Have you ever wondered why some organizations seem to deliver slowly, cost a fortune, and leave customers feeling less than delighted? It may seem counterintuitive, but sometimes designing a high-performing system is easier said than done. The complex interactions between different elements can create delays and feedback loops that are difficult to oversee, making it a daunting task for even the most seasoned professionals.

That’s where Systems Thinking comes in. Instead of simply addressing the individual parts of a system, it takes a holistic approach to problem-solving that seeks to understand the entire system. By recognizing the intricate relationships between different components, it becomes easier to grasp how changes to one part of the system can impact the entire operation. So if you want to design a system that truly delights your customers, it’s time to take a step back and see the bigger picture with Systems Thinking.

Feedback loops

One of the key principles of Systems Thinking is the recognition of feedback loops. These interconnections between different elements within a system create a reciprocal relationship. Changes in one unit of an organization can affect the performance of other units, which in turn can impact the original unit. 

For example, the sales department closes sales contracts to meet its targets. In doing so it closes more sales contracts than the development unit can deliver. This in turn makes the development unit deliver late, and customer confidence drops which in turn makes it harder for the sales to close new contracts. The development unit also introduces extra rules and process steps to stay efficient and meet its own cost goals slowing the whole process down even further.

Figure 1. Feedback loops

People make critical decisions that seem to work locally in their team or department, but they often cannot oversee the effects it has on other teams or departments. Despite their best intentions, their decisions might be doing more harm than good for the organization. By recognizing these feedback loops, organizations can design systems that are self-correcting and adaptive. This can lead to a more resilient and flexible organization that is better equipped to respond to changing circumstances.

Delayed feedback and poor learning

In organizations, the feedback loop on decisions is often broken or severely delayed. In consequence, learning at the system level is problematic. Peter M. Senge, an American systems scientist and the author of the seminal book Fifth Discipline, speaks about a limited “decision horizon,” where people have a narrow horizon to observe the effects of their decisions. People end up fixing problems locally and, at the same time, degrade the situation for their colleagues. And even worse, they are unable to learn from their mistakes.

“When our actions have consequences beyond our learning horizon, it becomes impossible to learn from direct experience”

—Peter Senge

You get what you design for…

Organizations are perfectly designed to achieve the results they are achieving right now. And the irony is that the people that designed the system to produce the unwanted results are the same people that prevent it from improving. To quote Walt Kelly: 

“We have met the Enemy and he is us”.

—Walt Kelly

Systems Thinking helps you to see the whole so that you can make better-informed decisions for improvement. Focus on seeing interrelationships rather than things and seeing patterns rather than individual events.

System Thinking For Organization Design

Organization design is a complex and dynamic process that requires a thorough understanding of the interrelationships between different elements within an organization. This is where Systems Thinking can play a crucial role. When applied to organization design, Systems Thinking can help organizations better understand the relationships between different departments, processes, and people. By recognizing these relationships, organizations can design systems that are more efficient and effective, leading to better outcomes and improved performance. 

To effectively apply Systems Thinking to organization design, it is important to understand the different units of the organizations and their interrelationships. This requires a holistic and comprehensive view as well as a willingness to challenge assumptions and preconceptions about how things work.

To design an organization there are three topics from Systems Thinking to benefit from.

1st: Chronic problems result from system structure

In organzations, systems structure includes how people make decisions to take actions. The recurring problems we observe are generated by the system’s structure. That is the complex interactions of people driven by the organization’s roles, responsibilities, division of work and measures of success. We get deeper insights into this structure using Causal Loop Diagrams (CLD) to get insights into the complex interactions. 

Below is an example CLD showing the sales-development dynamics described above.

Figure 2. A Sales-Development dynamic

This CLD describes how the elements of the system interact and can be called the system structure

The System Structure Generates The Observed Behavior

The system structure shapes the sustained patterns of behaviour in companies. They contribute a lot to what we call a “culture.” Behaviour that is consistently demonstrated three times or more is called a pattern. Separate, unrelated incidents are called events. The figure below illustrates how experience, mental models, system structures, patterns of behaviour, and events are connected in a model called the iceberg of systems thinking.

Figure 3. Iceberg of systems thinking.

Organizational structures are the product of the mental models of their constructors—that is to say, of the designers of the organizations. They reflect what those designers believe about how the world works. 

Co-create an understanding about the structure with the people involved; this promotes ownership and a feeling of responsibility for the current state. Then based on a more holistic understanding, generate improvements.

2nd: The System cannot be divided into separate parts

Each organization unit has a purpose or function within the larger organization. For example, the programming skill in a software development team is an essential part, without that skill, the team could not fulfil its purpose of delivering a working product increment. A database component is an essential part of a software system if without it the system can no longer achieve its purpose of offering features to its users. A team is an essential part of a product group if the product group cannot fulfil its purpose without that team and so on.

A system is a whole that cannot be divided into independent parts without the loss of its essential properties or functions.

—Russel Ackoff

From an organisational design perspective, we define the purpose of a product group, usually a Value Proposition or Mission statement. Then identify all essential teams required to fulfil that purpose and group them into a product group. Once all the parts are identified we then begin the design of the whole group by improving the teams and their interactions only if it also improves the whole.

3rd: The performance of a System depends on how the parts interact

The performance of a system depends on how the parts are tuned, not on how they perform separately. The same applies to the units in your organization.

Below you can see a Value Stream map (from a financial company) that shows the time it took from the creation of a Request For Change (RFC) on May 10, to its delivery into production on October 15. The map also shows that each individual activity was done very efficiently by a separate team such as Analysis and Design, Develop, and Test.

Although each of these teams was efficient locally, the performance of the larger group was poor. Or as Ackoff states

When the performances of the parts of a system, considered separately, are improved, the performance of the whole may not be (and usually is not) improved.

—R. Ackoff

Therefore, when designing your organization consider the three Rules

Rule One: If you optimize a system, you will sub-optimize one or more components.
Rule Two: If you optimize the components of a system, you will sub-optimize the system.
Rule Three: The components of a system form subgroups that obey Rules One and Two.

4th: The System Boundaries Define What You Optimize

Another important aspect of Systems Thinking for organization design is the recognition of boundaries. An organization’s boundaries define the extent of the system and distinguish it from the environment. By recognizing the boundaries, organizations can better understand the relationships between the organization and its environment, including customers, suppliers, and regulators.

Management Implications

We need all the activities in the Value Stream and we need all people with the skills required to perform the activities. We move from local to global optimization of a product group and optimize for adaptability.

In conclusion

Systems Thinking is one of the key concepts required for successful agile organization design. It provides a valuable approach to organization design that can help organizations better understand the interrelationships between different elements within the system. By recognizing feedback loops and boundaries, organizations can design systems that are more efficient, effective, and resilient.

Want to learn more about this topic?

Please visit creatingagileorganizations.com

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