Understanding the Organization System
Using a system to understand and lead an organization is not new; it is at least 2,500 years old. According to Mo-Tze (a.k.a. Miscius), a Chinese philosopher around 500 B.C.E.
Whoever pursues a business in this world must have a system. A business which has attained success without a system does not exist. From ministers and generals down to the hundreds of craftsmen, every one of them has a system. The craftsmen employ the ruler to make a square and the compass to make a circle. All of them, both skilled and unskilled, use this system. The skilled may at times accomplish a circle and a square by their own dexterity. But with a system, even the unskilled may achieve the same result, though dexterity they have none. Hence, every craftsman possesses a system as a model. Now, if we govern the empire, or a large state, without a system as a model, are we not even less intelligent than a common craftsman?” (Wu, 1928).
Deming’s System of Profound Knowledge
Understanding the organization as a system is one of four main components of Deming’s system of profound knowledge. Deming (1994) identifies three concepts key to understanding the organization as a system.
1. Interdependency – systems are composed of interdependent components that require communication, cooperation, and coordination.
2. Obligation of a component – while the system is composed of individual components, the purpose of each component is to maximize the system’s overall performance vs. the performance of the particular component.
3. Basis for negotiation – understanding the interdependency and obligations of the system components provides a basis for negotiation among the critical stakeholders of the system, including various departments and divisions in the organization, suppliers, partners, customers, and so forth.
Combined with systems thinking, these three concepts can provide deep insights into the organization or what Deming called “profound knowledge.”
Over the last 50+ years, there have been a wide variety of perspectives on organizational systems put forth from a variety of contributors, including W. Edwards Deming’s production system, Michael Porter’s value chain, Jay Forrester’s dynamic systems, Russell Ackoff’s organization systems, and performance excellence models such as the Malcolm Baldrige National Quality Award Criteria for Performance Excellence and the European Foundation for Quality Management (EFQM). The organizational system proposed here integrates many of the ideas and concepts from the previous models into a high-level framework. Every organization has a wide variety of systems, from customer service to strategy development and training. It is often helpful to organize the systems into three main categories: strategic leadership, execution excellence, and organizational learning and innovation.
Strategic Leadership systems provide guidance and resources to the other systems. Strategic Leadership includes leadership, strategy development and deployment, governance, environmental and social responsibility systems. Execution Excellence systems comprise the organization’s value chain from suppliers and partners to operations. Organizational Learning and Innovation systems include workforce development, engagement, measurement, and analysis. Understanding the organization system changes how leaders think about their organization and operations.
As popularized by Peter Senge in his 1990 book The Fifth Discipline, systems thinking focuses on the dynamic flows of interconnected activities and information. It is one thing to think about individual exchanges between the interdependent components in a system and quite another to understand how the “flows” of energy, information, etc., “play out” over time in a dynamic system. In dynamic systems, the distance between cause and effect is often separated in both “time” and “space.” In organizations, the delay between action and result can be months or even years. This makes it difficult for leaders to learn from experience what worked and didn’t work.
Humans learn best when the feedback (the result of the action) is immediate or soon after the act. When the delay between action and effect is months, it is difficult to learn from the feedback, and it is often difficult to even make accurate connections between the results and the actions. This “lag” or distance in time and space between cause and effect is a fundamental dilemma with strategy and organization outcomes. The interaction and interdependence of the system components mean that the results may show up in a system component far “downstream” of the initial action. This delay between action and effect makes it difficult to transition from endless reacting to symptoms and “fighting fires” toward identifying and fixing root causes and “preventing fires.” The first step to remedy this is to develop an explicit description of the organization system.
Leader as Designer of Organization Systems
Developing an explicit description of the organization system is best done as a group exercise with the executive team. Then this initial description can be refined over several iterations with input from all levels of the organization. Some leaders might be tempted to delegate such a task. That is a bad idea! CEOs who led successful transformations to achieve high performance were personally involved and focused on systems. They were motivated to work with systems and processes that helped them redesign the organizational systems to achieve results across a comprehensive scorecard (Larson et al., 2012). The challenge is understanding the system’s nature when the individual components vary widely.
An explicit system helps the organization architect work on the “pieces and parts” to align with the more extensive system without creating other unintended outcomes and consequences. As American Architect Eliel Saarinen proposed,
Always design a thing by considering it in its next larger context—a chair in a room, a room in a house, a house in an environment, an environment in a city plan.”
To design the various organizational systems to align with the overall organization and strategy, you must first make the overall organization system explicit to everyone involved.
Deming, W. E. (1994). The new economics: For industry, government, education (2nd ed.). Cambridge, MA: Massachusetts Institute of Technology Center for Advanced Engineering Study (MIT CAES).
Larson, M., Latham, J. R., Appleby, C. A., & Harshman, C. L. (2012). CEO attitudes and motivations: Are they different for high-performing organizations? Quality Management Journal, 19(4), 15. | Download
Wu, Kuo-Cheng. (1928). Ancient Chinese political theories. Shanghai, China: The Commercial Press, Limited.