Organizations as Complex Systems

8/14/2019 Organizations as Complex Systems

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Management Scienceand Operations for

MBAsOrganizations as Complex Systems


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Tonights Objectives

To explore the nature of complexity inbusiness.

To understand why mental structures are soimportantTo portray the structures used by experts

Compare and contrast those structuresEmbrace a method for addressingcomplexity.


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ComplexityNature does not organize meaning.Interpretation places meaning on reality.

Prejudice is natural brainwiring.Labeling is negating but natural.

Paradigms as lensReaction to reality is a function of interpretation.Interpretation determines success.

Wrong interpretation wrong answer and failureRight interpretation right answer and success


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Raw Complexity

A

BCD

IncomingSupplies

Production, assembly, inspection

Designand

redesign

DatabaseAnalysis

C o n

s u m e r s

Support Services


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Organizing Complexity

Humans take raw complexity and place meaningon the complexity.Largely, what is sought is found.

If quality is explored as a problem, quality will befound to be a problem.If HR is believed to be the source of trouble,people will be discovered to be the problem.

Reality does not change the real problem andthe right solution do not change.

The match.


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Paradigms/Mental StructuresParadigms drive people to look for issues

Marxism/ClassismSocialism/Keynesian Economics

Capitalism/Austrian Economics AnarchismJingoism/Nationalism/LocalismSexismRacism

AgeismReligionism

etc., etc, etc. etc.


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Causes and Effects

Understanding causality is key:Dividing the world into antecedents andconsequences.Understanding processes that instigate thetransformation.

Causality Conditions:

Temporal Sequentiality Concommitant VariationNon-spurious association

Theoretical Linkage


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Complexity with Dynamics

A

BCD

IncomingSupplies

Designand

redesign

DatabaseAnalysis

C o n

s u m e r s


Support Services V a l u e

C h a

i n


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Problems with Dynamics

Causation is seldom simple.Covariances

Law of unintended consequencesPush on the balloon problem

Feedback loopsCause and effect separations in timeOpen systems problems

False boundaries Attempts at maximization


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Complexity with Structure

A

BCD

IncomingSupplies

Designand

redesign

DatabaseAnalysis

C o n

s u m e r s


Support Services V a l u e

C h a

i n


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Problems with Structure

Boundaries become obstaclesEntrenchment

Boundaries follow authorityFiefdomsBoundaries assign blame

Boundaries mask causation andcovariance effectsDestroy complexity needed

More attempts at maximization


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Which is better--preferences

Individual preferenceNeed for structure

Need for understanding causationMost scholars agree that boundaries areconfining and artificial.

Most scholars agree that boundaries arereal and must be addressed.


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Structures by Experts

Managing complexity is keyScholars, consultants and executives are drivento find what works.Not reinventing the wheelLooking for generalizationsDevelop into theory

Apply to specific contextsFind where does not workRevamp/refine theory


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An historical perspective

Nothing is new about the challenges facingindustry.

Complexity is just more complex, the solutionsare more elusive, and the context is morepopulated with stiffer competition.

Still, a discussion of recent history is veryinformative.


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Looking to History for Answers

CraftsmanshipGuilds and ApprenticeshipEli Whitney and uniform partsHenry FordWalter Shewhart and PDCA

Hawthorne PlantBritish Military Quality Standards

WWII interchangeable parts problemsUS Military Standards

ISO 9000 and 2000 update


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The Crisis

By 1980, the U.S. economy was faltering. Annihilation of entire industries by Pacific RimTigers.By Carter administration, U.S. economicsituation looked hopeless, much like now.Industry looks for guidance and exemplars.The state of business theory is inadequatevirtually no one goes to a business schoollooking for guidance.


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In Search of Excellence , by Peters and

Waterman. Published in 19821. Stay Close to the Customer2. Have a Bias for Action3. Autonomy and Entrepreneurship4. Productivity Through People5. Hands on - Value Driven6. Stick to the Knitting

7. Simple Form - Lean Staff8. Simultaneously Loose - Tight Functions


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Tom Peters and Nancy Austin, A Passion

for Excellence , published in 1986

1) Take Exceptional Care of Your Customers

Through High Quality Products and Services2) Constantly Innovate


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Bob Waterman, The Renewal Factor ,

Published in 19871. Stability in Motion2. Informed Opportunity

3. Open Inquisitive Leaders4. Friendly Facts and Congenial Controls5. Direction and Empowerment

6. Teamwork and Trust7. Attitudes and Attention8. Causes and Commitment


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Dr. W. Edwards Deming

If Japan Can Do It, Why Cant We, 1980 Assumption is that Japan has the answers.

Clearly, Japanese quality had leapfrogged US.

Discovery of W. Edwards DemingIBM, Xerox, Ford, etc.

Deming is god-like in Japan and worshipped in USfor next 13 years.Other perhaps more important people got shortshrift Juran, Gyrna, Feigenbaum, Sarasohn, etc.


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W. Edwards Deming, 14 Points, from Out

of the Crisis, published in 19861. Create constancy of purpose toward improvementof product and service, with the aim to becomecompetitive and to stay in business, and to provide

jobs.2. Adopt the new philosophy. We are in a neweconomic age. Western management must awakento the challenge, must learn their responsibilities,

and take on leadership for change.3. Cease dependence on inspection to achievequality. Eliminate the need for inspection on massbasis by building quality into the product in the first

place.


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Demings 14 Points

Continued4. End the practice of awarding business on the basis ofprice tag. Instead, minimize total cost. Move toward asingle supplier for any one item, on a long-termrelationship of loyalty and trust.5. Improve constantly and forever the system of

production and service, to improve quality andproductivity, and thus constantly decrease costs.6. Institute training on the job.


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Demings 14 Points

Continued7. Institute leadership. The aim of supervision shouldbe to help people and machines and gadgets to do abetter job. Supervision of management is in need ofoverhaul, as well as supervision of production workers.8. Drive out fear, so that everyone may work effectivelyfor the company.

9. Break down barriers between departments. People inresearch, design, sales and production must work as ateam, to foresee problems of production and in use thatmay be encountered with the product or service.


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Demings 14 Points

Continued10. Eliminate slogans, exhortations, and targets for thework force asking for zero defects and new levels ofproductivity. Such exhortations only create adversarialrelationships, as the bulk of the causes of low qualityand low productivity belong to the system and thus liebeyond the power of the work force.11 a. Eliminate work standards (quotas) on the factory

floor. Substitute leadership b. Eliminate management by objective.

Eliminate management by numbers, numericalgoals. Substitute leadership.


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Demings 14 Points

Continued12. a. Remove barriers that rob the hourly worker hisright to pride of workmanship. The responsibility of

supervisors must be changed from sheer numbers toquality b. Remove barriers that rob people in managementand in engineering of their right to pride of

workmanship. This means inter alia, abolishment ofthe annual or merit rating and of management byobjective.


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The Last of Demings 14

Points13. Institute a vigorous program of education and self-improvement.

14. Put everybody in the company to work toaccomplish the transformation. The transformation iseverybody's job.


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Admonitions vs. Structureand Process

Executives were frustrated by broadgeneralizations and dogma, all of which had

easily identifiable exceptions.Exceptions cost several executives their jobs.Blind faith/simple answers lead to disillusionment.

Deming frustrated because executives avoidstudy and hard work. Develops SoPK (more later)More concreteness desired

Documentable (ROI-justified) results


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ISO 9000 Series Certification

Organization for International Standardization(ISO versus OIS)The agendaArising from European Economic Community

Trade Barrier ThreatsEuropean Organization for TechnicalApprovals (EOTA)European Organization for Testing andCertification (EOTC)


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Accreditation Process

An organization must audited by a certifiedregistrar.This registrar must meet ISO standards(10011-2 Standard) and use ISO processes(10000 Series Standards)Originally, a major problem for US companiesSoon everyone and their cousin are auditorswith flexible standards.


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Accreditation Process

The American Society for Quality (ASQ) hastaken charge of the US process along with

ANSI.

The Registrar Accreditation Board (RAB) of the ASQC now administers the American National Accreditation Program for Registrars of QualitySystems

ANSI/ASQC Q90 Series Standards parallel IS0standards.So, accreditation became much easier to obtain


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ISO 9001 Falls Out of Grace

ISO 9001 loses luster.Trade barrier excuse retreats with ease ofobtaining certification

Quality Standards are largely determined bythe client, which leads to disasters.

Firestone 500 plantThe concrete lifejacket test case Virtually anyone can get certified.

ISO 9000/2000 series standards changed toreflect input from customers and allow for

objective standards, but these are weak.


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ISO 14000 EnvironmentalStandards

ISO 14000 Standards are designed to certifythe environmental policies of companiesPresumably, companies that meet thesestandards also meet international standards forsound environmental policy, a potential legaldefense.May be made a continuing requirement for ISO9000 Series certification


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Deming PrizeJapanese Union of Scientists and EngineersDeming Prize 1951US tries to begin similar award process

Purpose is to benchmark good practices,while appealing to winner attitude ofexecutives

Deming is appalled.


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The Deming Prize

Following Demings 1950 lectures To encourage Japanese companies toadopt Demings management method Categories

IndividualsEnterprises including public, smallenterprise and divisionsOverseas companies


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Baldrige Quality Award Established in 1987 by the MalcolmBaldrige National Quality ImprovementAct.

Managed by the National Institute ofStandards and Technology within theDepartment of Commerce with no publicmoney.

When Quality went out of vogue,replaced with performance excellence.Mirrored Deming Prize, but presented asuniquely American.


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Customer- & Market-FocusedStrategy and Action Plans

3Customer

& MarketFocus

2StrategicPlanning

1Leadership

5

HumanResource

Focus

6Process

Management

7BusinessResults

Driver Triad Work Core

4 Information & Analysis

Brain Center

Baldrige Framework


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Integrating the Architecture

DriverSenior executive leadership is activelyinvolved in creating values, goals, and

systems.Facilitates the pursuit of quality goals.Promotes quality values and processes toimportant stakeholders.Walks the talk


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Work CoreWell-defined and well-designed processes formeeting quality and performancerequirementsMust be focused ultimately on adding value tocustomers and meeting or exceedingcustomer requirements

All processes must be aligned with otherorganization processes so that the systemis consistent, non-contradictory


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Results - Measures of ProgressAll actions must be focused on producingresults, including financial performance,productivity, internal quality and supplierqualityAll results must be continuously improvingAll results must be documentedAll results must be benchmarked against astandard


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GoalsCustomer satisfaction must be ultimatefocus of the companys energy. 1998Criteria uses more of a balanced

scorecard approach. A system for understanding customerexpectations must be established.A system for measuring and trackingcustomer satisfaction must beestablished.All measures must be benchmarkedrelative to competitors and/or world-classcompanies.


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Deming CountersDeming does not buy into the structure of Baldrigebut is quiet about structure of Deming Prize.Does not believe in the prescriptive nature of

criteriaToo simplisticNot generalizeable to all companiesLaughable winners (Cadillac!)

Especially does not like the superficial glorificationand advertising of winners (Cadillac!)Baldrige counters


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Demings View

Every problem is a leadership problem . There isno substitute for leadership. Success is largely about developing leadershipcapacity in every system in the organization.Leadership capacity requires addressing thecomplexity head-on, without structures, with skills.

Leadership requires high levels of intelligencefounded on a theory. No instant pudding.SoPK


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Demings System ofProfound Knowledge

SystemsTheory

Understanding ofVariation

A Theory of

Knowledge

AppreciationOf Psychology


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How we will address complexity

First, the class will study Deming.Each facet of profound knowledge

Second, Baldrige will be explored in detailEach category with focus on Process ManagementExcellence criteria

Approach

DeploymentScoring

This approach will add relevance and depth to all

Organizations as Complex Systems

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