The Fractal Organization E-Book

Patrick Hoverstadt

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 504

Veröffentlichungsjahr: 2011

Beschreibung

The world of management is in crisis - the old remedies no longer work and organizations are failing at an increasing rate. Although many talk of 'joined up thinking', few offer practical guidance on how to achieve this in organizations. The Fractal Organization sets down the practical implications of a well tested systemic approach to building organizations that are capable of surviving and flourishing in these turbulent times. "An excellent read...Many organizations fail at the mercy of their own ignorance. The author has done an excellent job in making 'the science of effective organization' accessible to management, providing them with a new knowledge to deal with the uncertainties that the markets place upon them." Stephen J. Brewis, Business Architect, British Telecom "...one of the most interesting, thorough and rigorous guides to management that I have ever read, ... introduces new insights in every chapter... carries a credibility which acts as a counterbalance to the sometimes difficult message which he conveys which is that a lot of mainstream management practice is at best ineffective and at worst downright destructive. I would recommend this book to anyone interested in management or systems thinking." Penny Marrington, Course Chair, Systems Group, Open University "In my opinion this book manages to present sound academic theory that is relevant and helpful to the practitioner in the business. I experienced several A-HA moments." Pauline Marsh, Strategy Director, CS&S International, BAE SYSTEMS "The insights of the Viable System Model have been open only to a select few for much too long. Hoverstadt has gone furthest in bringing these ideas to a wider audience...Management books have too often been serious but not practical, or practical but not serious. This book is both brilliantly serious and practical, and often entertaining too." Professor Peter Kawalak, Manchester Business School "Integrates mainstream management ideas with the systems ideas underpinning the VSM, and flows and reads well. As a starting point for developing understanding of the VSM in today's world this book improves greatly on all books that have gone before, I would certainly recommend it to colleagues, clients, and students." Dr. Robin Asby, Course Chair, Communication and Systems, Open University

Leseprobe

Table of Contents

Title Page

Copyright Page

Preface

Acknowledgements

PART 1 - INTRODUCTION

Chapter 1 - The Crisis of Organization

Chapter 2 - Management Myths, Models and Self-Fulfilling Prophecies

Nice Guys Finish Last?

X and Y

Change Theory

The Individual or the System

The Power of Models

Chapter 3 - Overview of the Viable System Model and the Rest of the Book

Why We Need Organizational Models

System 1 — Operations

System 2 — Coordination

System 3 — Delivery Management

System 3* — Monitoring

System 4 — Development

Systems 3, 4 and 5 — Strategy

System 5 — Policy

A Fractal Structure

PART 2 - RUNNING THE BUSINESS

Chapter 4 - Autonomy and Control

The Horns of the Dilemma

Balancing Complexity

Hierarchy

Autonomy

Hierarchy and the Military

The Fractal Resolution

Chapter 5 - The Structure of Value Creation

Primary and Support Activities

Organization Structure and Complexity Drivers

The Impact of Complexity Drivers

Unfolding Complexity - Diagnosis and Design

Chapter 6 - Coordination

Identifying Coordination Needs

Coordination Mechanisms

Coordination and Designing Structure

Chapter 7 - Organizational Cohesion - The Structure of Managing Performance

Line Management

Attribution and Misattribution

Common Failures in the Performance Management Structure

Preventing ‘Gaming’ in Performance Management

Chapter 8 - Organizational Integrity and Monitoring for Trust

Breaking out of the Control Dilemma

Integrity

Trust

Monitoring for Trust

Chapter 9 - Performance and Viability

The Traditional Approach to Performance Management

A Systemic Approach

Dynamic Performance Management - Measuring Viability

Measuring the Performance of Management

PART 3 - CHANGING THE BUSINESS

Chapter 10 - Intelligence

The Roles of System 4 - ‘Development’

Outside and the Future

Building and Maintaining a Model of the Organization

Managing Key Strategic Knowledge

Chapter 11 - Strategic Risk

So What is Strategic Risk?

Strategic Risk - The Old Approach

A Systemic Approach - Identifying and Detecting Strategic Risk

Strategic Risk - from Detection to Management

Chapter 12 - Strategy

The Traditional Strategy Model

The Structure of Strategy Development from Hierarchy to Fractal

The ‘Natural’ Approach to Strategy - Strategy as an Emergent Property of the Organization

Strategic Conversations

Getting the Balance

Chapter 13 - Innovation

Innovation and Viability

Leaders and Followers

Innovation and Strategic Risk

Organizing Innovation

The Performance of Innovation

Managing Innovation to Develop Potentiality in an IT Company

Chapter 14 - Managing Change

Here We Go Again ...

Six Failed Changes - What Really Happened

Mosaic Transformation in Biological Systems

Mosaic Transformation in Organizations

Chapter 15 - Identity and Purpose

From Simplicity to Crises

Purpose

Organizational Purpose: Reality versus Intention

Single Purpose or Multiple Purposes

Boundaries and Identity

Defining a System’s Identity

Identity Crises

Chapter 16 - Governance

The Traditional Approach

Governance - Beyond Compliance

Designing a Governance Structure for a Virtual Joint Venture

Designing a Governance Structure in a Small Financial Organization

Appendix: - The Process of Modelling

Glossary

References

Index

Copyright © 2008

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Library of Congress Cataloging-in-Publication Data

Hoverstadt, Patrick.

The fractal organization : creating sustainable organizations with the viable system model / Patrick Hoverstadt.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-470-06056-8 (pbk. : acid-free paper)

1. Management-Mathematical models. 2. Management science.

3. Organizational effectiveness. I. Title.

HD30.25.H68 2008

658.001′1-dc22

2008027931

A catalogue record for this book is available from the British Library.

Typeset 10/14 TrumpMediaeval-Roman by Thomson Digital, India

Printed and bound in Great Britain by TJ International, Padstow, Cornwall

This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production.

Preface

“ 20 years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off your bowline. Sail away from the safe harbour.”

Mark Twain

It was about 11 a.m. on a Thursday morning and I was just making a cup of coffee when the phone rang. ‘Patrick? Have you got a minute?’ It was a long-standing client in a large public sector organization. He sounded worried. He went on to explain that his new chief executive, who had been in post for a couple of months, had come up with a plan for restructuring the organization. ‘Could I talk it over with you?’

He had good reason to be worried. His organization was under severe pressure from a government regulator, and had serious strategic and operational problems. The existing structure was highly dysfunctional. Restructuring should have been one of the best ways of starting to address the organization’s many problems, but not this restructuring. The chief executive’s plan would compound the existing structural problems and would effectively prevent the real issues from being addressed for several years to come. Done properly, I reckoned that a restructuring could easily have improved both productivity and quality by around 30-40% without any loss of staff and provided them with a realistic chance of surviving and prospering.

I came off the phone and cursed long and hard. This was the second call like this in as many days. The previous one had been a large high-tech engineering company which had just been acquired and was about to be restructured by its new MD. It had taken less than 10 minutes looking at the proposed changes to establish that the new structure would not and could not work. It was possible to get to the level of detail of identifying which individuals would end up being forced into conflict with one another, and over what sorts of issues. Talking it through with the HR manager, we were able to predict the political wrangles that would be produced as an inevitable consequence of the change for months, even years to come. The HR manager was left trying to work out patches to cover the mistakes and scanning the press for a new job (he moved on within a month).

In both these cases, the problems were totally and easily predictable. Internally I raged at the stupidity of the managers involved, people who would take these decisions affecting thousands of people without understanding what they were doing. Yet I knew that in reality, these were intelligent people, not idiots. I knew both of them to be exceptionally bright; bright, but with a limited understanding of organizations - what they are, how they work; why they work when they do and why they don’t work when they don’t; how to fix them when they are broken, and how to design them from new. There is a science of organizations, but clearly these guys didn’t know it. Almost certainly, they didn’t even know that there was such a science that could have helped them to avoid the obvious mistakes they had made.

We would not dream of flying in a plane that had been designed by someone who didn’t understand the laws of aerodynamics - or even that there were such laws. So why do we entrust our careers and livelihoods to people who redesign our organizations, but who don’t understand the basic science that should underpin this? Two phone calls, and I was left looking ahead to years of corporate failure for these two organizations, and personal trouble for individual managers that was totally avoidable. Yet how could these two key decision makers be expected to know any better? Yes there was a science of organization which had they known about it could have helped them to avoid such mistakes, but how were they supposed to know about it? It was buried in relatively obscure texts on management science.

And so this book. This is an attempt to make the scientific approach to analysing and designing organizations more accessible to managers. As such, it is intended as a book for practical managers, not academics, and despite the ′science′ badge, it will be as mercifully free as possible from maths, formula and theory, and will be fairly thickly sprinkled with examples taken from actual organizations and real life.

Go into any big bookshop, and you will find shelves weighed down with tomes about management. The business schools and practitioners produce a steady stream of new ideas about all aspects of management. Some of these are destined to become the next ′fad′ to be adopted, and then found wanting. At its core, the purpose of management is very simple, it is to do two things: firstly to decide what needs to happen, and secondly to ensure that what should happen does actually happen. That’s it. All the management disciplines and techniques from ‘strategic visioning’ to ‘management accounting’ and from ‘market segmentation’ to ′statistical process control’ are just ways of doing these two basic things. The subject of this book also relates to how managers can do these two basic things better, but is slightly different from many approaches in that I am not really talking about a tool or technique as such, nor am I primarily talking about managing. Instead, what I am mainly talking about is something more fundamental, it’s the same tool that all managers use to carry out their work - the organization. The other difference is that I am also talking about a way of looking at organization that is universal, that applies in any sort or size of organization.

There have been a number of books written over the years that have sought to distil some general principles from looking at a set of organizations that are currently thought to be ′excellent′ in some way. I have no complaint about such works, but this isn’t one of them. Books like that do provide a very rich source of examples and anecdotes that are really valuable in understanding how particular techniques - from self-managed teams to skunk works - might look and work in real life.

This book is quite different in that it is based on a way of understanding organizations that is universally applicable and a set of natural laws and basic principles that are the fundamentals of ‘organizing’. As such, they can be applied to any situation, any organization of any size, whether private or public sector, ruthlessly self-serving or wholly altruistic, centralized or diversified.

The sad fact is that many successful organizations are successful not because they are well organized or because they are well managed, but because they happen (often by chance) to be doing the right thing at the right time. Providing a product that just happens to fit today’s market to perfection, they surf a wave of success that their executives (and many analysts) attribute to smart management. We conveniently ignore all their other products that barely floated in the market, and the inevitability that the wave they are so euphorically surfing will curl and break bringing them crashing down. This is why it is so risky to use currently successful companies as a generally applicable guide to organizing, without reference to any underlying theory. By the time the research has been done, the book has been written and published, the circumstances in which the exemplar companies have been flourishing may well already be near their end. To simply copy ′best practice’ from them may well be to adopt an approach that is already out of date.

The trend now in business writing and also in academe is to write about one single idea. The theory goes that managers (and presumably academics) are incapable of coping with more than one idea at once. I recently had a paper for a journal rejected. All three referees thought that the ideas were interesting, but all three were confused because I was arguing that a common pathology in organizations was both a consequence of and a cause of two other factors. All three commentators were confused by this: surely, they argued, the relationship had to be a simple cause and effect and they asked which of the two other factors was it that I was arguing was the cause. The whole point of the paper was that these three factors could act on one another to develop a vicious circle that could trip organizations into dangerous imbalances in decision making. Sadly, the problem I was discussing is a very common one and it actually is more complex than a simple single cause and effect model. If we want to understand it, then we have to use models that fit the problem. Trying to pretend that the reality is simpler than it is just so that we can reduce it to a simplistic A causes B model misses the point. Sadly, some things in life just are slightly more difficult than can be handled in a single idea and ‘organization’ - the subject of this book - is one of them. So this book is not one of those ‘one idea’ books. I wish it could have been, not least because it would have made the job of writing it very much easier.

This book is about a systemic approach to organization and so to my first problem in writing this book. The study of systems is about how things connect together. Systems practitioners see connections that others don’t and where there are connections there are dependencies. If A depends on B and B depends on C, then you have a nice clear linear storyline. Which is fine until you realise that C also depends on A and then you have a story with no natural starting place. So although the book is designed to be read in a linear fashion, I have sought as far as possible to make chapters self-contained, so that you can start with particular areas of interest should you so wish. The downside of this is that there will be slightly more repetition than would be strictly necessary in a ‘cover to cover’ reading, but perhaps no more than seems to have become common these days. I would recommend, however, reading Chapter 3 on the basic organizational model relatively early as this will provide some helpful concepts and terminology that will make later chapters easier to understand.

Obviously the subject matter of some chapters may appear to be less appealing than others depending on your personal preferences. For example, a hard-headed pragmatist may view a chapter on ‘organizational identity’ as likely to be unnecessarily esoteric or introspective. This would be a pity, since it includes some important clues on how to avoid having your organization destroyed by some very real things that manifest as Strategic Risks if you spot them in time and just plain old-fashioned disasters if you don’t. This of course is the other side to the ‘things being connected’ that comes with a systems approach, you can only really understand the parts if you understand the whole.

At the beginning of each of chapters 5-16, there is a connections map, which will try to show how the subject of that particular chapter relates to other chapters; for example, how performance management relates to governance, strategic risk, strategy and change management. Following these connections provides an alternative route map through the territory of the book.

I have tried to make the ideas in the book more accessible by using both real world examples and also a set of ‘pathological archetypes’. The examples mostly come from consulting projects, but the identities of the individuals and organizations involved have been deliberately changed. The reason for this is that many of them concern problems with organizations, and the changes of name are to protect the individuals and organizations involved. The reason for highlighting systems failures is simply because it is easier to show how systems work by showing what happens when they don’t. For example, it’s difficult to show the significance of a coordination mechanism using an example of success, since when it’s there and working everyone takes it for granted. It is only when it fails that people wonder why life and work are so difficult. This is true of many aspects of organizational structure, which, as I observed at the start of this Preface, is something that managers tend to take for granted. It is only through looking at organizational and business failures and how they have their roots in the system and structure that the significance of understanding them as systems becomes apparent.

The ‘pathological archetypes’ are a set of 21 very common systems failures that we see again and again. I have spread these across the book inserting them into the chapters that seemed most appropriate to them. Hopefully, some or most of these will be familiar to most practising managers, possibly recognizable by their symptoms. The archetypes are described by their symptoms, their underlying structure and in some cases by example as well. I have tried to give these suitably descriptive names, but in many cases they are already quite literally proverbial and so where there is a proverbial description I have simply used that. It is common for people to read of some particular type of organizational failure and recognize the same symptoms in their own organization. If this happens, remember that all the problems in this book are there because they are common systemic problems. We see the same issues again and again, so it probably isn’t your organization, except of course that yours may be suffering from what is systemically exactly the same problem.

The approach I’m outlining here has its own technical terms: variety, attenuators, homeostats recursion and so on and its own shorthand for the components of the basic fractal model: systems 1-5. I have tried wherever possible to use ‘normal’ non-technical managerial language (which is of course itself a technical language, but hopefully one practising managers are already familiar with), but there is a description of some of the more common concepts and terms in the Glossary. The terms for the model components are introduced in the chapter on the basic model (Chapter 3) and are then used alongside more descriptive names in the rest of the text so that the reader can choose whether or not to ignore the shorthand. The approach also has a number of laws and theorems - well, it is a science of organization after all. I have referred to relatively few of these and once again, they appear in an appendix. The reason for using them in the body of the book is that they are very powerful and mostly relatively easy tools, so getting even a passing acquaintance with them is helpful.

A further note I suspect is necessary about diagrams. I remember being at a conference once where a presenter was showing a diagram about a model of some aspect of management. ‘What’ came the question from the floor ‘is the meaning of the arrow between those two blobs at the bottom?’ ‘Ah’ replied the presenter, ‘this diagram is from the ***** (he quoted an internationally famous business journal) school of diagramming - the arrows don’t really mean anything other than that there may be some sort of connection. Don’t read too much into it . . . ‘Well I’m afraid that the diagrams in this book aren’t like that, the lines all do mean something, and for the most part they mean something very specific.

Patrick Hoverstadt

Acknowledgements

I have drawn on the insights and knowledge of many people in writing this book. First and foremost are of course those seminal thinkers in systems on whose work, the ideas in this book are founded - W. Ross Ashby, Stafford Beer and Humberto Maturana. Sadly the first two are no longer with us, but if you do get the chance to listen to Maturana, I can wholeheartedly recommend it.

I am indebted to several colleagues both for the experience of working with them, but also for discrete elements of methodology they developed that I continue to use. In particular, thanks are due to colleagues in Syncho for the stakeholder classification approach used in Chapter 11 and for the origination of the ‘control dilemma’ archetype (historically the first of the archetypes) and to Denis Adams for the law that bears his name, his generosity in sharing his knowledge of and passion for statistics and for generally being a joy to work with. Peter Kawalek, Penny Marrington and Robin Asby all undertook the selfless task of reading the draft of this book at times when they had more urgent tasks and for that and their invariably constructive comments, I thank them all. If I haven’t succeeded in incorporating all their suggestions as fully as they intended, the fault is mine. Dave Mettam, Alison Hoverstadt, Doug Haynes and Trevor Hilder also reviewed parts in draft, and I’m grateful for their help and comments. Too many colleagues and friends to mention here provided moral support in the long process of writing but I thank them all. And to the prophets of doom who fortunately were fewer in number I refer you to the quotation from Twain at the start of this Preface – I did it anyway. Lastly, but perhaps most importantly, I have to thank all the clients whose organizations and issues have formed both the subject of my consulting work and the meat of this book. Their agreement in allowing their issues to be aired - albeit it in anonymized form - is much appreciated. Without them this book would have been impossible and of course pointless.

PART 1

INTRODUCTION

1

The Crisis of Organization

“The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, so we must think anew and act anew.”

Abraham Lincoln

Only a few years ago, the ideas and approaches outlined in this book would have seemed not merely radical, but fanciful to many. In the past few years however, there has been a growing groundswell of recognition that the traditional approaches to designing and running organizations are fundamentally flawed. Not just in need of a few tweaks, but fundamentally wrong. The evidence is all around us. Over 90 % of strategic plans are never implemented. Over 70% of change projects fail. The average lifespan of companies continues to plummet - currently 12.5 years in Europe and significantly less than the career span of the people working in them. In a 2005 survey of 1400 CEOs, 77% said managing the increasing complexity of their organizations was a high priority, 91 % believed that this required special skills, tools and approaches, but only 5 % believed they had the skills needed. There is, therefore, a clear gap between what these beleaguered CEOs think they need and what they currently have as solutions.

It is a truism that change is now faster than ever, yet it is clear that the thinking about organizations and management has failed to keep pace. The western Business Schools continue to teach methods that were developed to deal with a world that no longer exists and management thinking in our large organizations continues to be based around a set of disciplines and methods that are hopelessly inadequate to deal with current challenges.

Business planning is still rooted in an annual cycle of targets and budget setting that is indistinguishable from the centralized planning system of soviet Russia under Stalin. This is despite the fact that the natural business cycle is rarely a year. Many businesses need to be able to change their strategy in response to emerging strategic threats on a much shorter timescale than the annual cycle. Instead of helping them, the annual cycle fetters the organization’s freedom of thought and action like a ball and chain. And what happens when we do try to implement change? Well, usually not that much, since the traditional way of carrying out change also fails in an overwhelming number of cases. So, far from enabling organizations to adapt and flourish in this fast-changing environment, the traditional approaches actually prevent adaptation.

Similarly, organizational complexity continues to grow as organizations are forced to address more issues and greater diversity in their operating environments. Technology proliferation, globalization, market fragmentation and other macro-level changes force organizations to operate in increasingly complex ways and with increasingly complex structures. Once again, the old models are failing. The traditional solution to organizational complexity was the bureaucratic model, but even for monopolistic public sector organizations that is becoming unacceptably cumbersome and there are few private sector situations where it offers a sustainable solution.

The reason the old models are failing is that the problem is not just organizational complexity or the rate of change. It is the combination of the two and the dynamic that these have together. The rate of change drives organizational complexity and organizational complexity drives up the rate of change. Organizations are locked into this reinforcing cycle and whether you see it as vicious or virtuous largely depends on your point of view, or more prosaically on whether you think you are winning or losing at that moment.

Increasingly however, the numbers of people prepared to stick their heads above the parapet and challenge the status quo are growing. And it’s no longer just the eccentrics operating on the fringes of management thinking who are speaking out. As Dee Hoch, founder and ex-chairman of Visa and ex-CEO of the Bank of America said:

we have today a massive epidemic of institutional failure. You can look around you: schools that can’t teach, welfare systems in which nobody fares well, unhealthy healthcare systems, corporations that can’t compete, economies that can’t economise, police that can’t enforce the law, judicial systems without justice. The list is virtually endless of organisations increasingly unable to achieve the purpose for which they profess to be there.

At the world’s biggest conference in 2004 on performance management (as staid a management discipline as you could hope to meet), three out of five of the platform speakers stated that management needed to get away from the hierarchical model of organization that is at the root of many of our organizational problems. This was a fairly conservative gathering populated by some fairly conservative figures, yet even here, there was a recognition that the old models no longer work.

What there is less consensus about, however, is what to replace them with. There has been a succession of ideas about management and organization over recent years. Some of these have held valuable if partial answers, some were extremely effective when used well, but dangerous when used inappropriately and some were frankly half-baked. How then to tell whether any ‘new’ idea has any merit or will simply be another ‘here today and gone tomorrow’ fad? This is especially difficult if the diagnosis that there is something fundamental wrong with current management thinking is correct. If it is, then it almost certainly means that there is something wrong with the paradigm. As Einstein said, ‘You can’t solve the problem with the same reasoning that caused the problem’. If another paradigm is needed - and I believe that it is - then inevitably that means that many of the assumptions that we take for granted as being selfevidently true have to be abandoned. Well, I would suggest that there are four touchstones that we can use to test new ideas, and certainly these are the ones that I have used in my own search for a different set of solutions.

The first is whether the idea has any supporting theory to back it up. Underpinning the approaches outlined in this book is not just a chunk of theory, but a whole body of systems and cybernetics thinking. Much of it has become fundamental to how we understand our world today. So much so that most people are unaware that much of what we now consider ′common sense′ is thinking that was impossible for previous generations. Today, there are few managers who do not talk about ′feedback′ and yet the term was only migrated from engineering into common parlance by the first generation of multi-disciplinary cyberneticians after World War Two. Similarly, the circular mechanisms of global warming are taught today to 13-year-old children in the UK, but those same systems theorists and cyberneticians only introduced the concept of feedback loops into scientific disciplines in that same immediate post-war period. Prior to that, science only had a language to consider linear cause and effect. This is where much of current management thinking is still rooted. Traditional management techniques are based on the assumption that organizations and business can be understood using simple cause and effect models. Outside of business, the same theoretical underpinnings on which this book is based are used extensively in disciplines as diverse as military guidance systems and ecology.

Of course, theory is no guarantee of validity, and many a theory has proved false. Nevertheless, for practical purposes, having some theory behind your method does give some guidance as to why it might work when it does, and therefore where it might be helpful, and where it will not. After all, this is the purpose of theory.

When Stafford Beer first developed the Viable System Model, he was seeking to encapsulate a set of fundamental laws in a science of organization. So far, we have not found any sort of organization to which it does not apply. Just as all types of flying things from airliners to Frisbees are subject to the same laws of aerodynamics, so, what it means to be a viable organization seems to be universal. Although all organizations may be different in what they do and how they do it, the principles of organization are universal. A set of simple laws govern whether an organization will be viable or whether it will die. Part of the importance of theory is that it provides reassurance that this really is applicable in any situation. This is not to claim that this is any sort of panacea. It is not. There are a whole host of business problems that are not directly addressed by this approach, but it does mean that for the issues it does address, it can be applied to any sort of organization and used to understand how they function or indeed fail. Of course, the experience of finding that application is universal does provide the consultant or manager with confidence that it is soundly based.

The second touchstone is to do with resonance. When a new paradigm comes along that is able to provide answers to long-standing puzzles and problems, generally speaking, it does not just solve one problem, it solves, or dissolves several problems at once. By definition, systemic problems give rise to many apparently separate and diverse symptoms. So solve the core problem and it addresses all the symptoms. When you get over flu, your headache, fever, sinuses and appetite all improve. It is the sign of a paradigm change that lots of things look different from the new perspective. The new paradigm casts everything in a different light and nothing looks the same again. So, with management ideas, one that has real validity is likely to resonate in many different areas. It should change the way you look at strategy and the way you look at change management, the meaning of governance and the purpose and practice of performance management and it should connect all of these together into a coherent picture, where each makes sense of the others in a completely new way. This is not the same as falling into the Maslow trap - ‘to the man who only has a hammer, every problem looks like a nail’. It is not that a new approach can or should be expected to solve everything, but systemic problems, like the hydra of Greek myth, have many heads on the same body, so one solution can solve many apparently different problems.

One of the key attributes to look for here is connectivity. It is not just that a new paradigm should simultaneously address several apparently different and disparate areas - although this in itself would be impressive. It should also show how they connect together in a way that makes sense. It is not just that it has something to say about change management, performance management, governance, strategic risk and strategy. It is that it shows how and why these are linked, how each of these supports and complements each of the others. A consultant talking to me the other day commented that this set of ‘specialisms’ were fairly diverse, but of course they are not, because in reality these are not merely linked together, but are simply different facets of the same whole. The purpose of governance is to manage strategic risk by carrying out organizational change. A performance management system should be capable of measuring both strategic risk and the organizational change to address it and so inform the governance structure how effectively it is working. The links between these are so strong and natural that it makes no sense to treat them as if they are separate and yet, many managers, consultants, management theorists and academics behave as if they had nothing to do with one another, as if governance and change were in no way connected. In very practical terms, they are usually handled quite separately, by different teams, each of which has different purposes and different objectives, and uses different models and languages. You cannot sensibly think about strategic risk without taking into consideration the capability and design of the governance structure that is supposed to deal with the risk. But again, these are often considered as totally separate issues.

Is it really surprising if we treat things that are and need to be intimately connected as if they were totally separate, that we end up with organizations that cannot respond coherently to the risks and changes they face? Is it surprising if managers feel confused and helpless in addressing the problems they face?

The third touchstone is practicality. Does the approach, model or method help us to get to pragmatic solutions? Does it do it quickly and are the solutions robust? In my work over the past few years, I have been shocked at how easy it has been to take the core model around which this book is based, of organizations as complex viable systems and use that model to develop new methods for strategic risk, governance, change, performance management, resource management and strategy development. In most cases, these methodologies were developed as a direct response to a client’s immediate problem, so speed and pragmatism were not just desirable, but essential.

The fourth touchstone is the ‘Aha’ moment, the moment when you see a familiar problem or experience in a new way and say to yourself ‘oh so that’s why ... ’. Many, I suspect probably most, of the people who have taken up the ideas I have tried to present in this book have done so because of such an experience. This is one of the reasons that I have tried to include a range of examples from real life and also the ‘archetypal pathologies’ many of which managers will have seen and experienced first-hand as a set of symptoms, but without necessarily understanding the systemic drivers. For most of us practising in this area, there was a moment when suddenly the world of organizations looked very different. As one director said to me a week after being exposed to these ideas for the first time: ‘everywhere I look now I see variety issues’.

And so to a safety warning, understanding organizations as systems is a ‘red pill’, there is no going back. You may rage or despair at the stupidity or futility of some common management practices, but once you understand the reasons why they usually fail, you cannot un-learn that knowledge. Hence, there is undoubtedly a negative side. On the positive side, however, understanding organizations as systems is immensely powerful. One academic I know who used to teach Viable Systems to undergraduates told me that they were regularly able to analyse business situations more completely than highly experienced international business consultants. This despite the enormous handicap that they had never worked in a business, so were working from pure theory. After over a decade of practice, I am still frequently surprised at the speed, power and precision of the systemic approach and the elegance and simplicity of some of the solutions it can provide.

I believe that the approaches I outline in this book present a coherent but radically different picture. The Viable System Model has been described as a ‘master organizing idea’, in other words a concept that allows other tactical tools and approaches to be placed in their proper context with one another. It has also been an extremely fruitful source of practical methodology for addressing a wide range of common management problems in a radical way. In many ways, this is quite different to many management books. For a start, it may appear to be very broad, touching many conventional disciplines, from finance to operations to marketing. This is because the core topic of this book is organization and organizing, and organizations are the structures within which all other management disciplines exist. Organizing is the glue that binds them all together. In many places in this book, there will be a reference to conventional management practice, so rather than describing either finance planning or market segmentation, these will just be referenced, because others far more knowledgeable, have described and explained these better than I could. However, the contribution of a systemic approach is to show just how these other disciplines need to fit together if we are to have organizations in which market analysts and financial planners actually work together effectively to contribute to strategic plans that will actually address market needs and be practicable.

What I am advocating in this ‘radical approach’ is not a wholesale ripping up of all existing management doctrine. The fundamental shift in thinking is about how to design and run organizations and of the importance of organizational and management structures, not necessarily about all management practice within existing disciplines. I hope that it is an approach that casts many existing management methods in a new light whilst relying on them as the bedrock of management practice.

However, in addition to just providing a model of organization that can be used to frame existing management approaches, I have also tried to set out a number of new approaches that come directly from a systemic perspective and which challenge the prevailing practice where it seems to me the evidence shows it is failing most often. On reflection, these seem to be clustered around the dynamics of organizations - how they assess their strategic risk, how they decide strategy, how they carry out change, how they govern this continuing cycle of change and renewal and measure whether it is working. All of these relate to the statistics quoted earlier about the widespread failure of traditional approaches to strategy and change. The systemic model on which they are based provides a powerful tool for managers to understand and deal with organizational complexity. I am not the first to point out that these areas of organizational dynamics are often not taught well on MBA courses and it is perhaps no accident that MBA stands for Master of Business Administration. The focus of administration is the status quo, not change. Unlike some other critics however, I generally support MBA courses. In my experience, they turn out bright, competent people with a common managerial language and some very relevant skills. That the MBA courses and therefore the graduates have a set of skills to do with organization, strategy and change that generally do not work is simply a function of the complex fast-changing environment we find ourselves in at this time and the need for new approaches that it calls for.

2

Management Myths, Models and Self-Fulfilling Prophecies

“You can’t solve a problem with the same reasoning that created the problem.”

Albert Einstein

Last week as I was walking the dog, we met a woman with two dogs. One was a well-behaved, if somewhat slobbery and obviously expensive, pedigree dog, and the other a non-descript mongrel. As soon as it saw my dog, the mongrel immediately went into attack mode, barking, snapping and generally behaving in an aggressive way. At the same time, it was wagging its tail, which in dog circles is normally a friendly greeting signal. So some very contradictory messages were being sent out. This is a type of dysfunctional behaviour that is fairly common in rescued dogs that were not properly socialized as puppies, and so don’t know how to behave appropriately to other dogs or people. Fearing and misunderstanding the world, they simultaneously give out the contradictory signals of friendliness and aggression. They want to be liked, but fear that they will be attacked instead. In behaving like this, they create precisely the conditions they fear, provoking aggression and retaliation from other dogs they meet. Fortunately, my current dog is a Scottish Deerhound, a breed noted for its easy-going temperament, who treated this display with a sort of aloof disdain. My old Lakeland terrier bitch, an indomitable warrior who was altogether less forgiving, would have taken such signals as a declaration of war and would just gone in for the kill.

From our privileged position as outside observers, it is easy to see the mongrel’s mistake, but for the mongrel, it is nearly impossible. Its distorted view of the world is constantly being reinforced and reaffirmed. Believing the world to be full of other dogs that want to attack it, it is proved right again and again, and the behaviour that creates this situation is proved to be right and appropriate. This dog is locked into a self-reinforcing cycle in which, starting with a myth, it creates the reality in which that myth becomes true.

Would that this only happened with dogs, but sadly, it doesn’t. There are a set of management ‘myths’ that are extremely persistent despite research evidence to discredit them. One of the main reasons that many of these are so persistent is because, just like the mongrel, belief in them leads managers to relate to the world in such a way that the myth becomes ‘true’. At first sight, the idea that we create reality to fit our beliefs may seem a preposterous idea, akin to the observation in physics an electron behaves like either a wave or a particle depending on how we expect it to behave. If a dog can do it, why not managers?

Nice Guys Finish Last?

I am a member of a consultancy association. This group has many consultants in it who in theory are competitors, but they generally find that they spend more time collaborating than competing (the collaboration versus competition ratio is approximately 7:1). Nevertheless, some consultants introduced to the group do not join because they see others as ‘competitors’. The difference in attitude goes back to one of the basic building blocks in game theory: the zero-sum versus the non-zero-sum game. Put crudely, in a zero-sum game, we are talking about competing over the division of a pie of a given size, so the more I get the less you get, and for me to win, you have to lose and vice versa. In the non-zero-sum game, this argument becomes less relevant as we discuss how to create a bigger pie so we all get bigger shares.

In this case, you choose whether you see other consultants as potential competitors or collaborators. One perception is that we are locked in a zero-sum game, competing for the same clients about the same sort of projects. Alternatively, we can look at potential synergies. Having worked in the application of game theory to negotiations for some years now, I am increasingly convinced (although I have no research data to support this view) that being predominantly a zero-sum gamer or a non-zero-sum gamer is a fairly deep personality trait. There are certainly an awful lot of people whose first reaction is based on a zero-sum view of the world.

There is a common misconception as well that zero-sum is somehow ‘the norm’ or that non-zero-sum is ‘for wimps’ - that ‘nice guys finish last’- and this view is often expressed by both zero-sum gamers and non-zero-sum gamers.

It is of course nonsense. If zero-sum really was the norm, we would not live in social groups, because being a member of a group demands some sort of contribution from the individual. Instead, we would predominantly live alone in constant mistrust, and throwing rocks at one another to defend our territory whenever we met another human. Technology would not have progressed because nobody would have shared ideas. This is manifestly not the case. We predominantly live in social groups because we get more back from society than we have to give to it, and we share ideas because from that process come new bigger and better ideas. Our whole life, family, society, culture and business are all built on non-zero-sum games, where cooperation and some personal sacrifice leads to synergies, economies of scale and the creation of greater and richer possibilities than we could create on our own.

Non-zero-sum isn’t odd, or for wimps. It is the norm. The evidence is all around us all the time. So why do zero-sum gamers believe and practise the zero-sum game? Well the answer is that for them it is true. For them zero-sum is how the world works, and the way they behave creates a reality that reinforces this view. In this case, it works in two ways.

The first is that the zero-sum option can often lead to short-term wins. If I enter into a negotiation with a potential partner on a joint venture, and they use the information disclosed to pinch one of my clients, they will have destroyed the non-zero-sum outcome of creating a bigger future through our joint venture, but they will have won their zero-sum game and vindicated their philosophy.

The second reinforcement is more negative: if you play a zero-sum game with me I am forced to play a zero-sum game with you. So in the world surrounding zero-sum gamers, zero-sum is the norm. As Yossarian pointed out in Catch 22 when asked what would happen if everyone felt that way - ‘Then I’d certainly be a damned fool to feel any other way. Wouldn’t I?’ The zero-sum game is the norm if you choose to make it the norm; if you choose the opposite, then that becomes the norm. The choice is free, but once made, each has its own set of rules and constraints and its own logic. Each is informed by a different world-view, which is then reinforced by our experience in the reality we have created.

X and Y

A similar situation exists with McGregor’s famous Theory X and Theory Y. McGregor’s hypothesis was that managers tended to have one of two world-views about attitudes to work. Put crudely, Theory X managers believe that employees are primarily motivated to work for money, and will do as little work as they can get away with, short of risking losing pay or position. Theory Y managers in contrast believe most people are selfmotivated, want to do a good job well because work satisfies a wide set of needs beyond mere financial reward. Naturally, the two belief systems lead to very different sets of management practice. Theory X managers often look on Theory Y managers as naive idealists. Theory Y managers tend to look on Theory X managers as either ignorant or retarded in some way. After all, they reason, the scientific evidence generally supports Theory Y, so the Theory X bunch must be either ignorant or retards to carry on supporting a discredited theory - right?

Wrong. Theory X managers get constant feedback that their theory and world-view are correct. If you manage using Theory X, you treat staff in a way that is consistent with that view. Typically, this involves organizations expending an enormous amount of effort on designing financial motivators and on mechanisms to prevent staff from getting out of doing the work they are paid for. This generally means complex reward and bonus systems, checking staff are working all the time they are supposed to (even down to measuring how long they spend in the toilet), and on defining as tightly as possible what their role is - to make sure that they can be held to account for what is in the job description.

Organizations and managers that operate in this way are giving out a very clear signal what they think of their staff, and generally speaking, staff respond in kind. If financial reward is all that counts in their organization then most people take their behavioural cue from that and play the system to maximize their financial returns. If management controls give the message that management don’t trust you to do the job you are paid for, staff respond by mistrusting their managers and trying to beat the system. Treat people like criminals and they start to behave like them. In most cases, the Theory X manager has their world-view confirmed by the reciprocal behaviour of their staff who do try to maximize their return and minimize their work. So the theory works, in total contradiction of the experience of Theory Y managers, who behave in a different way, and see a different world. Once again, as with the zero-sum game, belief and the practice of behaviour consistent with that belief is sufficient to create a reality in which that belief system works.

Performance related pay (PRP) follows a similar pattern and is really a subset of the Theory X, Theory Y debate. It is founded on primary psychological research that goes back to Skinner’s work on rats and pigeons. A fundamental problem with translating this research to the domain of human work is that pigeons are generally pretty unaware that they are being manipulated, whereas people are very aware that a performance related pay scheme is explicitly set up to manipulate them. In fact, it cannot work unless people do recognize this. Well if the name of the game is manipulation, it is hardly surprising that we see so many instances in which the tables are turned and the workforce use the PRP system to manipulate management, by finding ways of fulfilling their quotas or hitting the sales target for the least effort. Almost always, targets are met, but overall performance suffers, as the targets divert attention from other critical areas.

So, the psychological theory, based as it is on research valid for pigeons, is flawed when it comes to applying it to humans, and more relevant psychological research leads us to expect PRP to be problematic at least. The field research has overwhelmingly failed to substantiate the claims of the proponents of PRP, with lots of evidence that it changes behaviour, some evidence that it reduces performance, but virtually no evidence that it improves overall performance. Why then do managers continue to believe in and practise PRP? Well, once again, because there is reinforcing evidence that it works. Put in a performance target, and pay people to meet it and usually, if it is possible, they will do. The fact that other areas of activity suffer as a direct result is generally not seen. The unintended consequences often only show up if you do a properly controlled study. As well as the reinforcement, managers believe in PRP because life would be so much easier if was true.

Change Theory

Much the same is true of management theories about change. Put a group of HR managers or change consultants in a room, and generally they will agree that organizational change is a pretty difficult thing to accomplish. As Machiavelli wrote, ‘there is nothing more difficult to plan or more uncertain of success or more dangerous to carry out’. Ask our group of HR managers and consultants why change is so difficult and fails so often, and the probability is that they will cite resistance to change as the critical factor. And on the face of it, this is both obvious and credible. It even has a certain amount of theoretical underpinning, even if, as with PRP, this comes from a different field. In the case of change, the resistance hypothesis is backed by two areas of theory. One is the theory that classifies people by their willingness to change as: ‘innovators’, ‘early adopters’, ‘late adopters’ and ‘diehards’. This actually comes from research on consumer behaviour and may or may not be valid for people’s attitudes to change in their workplace, although it does have face validity, and does seem to stand up to superficial scrutiny at least. The second element of theory comes from studies of bereavement, and describes a cycle of acceptance of an inescapable fact. The transfer of this model to the workplace is rather more contentious. Nevertheless, it has been a key element in forming the resistance theory to the problem of change. The problem with this theory is that it confuses cause with effect.

There is good body of research going back to the late 1960s that there is a very strong inverse correlation between involvement in a change program and resistance to it. People don’t resist what they have had a hand in designing, they actively work to make it happen. Resistance is what happens when you have messed up the design process; it is an outcome of a badly planned change programme. Resistance is the consequence of failure, not the cause of it. Why then the mis-attribution? As with PRP, there is some theory to make it appear credible, and as with the zero-sum game and Theory X; belief in it changes perceptions to create precisely the situation that fits the theory. In this case, it works by diverting manager’s attention away from things that might make a difference, such as: maximizing the involvement of staff in decision making, managing interdepartmental interfaces during change, and phasing the change process to build momentum. Instead it leads them to concentrate on preparing to manage the consequences of their failure, with ‘hearts and minds’ campaigns. The diversion of attention results in the creation of precisely the conditions managers should be seeking to avoid - resistance to change.

The Individual or the System

I have lost count of the conversations I have had with managers who say ‘this organizational and systems stuff is all very well, but it’s the quality of the people that really counts’. Well obviously, the quality of the people in the organization does count for a lot, but the model that says that people count and organization does not really matter creates another self-fulfilling prophecy. If you do not pay attention to how the organization works, then the organization usually does not work that well, so in most cases, management has to cope with a lot of minor or major crises - precisely the conditions where heroic fire-fighting individuals show their worth by saving the day. Trouble is that, once again, this is a self-fulfilling prophecy - you do not fix the system because you believe that exceptional individuals are what counts, then heroic management is necessary which proves your view right. This, despite the fact that there is a huge body of evidence from both systems and psychology that, overwhelmingly, systemic factors drive behaviour, that we are much more puppets of the systems we create than we their masters.

Take a group of nice well-adjusted students in an experiment and split them into ‘guards’ and ‘prisoners’ and pretty soon you have to stop the experiment to prevent someone being killed because the ‘guards’ have turned into dominating, sadistic bullies, whilst the ‘prisoners’ have become feral subversives. In the Fifth Discipline Peter Senge described the ‘beer game’ where players work with a model of a beer supply chain. Thousands of managers have found that they were unable to prevent themselves from behaving dysfunctionally, driven by the pressures in the system.

In the only study I know that tried to measure the relative importance for improving performance by changing the system compared to changing people, Reg Revans the inventor of Action Learning concluded that system changes were five times as effective as people changes.

The Power of Models

With all the examples listed above, and many more, the impact of the mental models that managers use is enormous. Not only does it condition the way a manager sees the organization, people and environment in which they work, but it also affects how they relate to people and events, and as a consequence it changes the way that others see them and behave towards them. This is why understanding the models you use and their limitations (because all models without exception have limitations) and ensuring that you are using appropriate models is not just an academic exercise. It is fundamental to being able to understand and manage your world.

The idea that the mental models you use affects the way you see the world is itself quite radical for some people, obvious to others. The idea that these models do not just affect the way you see the world, but also affect the way the world sees you and thereby affect the way the world interacts with you and in very practical ways effectively change that bit of the world you are living in, is more radical and is quite scary to many. The obvious conclusion that you have real choices about this is for many deeply scary and for others deeply liberating. Scary because it means that you have real responsibility for the way you choose to view and interact with the world and that this will have consequences for the way the world interacts with you. Liberating because you have the power to change the way that the bit of the world to which you are directly coupled works, simply by selecting testing and using different mental models.