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Step 5 - Think system

To summarise the arguments of the first four steps: The major disease of twentieth century organisations is in their design and management. If we want to achieve a quantum leap in performance, we have to be prepared to change the way we think. In step one I exposed the problems associated with designing and managing organisations as top-down functional hierarchies. In step 2 we began to look at the organisation in a better way, from the outside-in. In step 3 we looked at the idea of organisational capability – what is predictable about what is happening between you and your customers? And in step 4 we studied flow – how your organisation responds to customer demands, end-to-end. If you conducted the exercises as suggested you will have a schema of the transactions with your customers, at each point of transaction you will have reliable data about what is currently happening and you will know the flow and waste or sub-optimisation within it. Now we can move to the causes of current performance, the system.

Figure 1: Change management thinking

The system governs performance

It was W. Edwards Deming who first argued that the system governs performance. "Do not assume", he said, "that people can be held responsible for performance, for their performance is governed by the system within which they work". What does this mean?

Consider, for example, the number of organisations that have embarked on customer care training yet have found little or no improvement in the care their staff give to customers. Generally, you find these people are not the problem, it is the system that won’t let them serve their customers. For example, procedures people have to work to are written by head office, and from an ‘internal’ point of view; measures people have to work to cause them to work against the customers; the fact that managers are the only ones who can make decisions means people have to refer things, and so on. These things are all examples of ‘system conditions’; they govern performance.

If you followed the exercise in step 4, you will have identified waste in your current flows; waste consumes resources. I find it helpful to remember that waste is a consequence of the way the work works – the way work is designed and managed - it is not and should never be treated as normal. We create waste; it is a consequence of the system and it is our responsibility. For example, we carry excess inventory that never gets used. Why do we carry it? Just in case. We re-work things that have not been done right the first time. Why do we have to re-work? Because we don’t know how to design quality in, we don’t know how to control work before it is done as opposed to controlling it after it is done – and the latter (inspection) just causes more waste.

If you followed the exercise in step 3, you would have come across a particular and ubiquitous form of waste: ‘failure demand’. Failure demand is the label I give to demand caused by a failure of the organisation to do something right for the customer. For example, customers call because they don’t understand their bill or they are having to progress chase something that has not happened as promised. In most organisations you find this is treated as a normal part of doing business. Traditionally-minded managers don’t notice failure demand because they look top-down, not outside-in. Such managers are concerned with functions and their costs, they cannot see the causes of costs.

Traditionally-minded managers use measures that encourage parts (functions) to ‘win’ while the whole ‘loses’; we often waste enormous amounts of human talent by engaging people’s ingenuity in surviving in or beating the system, rather than contributing to it.

Thinking system reveals all

When you can see your organisation as a system, warts and all, you learn about the ‘what and why’ of current performance. You can see what could be achieved and, moreover, you can see what needs to change to realise the potential improve!ments. Taking a systems view is totally different view from the traditional, hierarchical view. The traditional, hierarchical, view is to look at the organisation as having parts or functions. The systems view is to look at the whole. This is more than understanding how the parts work together – that in itself being only a useful first step. For a systems view leads ultimately to systems management, an entirely different way of designing and managing work from the more traditional mass production view.

If you discovered in step 4 that the flow of work is damaged by functional measures, for example, people meeting their functional goals at the expense of the needs of the customers, causing re-work and other forms of waste, your next steps might be to size and remove the waste. But the ultimate systems step would be to remove the cause – to remove the functional measure that is driving the dysfunctional behaviour – and to replace it with a measure that will encourage the right behaviour (in most cases measures of capability – see step 3).

These (systems) remedies frighten many managers. Managers frequently want to hold on to what they know; they understand functional measures – measures of budget, standards, activity and the like. While they can appreciate the damage being caused by the use of these measures, they are often reluctant to remove them and instead try to maintain that if used ‘sensibly’, these measures will help and thus should remain. If you have a dog at home, raise a rolled-up newspaper – don’t hit the dog – the impact is the same; and so it is with traditional measures.

Measures are not the only system conditions that affect performance. Here are the other common ones: Structure, roles, procedures, information and job skills and knowledge. Whilst the list is, in reality, more complex than that, I would encourage you not to worry about the potential complexity. If you have taken the steps I have outlined in this series - understanding demand, value, capability and flow - you will be looking into your system from the safe ground of knowing the nature of current performance and, hence, will be able to identify the particular system conditions that are affecting performance in your case.

The manager’s job – act on the system

The prerequisite to a quantum leap in performance is a fundamental change in the role of managers. When managers learn to act on their organisation as a system, performance improves – always. For, whether they have ever appreciated it or not, their organisation is a system. The best way to start this transformation is to study the organisation as a system, to understand the ‘what and why’ of current performance as a system. If you have followed all of the exercises in this series, you will have done exactly that and you will have discovered for yourself that the primary requirement for effective change is that you change. You don’t have to change who you are, but you do have to be prepared to change the way you think. Which is the topic of the next and last piece in this series.

This series ‘Six steps to improving productivity’ is based on The Vanguard Guide to Understanding Your Organisation as a System, published by Vanguard Consulting.

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