A Feedback Systems Approach to Business Transformation Management

A Feedback Systems Approach to

Business Transformation

Dr. Michael von Kutzschenbach Global Business Transformation Manager-Training (Heidelberg, 2015)

Workshop Outline A Feedback Systems Approach to Business Transformation

9:00 - 10:00 A Shift of Mind

10:00 - 10:30 Coffee Break

10:30 - 11:30 Building Blocks and Grammar

11:30 - 12:00 Applying Systems Thinking

12:00 - 13:00 Lunch

13:00 - 16:30 Applying Systems Thinking (cont’d)

14:30 - 15:00 Coffee Break

16:30 – 17:00 Lessons Learned

Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 2

Be a Master in Business Transformation Management Why a Feedback Systems Approach

However, most organizations approach change as if it were a simple thing.

The world is complex. Change within any organization is also complex.


You Want to … Why a Feedback Systems Approach

understand the “Feedback Systems Approach” so that you can …

be more effective in action

be able to deal with uncertainty

find better ways to achieve your aspirations

… master business transformation initiatives more effectively


Introduction to Feedback Systems Thinking Feedback Systems Approach: Why and What?

A Shift of Mind – Introduction to

Systems Thinking


The Systems Perspective Collection versus Systems

Kauffman, D.L. (1980). Systems One: An Introduction to Systems Thinking. Minneapolis: Systems Education, Inc.


The Systems Perspective Definition - What is a System?

“A system is an interconnected set of elements that is coherently organized in a way that

achieves something.” Meadows, H.D. (2008). Thinking in Systems: A Primer.

Vermont: Chelsea Green Publishing.


The Systems Perspective Putting Systems into Context: “The Iceberg”

Multiple levels of insights

Events (Who does what to

whom) What happened?

Patterns (Recurring patterns of behavior) What is happening over time?

Structure

(How the parts of the system are organized) Why is this happening?

Mental Models

(Assumptions or worldview)

In what way have our mental models created

the structures that are in place?

”Real” world

”Systems

Thinking” world


Sweeney, L.B.. (2001). When a Butterfly Sneezes: A Guide for Helping Kits Explore Interconnections in Our World Through Favorite Stories. Waltham: Pegasus Communications, Inc.

Event-Oriented World View The Standard Approach

RESULTS

SITUATION

GOALS

DECISION

Assumptions Note: which are

rarely questioned

PROBLEM


Event-oriented View of Traffic Congestion The Standard Approach

Congestion Build New

Roads


The required approach: Feedback World View Introduction to Feedback Systems Thinking

Morecorft, J D.W (2015). Strategic Modelling and Business Dynamics: A feedback systems approach. West Sussex: John Wiley & Sons Ltd.

Situation Goal

Problem

Problem

Decision

Action &

Results

Solution

Other

Situations

Other

Goals

Other Problems/

Discrepancies

Other

Decisions

Other Actions

& Results


Traffic Congestion A Feedback View

road

construction

pressure to

reduce

congestion

travel

time

desired

travel time

B1

Capacity Expansion

+

DELAY

- +

-

highway

capacity

+

Based on a figure from Business Dynamics, Sterman 2000. Traffic volume depends on congestion, closing several feedback loops that cause traffic to increase whenever new roads are built.

population

and

economic

activity of

region

average

trip length

DELAY

-

+

+

Extra Miles

B3

Take the Bus

B4

cars in

region

public

transit

ridership

cars per

person - +

traffic

volume + trips per

day

attractiveness

of driving

Discretionary Trips

B2 +

+ +

+

-

public

transit

fare

adequacy

of public

transit

+ -

+

Morecorft, J D.W (2015). Strategic Modelling and Business Dynamics: A feedback systems approach. West Sussex: John Wiley & Sons Ltd.

The Danger of a Narrow World View A Feedback View

The New Yorker Collection 1976 Arnie Levin from cartoonbank.com. All Rights Reserved.


… leads to Unintended Consequences A Feedback View

The New Yorker Collection 1976 Arnie Levin from cartoonbank.com. All Rights Reserved.


We live and work in systems of circular causality - but feedback paths and consequences are not obvious or are hidden:

Supply chains – the bull-whip effect.

Hotel showers – elusive comfort.

Motorways – mystery hold-ups.

Fisheries – where are the cod?

Oil – price volatility at the pump.

Fun with Feedback Feedbacks are Everywhere

Source: Morecroft, J (2008)


Policies that cause unintended side effects.

Efforts to stabilize a system actually destabilizes it.

Our decisions provoke reactions from others to restore the balance we upset.

“Anything that can go wrong will go wrong.”

- Murphy’s Law

Counter-Intuitive Behavior Introduction to Feedback Systems Thinking


Some common causes …

Our tendency to interpret experience as a series of events – leading to event-oriented approach to problem solving.

We do not understand the full range of feedback loops operating in the system.

We act as if cause and effect are always closely linked in time and space.

Policy Resistance Introduction to Feedback Systems Thinking


Exogenous point of view …

My wife is always mean to me.

It’s all her fault.

If she would just be nicer, my life would be better.

Endogenous point of view …

Maybe there’s something I’m doing…

A Feedback Systems Approach Perspective Endogenous Point of View


The deep foundation is the ENDOGENOUS point of view

The foundation applied:

A Feedback Systems Approach is the mental effort to uncover endogenous sources of system behavior.”

“System dynamicists use systems thinking, management insight, and computer simulation to hypothesize, test, and refine endogenous explanations of system change.”

The Central Distinguishing Feature of System Thinking … Endogenous Point of View


Building Blocks and Grammar Feedback Systems Approach: Thinking in Loops

Building Blocks and Grammar


Causal Mapping Representing Structure in Complex Systems

Causal mapping is a

powerful tool for

representing structure in

complex systems.

Arrows indicate causal

influence.

Quality of city life

Crime rate Retail outlets

Neighborhood

health clinics

Absentee

landlords

PopulationInmigration Outmigration


What is Feedback? Results of our actions define the situation we face

in the future. The transmission and return of information.

Two basic types of feedback:

Positive Feedback: Self-reinforcing

Negative feedback: Self-correcting

What is Feedback? Representing Structure in Complex Systems


Feedback Loops Representing Structure in Complex Systems

A feedback loop exists when decisions change the state of the system, changing the conditions and information that influence future decisions.

This is what caused your morning shower to be such a dramatic experience!

Decisions State ofthe system

Action

Perceptions


Examples of Feedback Loops Representing Structure in Complex Systems

Quality of

communication

Quality ofcommunicationbetween teams

Quality ofcommunicationwithin teams

TeamworkRisk taking

Trust

Solvency of

a Bank

Perceived solvency

of the Bank

Deposits Withdrawals


Two Kinds of Feedback Loops Representing Structure in Complex Systems

Reinforcing loops

Growth producing

Destabilizing

Accelerating

Positive: an even number of -’s

Indicated by…

Balancing loops

Counteracting

Goal seeking

Stabilizing

Negative: an odd number of -’s

Indicated by…

…also called Negative feedback loops.

…also called Positive feedback loops.


Balancing Loops The Great Stabilizer

“Balancing feedback loops are equilibrating or goal-seeking structures in systems and are both sources

of stability and sources of resistance to change.” Meadows, H.D. (2008, p. 30). Thinking in Systems: A

Primer. Vermont: Chelsea Green Publishing.

…, pushing stability, resistance, and limits


Examples of Balancing or Counteracting Loops The Great Stabilizer

Desired amount of

water in glassWater

in glass

Pouring rate

Fraction

filled+

–

- +

Population Outmigration+

–

Gypsie mothsGypsie mothnet growth

Wasps Wasp net

growth

–

+

+

+


Typical Counteracting Loop Behaviors The Great Stabilizer

20

15

10

5

0 0 10 20 30 40

Filling a Glass

10,000

7,500

5,000

2,500

0 0 25 50 75 100

Population and

emigration


Reinforcing Loops The Engines of Growth and Collapse

“Reinforcing feedback loops are self-enhancing, leading to exponential growth or to run-away

collapses over time.” Meadows, H.D. (2008, p. 32). Thinking in Systems: A

Primer. Vermont: Chelsea Green Publishing.

…, when small changes become big changes


Examples of Reinforcing Loops The Engines of Growth and Collapse

PopulationBirths per

year

+

+

Performance

Motivation

+

+

Number of private

businesses

Tax base

Tax rate

Expected profitability

of business

Attractiveness

for business+

+

+

– –


Typical Reinforcing Loop Behaviors The Engines of Growth and Collapse

20,000

15,000

10,000

5,000

0

0 25 50 75 100

10,000

9,000

8,000

7,000

6,000

0 25 50 75 100

Population and Births Loop

Businesses and Taxes Loop


Tips for Determining Link and Loop Polarities Loops and Labels

For each link, determine the effect of an increase in the variable at the tail of the arrow: If the variable at the head increases, assign a plus.

If the variable at the head decreases, assign a minus.

For each loop, count the number of negative signs: An even number of negative links is a reinforcing (R) loop.

An odd number of negative links is a balancing (B) loop.

Most important: For each loop, tell a self-reinforcing or balancing/counteracting story, and check that the story

matches the loop polarity.


Isolate and Identify Link Polarity Loops and Labels

At t ract iveness f or

business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business




business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business

+

(Always trace an Increase)





business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business

+





business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business

–





business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business

+


Completed Loop Loops and Labels

(Now tell the story)


business

Number of privat e

businesses

Tax base

Tax Rate

Expect ed

prof itabilit y of

business

+

– –

+

+

(R)

- or -

+

- or -


Delays The Hidden Troubelmakers

Delays are “interruptions between […] actions and their consequences.”

When things happen … eventually

Senge, P. (2006, p. 88). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.


Introduction to Feedback Systems Thinking Feedback Systems Approach: Thinking in Loops

Putting it all together: System

Archetyps


Applying the Feedback Systems Approach Business Transformation Matrix

Analyze Understand Design Transform

Pattern

Structures

Mental Model

Events

(Real World)

(“Systems Thinking”

World)

Incr

eas

ing

Leve

rage

an

d C

om

ple

xity

Phases of the Learning Cycle

As Is To Be

Zon

e 1

Zon

e 4

Zon

e 3

Zon

e 2

Modified from J. Shibley (2006)


Systems Archetypes Dynamic Theories of Business Transformation Management

Senge, P. (2006, p. 88). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.

“The purpose of the systems archetypes is to recondition our perceptions, so as to be more able to

see structures at play, and to see the leverage in those structure.”

… reveal an incredibility elegant simplicity underlying the complexity of management issues.

Senge, P. (2006, p. 93 f). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.


Fixes That Fail

Shifting the Burden

Limits to Success

Drifting Goals

Growth and Underinvestment

Success to the Successful

Escalation

Tragedy of the Commons

Systems Archetypes Seismology for leaders - Signals from the Underground

For more info see: Kim, D.H. and V. Anderson (2011). Systems Archetype Basics: From Story to Structure. www.leragenetworks.com: Leverage Networks, Inc.


Systems Archetypes - Fixes That Fail Seismology for leaders - Signals from the Underground

Causal structure

In a “Fixes That Fail” situation, a problem symptom cries out for resolution. A solution is quickly implemented, which alleviates the symptom.. However the solution produces unintended consequences that, after a delay, cause the original problem symptom to return to its previous level or even get worse.

Fix

-

+

+

Problem Symptom

Unexpected Consequences

+

t

B1

R2

Signals


Systems Archetypes - Shifting the Burden Seismology for leaders - Signals from the Underground

Symptomatic

Solution

Fundamental

Solution

Problem

Symptom

Side-effect

- +

+ -

+

- R3

B2

B1

In a “Shifting the Burden” situation, a problem symptom can be addressed by applying a symptomatic solution or a fundamental solution. When a symptomatic solution is implemented, the problem symptom is reduced or disappears, which lessens the pressure for implementing a more fundamental solution. The symptomatic solution often produce side-effects that further divert attention away from more fundamental solutions.

Causal structure


Systems Archetypes - Limits to Success Seismology for leaders - Signals from the Underground

In a “Limit to Success” scenario, growing actions initially leads to success, which encourage s even more of those efforts. Over time, however, the success itself causes the system to encounter limits, which slows down improvements in results. As the success triggers the limiting action and performance declines, the tendency is to focus even more on the initial growing action.

Causal structure

Limiting

action

- + +

+

Performance

Constraint

Efforts

+

B2 R1


Systems Archetypes – Drifting Goals Seismology for leaders - Signals from the Underground

In a “Drifting Goals” situation, a gap between desired performance and current reality can be resolved either by taking corrective action to achieve the goal or by lowering the goal. The gap is often resolved by a gradual lowering of the goal. Over time, the performance level also drifts downward. This drift may happen so gradually, even without deliberate action, that the organization is not even aware of its impact.

Causal structure

Goal

Actual

Gap

-

+

+

+

-

+

Pressure to Lower Goal

Corrective Action

B1

B2


Perceived Need

to Invest

Demand

Impact of

Limiting

Factor -

+ +

+

+

-

+

+

Capacity

Growth

Effort Performance

Standard

Investment

in Capacity + t

B3

B2 R1

“Limits to Success”

System Archetypes - Growth and Underinvestment Seismology for leaders - Signals from the Underground

Causal structure

In a “Growth and Underinvestment” situation, growth approaches a limit that could be eliminated or postponed if capacity investment were made. Instead, as a result of policies or delays in the system, demand (or performance) degrades, limiting further growth. The declining demand then leads to further withholding of investment or even reduction in capacity, causing even worse performance.


Systems Archetypes - Success to the Successful Seismology for leaders - Signals from the Underground

Allocations to A

instead of B

Resources to

B

Success of

B

Resources to

A

Success

of A + +

+ -

- +

R2 R1

Causal structure

In a “Success to the Successful” situation, two or more individuals, group s, projects, initiatives, etc. are vying for a limited pool of resources to achieve success. If one of them starts to become more successful (or is historically already more successful) than the others, it tends to garner more resources, thereby increasing the likelihood of continued success. Its initial success justifies devoting more resources while robbing the other alternatives of resources and opportunities to build their own success, even if the others are superior alternatives.


Systems Archetypes - Escalation Seismology for leaders - Signals from the Underground

Causal structure

Quality of A’s Position

Relative to B

A’s

Results

B’s

Results

Threat

to B

Threat

to A

B2 B1 Activity

by A

Activity

by B

In an “Escalation” situation, one party (A) takes action to counter a perceived threat. These actions are then perceived by the other party (B) as creating an imbalance in the system that then makes them feel threatened. So, B responds to close the gap, creating an imbalance from A’s perspective, and on it goes. The dynamic of two parties, each trying to achieve a sense of “safety,” becomes an overall reinforcing process that escalates tension on both sides.

+

+

+

+

+ + -

-


Systems Archetypes – Tragedy of the Commons Seismology for leaders - Signals from the Underground

Causal structure

+

+

+

+

+

+

+

+ -

-

- +

Resource

Limit

A’s

Activity

B’s

Activity

Total

Activity

Gain per Individual

Activity

Net Gains

for A

Net Gains

for B

In a “Tragedy of the Commons” situation, individuals make use of a common resource by pursuing actions for their own enjoyment or benefit, without concern for the collective impact of everyone’s actions. At some point, the sum of all individual activity overloads the “commons,” and all parties involved experience diminishing benefits. The commons may even collapse.


Applying the Feedback Systems Approach Lessons Learned

A Feedback Systems Approach - Lessons

Learned


Be a Master in Business Transformation Management Why a Feedback Systems Approach

Masters in Business Transformation Management work on the system not in the system!

The world is complex. Change within any organization is also complex.


Places to Intervene in a System Applying the Feedback Systems Approach

12. Numbers - Constants and parameters such as subsidies, taxes, standards

11. Buffers - The sizes of stabilizing stocks relative to their flows

10. Stock-and-Flow Structure - Physical systems and their nodes of intersection

9. Delays - The lengths of time relative to the rates of system changes

8. Balancing Feedback Loops - The strength of the feedbacks relative to the impacts they are trying to correct

7. Reinforcing Feedback Loops - The strength of the gain of driving loops

6. Information Flows – The structure of who does and does not have access to information

5. Rules - Incentives, punishments, constraints

4. Self-organization – The power to add, change, or evolve system structure

3. Goals – The purpose or function of the system

2. Paradigms – The mind-set out of which the system – its goals, structure, rules, delays, parameters – arise

1. Transcending Paradigms

Incre

asin

g L

eve

rage

Meadows, H.D. (2008, p. 147 ff). Thinking in Systems: A Primer. Vermont: Chelsea Green Publishing.


Applying the Feedback Systems Approach Business Transformation Matrix

Analyze Understand Design Transform

Pattern

Structures

Mental Model

Events

(Real World)

(“Systems Thinking”

World)

Incr

eas

ing

Leve

rage

an

d C

om

ple

xity

Phases of the Learning Cycle

As Is To Be

Zon

e 1

Zon

e 4

Zon

e 3

Zon

e 2


Modified from J. Shibley (2006)

Still interested? For more information …

Readings: Meadows, H.D. (2008). Thinking in Systems: A Primer. Vermont: Chelsea Green

Publishing. Morecorft, J D.W. (2015). Strategic Modelling and Business Dynamics: A feedback

systems approach. West Sussex: John Wiley & Sons Ltd. Sterman, J.D. (2000). Business Dynamics: Systems Thinking and Modeling for a

Complex World. McGraw Hill.

Training: Check out: http://www.fhnw.ch/business/continuing-education/seminar-

managing-digital-transformation

Contact: [email protected], T: +41 61 279 17 70; Twitter: @MvKutzschenbach

What to Do on Monday? Be a Master in Digital Transformation

… or better yet, visit our “Seminar Managing Digital Transformation” in Spring 2016!


http://www.fhnw.ch/business/continuing-education/seminar-managing-digital-transformation










mailto:[email protected]

Thank You Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 69

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A Feedback Systems Approach to Business Transformation Management

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