knowhow retention Personnel turnover Job satisfaction Product quality Renumeration Learning from mistakes Challenging work Market share Financial pressure Authoritarian crisis management Fig. A.7 Looping technique for an industrial production company If the picture of the system you are visualising gets messy at some stage, it is a good practice to step back and simplify the structure to the most important loops that represent the dynamics of the issue. It may also be that the problem you are tackling is operating at different levels of abstraction and therefore becomes very difficult to capture in one causal loop diagram. In that case it is better to make simple diagrams of the separate issues and see if there is an overarching system that encompasses them all. 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Index A D Accidental adversaries 87, 125–130, 132, 157, 160 Acquisitions 7 Adaptation 8, 11, 47, 48 Adaptive leadership 23 Anticipation 10, 60, 157 Archetypes 1, 69, 70, 86, 88, 93, 94, 118, 123 Awareness dilemma 21 Dealing with dilemmas 22 Decisions 1, 2, 14, 24, 39, 52, 97, 101, 112, 128, 155, 157, 159 Delays 37, 39 Dilemmas of life 1, 25 Distinctive competences 46–50, 52–55, 142, 152 Drifting goals 87, 114–120, 156, 159 Driving forces 2, 65, 66, 72, 73, 81, 82, 87 B Balancing feedback 27, 32–34, 37, 38, 56 Balancing loop 33, 37, 38, 89, 90, 95, 96, 98, 114, 121, 122, 135, 153, 156 C Competitive advantage 46, 47, 50, 52, 53 Complexity 5, 27, 81, 83 Cooperation 2, 70, 87, 107, 125–132 Current situation 10, 48, 59, 65, 136, 142 E Engine of growth 28, 121, 122, 152, 156 Escalation 87, 104–108, 132, 154, 159 Evolutionary heritage 1, 13, 23, 24, 39, 83, 86, 113, 141 Exponential growth 30, 31 F Fire fighting 98 Fixes that backfire 86, 93–95, 97, 153, 159 © The Editor(s) (if applicable) and The Author(s) 2018 J. Schaveling and B. Bryan, Making Better Decisions Using Systems Thinking, https://doi.org/10.1007/978-3-319-63880-5 171 172 Index Frame of reference 5, 13, 16, 33, 89, 146 Futuring 60 Q Quick fix 108, 110, 112, 127 R G Generic balancing loop 33 Groupsize 17 Groupthink 69, 78, 79 Growth and underinvestment 87, 133–136, 158, 160 Rational 14, 15, 18, 22, 65, 70, 113, 141 Reacting 8–10, 22, 25, 57, 103, 104 Reality check 63, 66, 115, 145 Reinforcing effects 28, 109 Reinforcing feedback loops 29, 37 Rules of the game 23, 63, 141 I Intervention 9, 82, 88, 90, 107, 117, 140, 145, 149 L Leadership 8, 22–25, 107, 140, 146 Limits to growth 87, 114, 120, 121, 123, 134, 135, 156, 157, 159 Longer-term view 2 M Mental model 11, 68, 84 Mindset 84 N Neocortex 14, 17, 18 O Over- and undershooting 37 P Peer pressure 69 Personal responsibility 88 Pitfalls 57, 70, 128, 141, 159, 160 Pygmalion effect 30 S Scope dilemma 20 Set point 33, 37, 38 Shared vision 61, 66, 71, 88, 128, 140 Shifting the burden 86, 93, 98–102, 154, 159 Short time horizon 87, 93, 133, 159, 160 Snowball effect 28 Social architecture 25 Solutions 6, 9, 10, 21, 23, 84, 118, 127, 131, 132, 146, 147 Stable systems 32, 71 Steering criteria 42 Strategic function typology 49, 52 Subconscious 78 Success to the successful 87, 108–112, 155, 159 Survival 2, 17, 103 System 1 and 2 65, 71 Systems Thinking 1, 3, 5, 6, 8, 10, 17, 21, 23–25, 27, 40, 41, 56, 71, 81, 84, 91, 96, 114, 122, 141–144, 149, 159 T Team learning 88 Time delays 37, 39–42 Time dilemma 19 Index 173 Tit-for-tat 131, 132 Tragedy of the commons 87, 133, 137–139, 158, 160 Tribe 17, 23, 66, 70 Trust 17, 125, 128, 130–132, 157, 159 Virtuous feedback loop 56 Vision 2, 20, 21, 57, 59–61, 63, 66, 68, 71, 72, 82, 85, 88, 94, 114, 120, 128, 134–137, 140, 142, 146, 149, 157 U W Underlying dynamics 85 Unintended side effects 7, 56, 96, 97, 142, 153 Wisdom 22, 24, 85, 142, 145 V Value Creation Model 2, 45–47, 49, 51–55, 57, 59, 66, 71, 86, 88, 93, 114, 130, 142, 151, 152, 159
