Systems Thinking THE Managerial Competence of the Future

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Systems Thinking THE Managerial Competence of
the Future?
Ao. Univ. Prof. Dr. Günther Ossimitz University
of Klagenfurt, Austria

• 1st Nordic Conference on Decision Support
• Technikzentrum Lübeck
• Oct. 29th 2003
• Download this presentation at www.guenther.ossimit
  z.at

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Motto
Rowing harder does not help if the boat is
headed in the wrong direction. (Keinichi Omahe
Borderless World)
I dont know where to go, but I will be faster
there (Helmut Qualtinger The Crazy Guy on his
Motorbike)
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Prologue A Systems Tale

• New CEO of noodle-producer discovers Too much
  spaghetti on stock!
• CEO calls Marketing Director Make your Job!
• Marketing Director creates a big campaign Take
  two, pay one.
• Campaign extremely successful 3 months later
  store is almost empty.
• CEO to Marketing Director Well done!
• At the same time Production Accountant reports
  to Production Director Our sales increased
  dramatically!
• The forecast says that in six months our sales
  will have doubled from 200 tons to 400 tons per
  month! We have to increase production
  dramatically to fulfill the increased demand!
• After seeing the figures the Production Director
  is shocked We are already running two shifts.
  Now we have to introduce a night-shift, too...

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How did the Production Director react?

• He recognized the considerable gap between sales
  and production.
• He concluded that due to the forecast this gap
  apparently will become even bigger.
• He decided to expand capacities dramatically by
  introducing a third (night) shift. All holidays
  had been cancelled and new personnel was
  recruited immediately.
• He was absolutely determined to increase
  production by one-third within six weeks.

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What actually happened with Spaghetti Sales?

• Customers ate as much spaghetti as usual.
• The extra spaghetti packs bought at the 2 for 1
  campaign were stored at home in their kitchens
  and pantries.
• Thus after the Get 2 for 1 campaign spaghetti
  sales actually decreased dramatically below the
  200 tons p.m. average.
• The non-systemic forecast led the production
  completely into the wrong direction. At the end
  of June the stock was even higher than before the
  2 for 1 campaign.

PS In June the CEO fired the Marketing Director
who apparently had completely neglected his
duties in the months after the great 2 for 1
campaign.
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The very Beginning of Systems Thinking
An early record of Systems Thinking in Gen 3
Adam Eve in the Garden Eden, just having tasted
from the Tree of Knowledge.

• God asked Adam Did you eat from the tree I
  forbid?
• Adam Not I! That wife you gave me told me...
• God asked Eve What did you do?
• Eve Not me! The snake....

Adam and Eve invented one of the most powerful
and disastrous systems principles Shifting the
Burden.
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Shifting the Burden

• Systems Archetype, coined by Peter Senge
• A quick and dirty solution is applied for a
  short-term benefit, avoiding a painful (but
  necessary) fundamental solution
• Aspirin against tooth-ache instead of consulting
  a dentist
• Debt Get the benefit now, pay later
• Spaghetti Production story with several
  instances of SdB
• Pyramid Games
• Pay me 1.000,- and I give you the right to look
  for 3 people who
• pay you 1,000,- each for the same right to look
  for 3 other people each ... So yours (and their)
  net gain will be
• 2.000,- each and all will be happy... ???

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Shifting the Burden lethally Scylla and
Charybdis

• Episode from Homers Odysse Scylla is a
  6-headed Monster which required from each passing
  ship a man for each head. Clever captains who
  avoided Scylla little later inevitably run into
  Charybdis, a downward whirl swallowing the whole
  ship and all men.
• Systems Principle Sometimes painful (but
  limited) sacrifices are necessary in time to
  avoid a total disaster later.

Who avoids Scylla has no problems in the short
term but will surely be destroyed by Charybdis
in the long term.
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Systems Thinking Approaches - Overview
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My Definition of Systems Thinking
Systems Thinking has four interrelated dimensions

• Dynamical Dimension - Thinking in dynamical
  processes over time beyond snapshot-thinking
  understanding stocks vs. flows, delays,
  oscillations...
• Model Dimension - Thinking in Models /Awareness
  of Systems mental models, modeling assumptions,
  model-reality qualitative vs. quantitative
  models
• Feedback Dimension - Thinking in loops and
  networks interrelated structures, indirect
  effects, feedback loops, networks of
  interrelations
• Pragmatical Dimension - Steering of Systems
  finding the "leverage point", counterintuitive
  behavior, proper intensity and timing of actions.
  Dealing with conflicts and impossible
  situations.

This Definition integrates different views of
Systems Thinking!
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Mental Models What does this Photo show?

• A Drug Flask with design of 1900s
• The Bayer-Cross-Logo on top
• The Text 25 Original Tabletten BAYER
  enthaltend jede 0.0025g Heroin. hydrochlor.
  Farbenfabriken vorm. Friedr. Bayer Co. Leverkusen.

What today is considered a dangerous illegal
drug, was invented by Bayer and one of their
best selling medicaments!
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The History of Heroin

• Invented on Aug 11th 1897 by Felix Hoffmann at
  Bayer in Leverkusen.
• Aim a non-addictive substitute for Opiates
  (anti-pain-drugs).
• Heroin became one of the best selling products of
  Bayer Tons of Heroin were prescribed for an
  amazing variety of diagnoses.
• Taken orally no side effects and no addictive
  potential
• Misuse started in the 1920ies in the USA by
  injecting high doses of Heroin intravascular.
• In the 1930ies Bayer silently withdrew from
  Heroin-production.
• Heroin is still used in GB as one of the best
  oral anti-pain-drugs.
• Today Bayer produces Methadon as a substitute for
  Heroin-addicts.

Only 11 days after having invented Heroin the
same Felix Hoffmann synthesized for the first
time Acetylsalicylacid Aspirin. It became
popular only after the decline of Heroin.
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Dynamical Thinking Discerning stocks and flows
Arrivals and Departures in a Hotel Dec 18 - Jan
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Arr Dep
When was the number of Hotel guests a maximum?
Give your answer just by a quick glimpse at the
diagram without any tedious calculations!
Intersection Dec 27-Dec 28
Correct lt 20
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Dynamical Thinking The Disappearing Multiplier
Gross National Income Y
Y CI
Households
Production
s marginal
Savings quota
ca. 0,1 - 0,2
I
c marginal
C Y - S
consumption quota
cY
S sY
ca. 0,8 - 0,9
s1-c
Investments I
Savings S
Consumer Expenses C
Equilibrium Y CI C Y-S ? I S
Multiplier effect We
I and Y in Equilibrium (Yeq)
increase I by a. Then Ygl
I S und S sY ?Yeq 1/sI
increases by 1/s a
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Basic Keynesian Economy Example
Gross National Income Y
Y CI
Households
Production
s marginal
savings quota
ca. 0,1 - 0,2
I
c marginale
C Y - S
consum quote
cY
S sY
ca. 0,8 - 0,9
s1-c
Investments I
Savings S
Consumer Expenses C
Equilibrium Y CI C Y-S gt I S
Multiplier Effect We
I and Y in Equilibrium (Yeq)
increase I by a. Then
I S und S sY gtYeq 1/sI
Yeq increases 1/s a

• Y 1000 s0,1 ? S 100, C 900 ? Equilibrium
  at I 100
• I will be increased by 10 up to 110
• New Equilibrium at Y1100, S110, C990
• Multiplier effect an Increase of I by 10
  increases Yeq by 1010100!

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The Multiplier Effect in practical Politics

• Key question Must the higher (additional)
  investment be made only once or permanently every
  period (month)?
• Background in a statical model this question
  does not even appear, because the model contains
  no dynamics over time.
• A Dynamical Model can easily made with Excel!
• The result of the dynamical modelling is
  shocking The higher investment must be done
  permanently each month in order to approach the
  higher level of Equilibrium after about 3 years!

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Systemic Escalations A Couple in Trouble (Paul
Watzlawick)
HE "I go to the pub, because you are always
complaining!"SHE "Im just complaining, because
you always leave me alone!
Both sides try to solve the problem (which is
seen in the other person!)
Systemic Structure Escalating Feedback Loop!
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The Couple in Trouble Behind the Scenes

• The systemic view reveals the escalation feedback
  loop.
• More of the same or When the solution is
  the problem
• The systemic solutions are exactly the opposite
  of the non-systemic solutions
• he stays home (ignoring her quarreling) or
• she stops quarrelling although he is going to the
  pub.
• The Couple in Trouble is a prototype of an
  Aporetic Conflict
• two contradicting positions
• BOTH are true or legitimate
• Both depend on each other one cannot exist wo.
  the other
• Aporetic Conflicts contradict the laws of Logic!
• Apories cannot be solved by means of a Hierachy!

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How can we learn Systems Thinking?

• The first step is Awareness of Systems
  Principles!
• Systems Thinking needs systemic denotations,
  models and tools! (CLDs, Stock-Flow-Diagrams,
  simulation models...)
• Quantitative Systems Modelling expands Systems
  Thinking capabilities drastically!
• Practical Systems Management very often has to
  deal with aporetic situations, which are
  logically impossible and cannot be solved by
  delegation in a Hierarchy!

Eating the fruit from the Tree of Knowledge is
not enough! Essential for successful Systems
Thinking is Metanoia - the willingness to shift
fundamentals of our thinking radically!
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Further Reading and Information

• Peter Senge The Fifth Discipline (dt. Die
  fünfte Disziplin)
• Dietrich Dörner Die Logik des Misslingens (The
  Logic of Failure)
• Michael De Ridder Heroin. Vom Medikament zur
  illegalen Droge.
• Gerhard Schwarz Konfliktmanagement.
• For more Systems Papers and Materials visit my
  website at www.guenther.ossimitz.at or mail me at
  guenther_at_ossimitz.at

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Thank you very much!

• Any comments and questions are welcome!

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Thinking in Models Heroin Market 1
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Price Elasticity of Heroin
10 kg Heroin available 50.000 /kg 0.5 Mio
Revenue
9 kg Heroin available 100.000 /kg 0.9 Mio
Revenue !
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Thinking in Models Heroin Market 2
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Lessons from the Heroin Models

• Causal Loop Diagrams (CLDs) are useful tools!
• CLDs help to discuss a situation. Different
  viewpoints can be clarified and checked more
  easily.
• The same situation can be modeled in different
  ways.
• CLDs allow a reflection of model assumptions.
• Small differences in a model might have
  dramatical consequences.
• What appears to be the solution at first sight,
  might (via feedback) make the problem even more
  severe!

Proper tools for systemic descriptions and
modeling (e.g. CLDs) are essential for systems
thinking abilities!