[In the Proceedings for the 3rd International Conference on Systems Thinking in
Management. May, 2004, Philadelphia, PA.]
Systems Thinking and Its Implications in
John Pourdehnad and Gnana K. Bharathy
Ackoff Collaboratory for Advancement of Systems Approaches (ACASA)
University of Pennsylvania
“Most transformation programs satisfy themselves with shifting the same old furniture about in the same old room. Some seek to throw some of the furniture away. But real transformation requires that we redesign the room itself. Perhaps even blow up the old room. It requires that we change the thinking behind our thinking — literally, that we learn to rewire our corporate brains.” Danah Zohar (1997)
We argue that for society, government, and business to deal with evolving complex situations, organizational transformation must be based on a different paradigm: systems thinking. This paper investigates the nature of transformation, offers criteria for determining when transformation is useful, and postulates the requisites for successful transformation based on systems thinking. I. INTRODUCTION
1.1 A Problem Exists
Numerous unresolved dilemmas characterize the beginning of the 21st century: the rise of transnational religious fundamentalist networks, asymmetric warfare, the Internet and globalization, jobs outsourcing, terrorism, and proliferating weapons of mass destruction.
Society, business, and government either ignore the current situation or throw money at it. Leaders attempt to act without a reasonable presumption of success. Academics attempt to wrestle with the problems, only to find no clear answers within the traditionally narrow branches of learning. Consequently, organizations that only yesterday appeared to be responsive and adaptive are experiencing profound change. Worse, they are now finding that familiar patterns of response to the unexpected are proving less and less useful for sustainability and the pursuit of a desired future. All of this is happening even though most organizations are continuing to do — and do well — the
things that initially brought them success. In response, they are implementing a variety of corrective measures, including “organizational transformation.” But, in fact, most such efforts are failing.
Albert Einstein once said: “Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought.” Therefore, conventional formulations and
solutions based on the “logic of the day” are inadequate to deal with new problems.
Although most organizational leaders recognize this deficiency, they lack a paradigm that would assist them with organizational transformation.
1.2 Why Do Transformation Efforts Fail?
Too many organizations have attempted to transform themselves only to meet with failure. Some companies did not undertake transformation efforts until it was too late. Others did not plan and carry out the function properly. Still others were pursuing the wrong kind of transformation. The so-called transformed companies have often failed to adapt to client needs and haven't improved their processes to meet rising competitive standards.
Tinkering at the margins and seeking cosmetic solutions to even the most urgent problems of our times have no doubt precipitated more problems and lackluster results. Engaging in approaches such as “continuous improvement” has only made things worse.
Jill Jusko (2003) attributes four main reasons for organizational failures: 1) strategic or organizational mindset failures; 2) cultural bias and close-mindedness; 3) informational breakdowns; and 4) leadership mistakes.
Although organizations are prone to mistakes in each of these dimensions, the strategic or organizational mindset failures top the list. Most organizations lack a paradigm that would facilitate perception and learning and have a political bias to conserve the previously successful ways of seeing, thinking, learning, and therefore acting.
Taking a process perspective, Kotter (1995) argues that:
; Change involves numerous phases that, together, usually take a long time. Skipping steps
creates only an illusion of speed and never produces a satisfying result.
; Critical mistakes in any of the phases can have a devastating impact, slowing momentum and
negating previous gains.
While the reasons above relate to one or more causes of failure, they do not necessarily trace the root cause of the problem: a misplaced emphasis on doing it right, as opposed to doing the right thing.
1.3 Successful Transformation and Change of Mindset
As the economy evolves, the rate of change accelerates at certain points in time. These fast-forwards occur when a major new resource becomes available or when there is a major shift in the relative abundance of existing resources.
These “shock” changes are of a different class than the type of change that requires continuous improvement or even major adjustment. These revolutionary changes require a completely different theoretical basis in order to be understood. It is our contention that recent advances in systems thinking make it possible to achieve the desired understanding and to use that understanding creatively to transform systems into new and successful entities.
Organizations can transform themselves into new entities and retain the ability to learn and transform all the time, even after becoming specialized. One example is the legendary, yet enigmatic, 140-year-old Nokia Corporation, a company that began in the forestry industry; expanded into rubber works, cable, and electrical power; survived the political upheavals of war; became a European technology
conglomerate; emerged as a global maker of cellular phones — and now, in its latest incarnation, is a
mobile Internet vendor. Nokia did not emerge successful overnight, but it never stopped transforming itself. It had transdisciplinary vision, relying on ceaseless innovation and high goals, the pursuit of excellence in domestic and overseas markets, and the promotion of both teamwork and self-reliance. DuPont, in business for more than 200 years, is another example of a company that has survived by using its ability to change mindset. When its CEO, Charles O. Holliday Jr., was asked about DuPont‟s success, he responded, “The willingness to undertake profound change to remake the company is in the
„DNA‟ of DuPont” (DuPont.com, 2003).
Pina, e Cunha, da Cunha, and Kamoche (2001) describe the traditional business mindset as focusing on optimizing, planning, efficiency, integration via hierarchies, and authoritarian leadership. To survive in the new business environment, companies must replace that outmoded mindset with one that focuses on action, effectiveness, integration via networks, and democratic leadership.
Shifting to a new mindset is not, however, a simple task. Company leadership cannot simply say, “Today our company will behave differently.” According to Vijay Sathe (2000), leaders will not be able to create transformation unless they can change both behavior and mindset.
1. Employees must believe that change is necessary, that the change is feasible, and that they will
personally benefit from it. They must also be motivated extrinsically with punishment and
reward. Education and training, which are distinctly different things, must both occur.
2. The company must be reframed and recharted through reconceptualization of the business. The
relationship between organizations and their parents or units must change.
3. The organization must receive a transfusion of new blood that supports the desired mindset. A
critical mass of outsiders must be hired, and change blockers must be dealt with. Skeptics must
be listened to because they may see problems with the new mindset that leadership may not see.
4. Modeling must go on within the organization.
5. Leadership must take the time to look in the mirror.
According to Sathe, if these steps are followed, organizational mindset change will be successful. An example of a company that has dealt with organizational mindset change is UPS (Ganesan, 2002). Founded in 1907, UPS expanded over the years and across the world, developing a “we-know-what‟s-
best-for-you” arrogance. In the 1990s, though, the business environment began to change and UPS was facing intense competition from other carriers such as FedEx and DHL. UPS realized that it needed a new mindset if it was to remain successful.
UPS had been a heavily structured, change-averse company that stressed control. Workers were worried not about customer satisfaction, but about time constraints and meeting schedules. To change this, the company set up programs to educate and train employees in teamwork and trust. Any report that did not produce a value greater than its cost was discontinued. Weekly meetings were held for managers so that everyone could be on the same page. Meetings were also held every morning at the hubs or package
centers to discuss specific questions with all employees. Many other things were done that fell in line with Sathe‟s views on mindset change. The result has been rapid profit growth for UPS.
Mindset is key to achieving organizational transformation. Why aren‟t such examples as those above replicated more frequently? We propose that one key reason is that we have not attempted to learn what is fundamentally required of transformation.
II. FUNDAMENTALS OF LASTING TRANSFORMATION
2.1 Definitions of Transformation
The dictionary definitions of transformation include: 1) to change markedly the appearance or form; 2) to metamorphose; 3) to change the nature, function, or condition of; 4) to convert.
; In molecular biology, transformation strictly refers to either the genetic alteration of a cell
resulting from the introduction, uptake, and expression of foreign DNA, or the process by
which normal cells are converted into cells that will continue to divide without limit (Miller et
; In mathematics, transformation refers to a variety of different operations that change the
position or direction of the axes of a coordinate system — a change in the paradigm
(Bronshtein et.al., 2001).
; In music, a transformation is any operation or process by which the recorded music is edited
using software to alter the tones, octaves, and pitch to create new music from the old
; Transformation in linguistics refers to a rule that systematically converts one syntactic form or
form of a sentence into another.
; In physics, transformation is often appreciated in the study of work and energy, where one form
of energy is transformable into another (Resnick and Halliday, 1986).
; In economics, transformation refers to significant changes due to policies as well as through
market forces, bringing about a change in either economic stability or in people‟s condition.
; Transformations in sociology and political science generally refer to widespread social or
political change, respectively.
; In business, transformation is often used to mean change in the organization. We have shown that the term transformation is applied uniquely to different disciplines. However, in almost every case, it retains its definition as a qualitative or marked change of form or condition. Such a qualitative change in organizations can come about only through fundamental, not cosmetic, transformation (Zohar, 1997).
2.2 Is Transformation the Appropriate Response?
In order to survive, organizations respond to challenges posed by both the external world and organizational maladies. Not every challenge requires transformation. For example, simple subsystem inadequacies or internal maladies (where under-performing subsystems are controlling the performance of the larger system) must be addressed by correcting or optimizing the subsystem. Similarly, for linear, predictable changes in the environment, the system must be fine-tuned to meet the new environment. On the other hand, organizational transformation is required when the environment itself changes qualitatively, drastically, and almost always discontinuously, engineering a radical break with the past. The old way of doing things no longer works, even though you are doing it the best way you can. Accordingly, the only meaningful response is a transformative change — a quantum leap involving a
paradigm shift. Indeed, Nadler et al. (1995) suggest that transformational change is always “discontinuous,” as opposed to incremental progression. They argue that any change composed of many
competing elements is an “inevitable, ineluctable force with a life of its own.”
Transformative change is induced and shaped by external forces: resources, technology, innovation, competition, regulation, and the decline or rise of whole industries and regional economies. For example, consider the introduction of a new resource or the rise of a disruptive technology that could change the game significantly, making the previously successful strategies, practices, and tactics obsolete. New organizational design that makes full use of the new resource must be devised. Thus, we have a problem of creative design, not integration. In today‟s world, the new resource is ubiquitous low-cost communication and computation, which manifest as feedbacks in their productive form. The organization must be redesigned to exploit this feedback. A prompt feedback, in fact, not only enables the system to be operated in a more dynamic way, such as at Wal-Mart and Dell, but can also help create an evolving design.
2.3 Recognizing the Need for Transformation
How does one recognize that the environment has undergone a discontinuous change and will require a response of similar scope? The following are some telltale signs:
; You have a well-oiled machine: The organization is continuing to do the things that initially
; Old tricks do not work and old laws no longer apply: Familiar patterns of response that were so
effective in the past are proving counterproductive, and there is a noticeable decline in returns.
The way you used to do business simply doesn‟t seem to work.
; You are not alone in the soup: Chances are very high that other organizations doing similar
things are also struggling.
; Change is in the air: Similar challenges and changes are noticeable in seemingly unrelated
domains. A paradigm shift does not occur in one domain alone. Not only is the change in the
environment pervasive, but there are also other changes, which seem to have been co-produced.
; You adopt the "push harder" response: Immediately, everyone tries to push more and adopt a
more conservative position. Unfortunately, these repairs, adaptations, and adjustments,
including those under the patronage of “change programs,” fail to produce the greatest
opportunities for troubled companies.
If you find yourself in one of these situations, you are likely working in an environment that has changed drastically. It is time to go back to the drawing board.
III. NECESSARY CONDITIONS FOR TRANSFORMATION OF ORGANIZATIONS
3.1 The Need for a Paradigm Shift
How effectively we deal with emergent conditions depends on the quality of the approaches we use and try to implement. Such approaches depend more on our philosophy and “worldview” than on our science and technology.
The traditional approach treats organizational transformation as a temporary one-off affair undertaken to create a change in the organization. We, however, contend that transformation should be in the mindset.
Much of the confusion we encounter in organizational transformation results from misconceptions about the nature of change in social systems and their environments. As Ackoff (1981) notes: “The important change taking place, I believe, is in the way we try to understand the world, and our conception of its nature. However, the large and growing literature on change and its management focuses on its objective rather than subjective aspects. It assumes that most of the managerial problems