In addition, converting to ABC can be quite intrusive. Tracking activity-based costs requires a thorough understanding of the processes that go into making each car. Thus, setting up an ABC method means interviewing and surveying people throughout a plant to find out what work they do and how they do it. Because of the challenges and threats posed by ABC, it has experienced a 70% failure rate in companies across the U.S. At Chrysler, our finance staff knew that in order to make ABC work, we needed to do more than just communicate its nuts-and-bolts; we had to establish a process for handling the changes in assumptions and operations that the conversion required.

Early Warning Signs: Resistance from Within

We vastly underestimated the potential resistance to ABC throughout the company. The finance people who joined the ABC team thought they were embarking on a leading-edge project, but as the resistance to ABC compounded throughout the company, they began to question their career move. Stress and fear of failure ran high among team members, and some of us considered recommending that management abandon the project.

About that time, we started working with Fred Kofman at the MIT Center for Organizational Learning. Because Fred’s background was in accounting, we thought he might be able to help us identify the roots of the resistance. After talking to people throughout the company, Fred concluded that it wasn’t the plant managers’ resistance that was hindering the ABC effort — it was actually the finance team’s way of working with them. We were asking people to think in dramatically different ways about how they ran their business, but how willing were we to consider new ways of doing our work?

We realized, with Fred’s help, that large-scale change such as the kind we were proposing had to begin with each of us on the finance team. We needed to model new ways of working together and thinking about change if we were to expect the same of others. By practicing the tools and disciplines of organizational learning, we hoped not only to improve our ability to function as a team, but also to enhance our effectiveness in implementing ABC throughout the company.

The Tools of Organizational Learning

Since many of the ABC team members were finance MBAs who were now spending most of their time serving as teachers and coaches, we knew they needed support and practice in learning new skills. With Fred’s help, we designed several workshops on organizational learning to develop our skills in areas such as systems thinking, effective conversations, dialogue, and stress management.

Each two- to three-day workshop focused on specific tools or techniques of organizational learning. We asked people to come to the sessions prepared with actual case studies. For example, if several people had just experienced a difficult conversation or meeting, the group might focus on improving their conversational skills (suspending assumptions, using the “Left-Hand Column” exercise, balancing inquiry and advocacy, etc.). If we felt that people needed a stronger grounding in how to think in terms of interconnections and unintended consequences, we might focus on the tools of systems thinking. In addition to these focused work sessions, we held seminars every few months on stress management, to help people handle the demands being placed on them. This included teaching them reflection tools such as journaling and meditation.

We also worked extensively on the disciplines of personal mastery and dialogue to build our internal team. We held some Outward Bound-type sessions and created practice fields for role-playing tough conversations. For example, if I were anticipating a difficult conversation with a plant manager, and I wanted to practice that dialogue with a colleague, we would run through the scenario with one of us first playing the part of the plant manager. Then we’d switch. Role-playing let us practice what we wanted to say in a non-threatening setting, and helped us appreciate both sides of the issue.

The Implementation Process

After spending some time developing our own skills, we began using the tools of organizational learning to redesign how we implemented ABC in the company. In partnership with our external consultants (who also received organizational learning training), we reevaluated how we were engaging our “clients” in launching our projects.

Traditionally, we would arrive at a plant, sit down with the plant manager, and say, “We know you’re really busy — your operations are running seven days a week, twenty-four hours a day — so we don’t want to bother you. We’ll just go ahead and change your cost and reporting systems for you, and here’s how we’ll do it.”

Six months later, however, we might discover that the plant manager didn’t understand the leadership role he or she had to play in supporting the change, didn’t feel committed to the project, and didn’t understand how to use the new information—all of which led to problems in applying ABC throughout the plant. We knew we needed to change our approach, but we didn’t think the plant managers would commit to the time we needed up front. Our mental model was, “They’re too busy, they’re not going to be interested, let’s not even ask.”

So we practiced making requests properly. We learned how to sit down with the plant managers and say, “Listen, if we’re going to do this right, we need three full days of your time and your plant management team’s time.” This type of request was unheard of — plant management teams never went off site for one day, let alone three. But after practicing the conversation, we went out and asked, and much to our surprise, all of the teams agreed to give us the time we needed.

“Flying” ABC

Once we had tackled the initial engagement process, we turned to improving how we communicated the benefits of ABC. Rather than use a traditional overhead slide presentation to “convince” the managers of the need for an activity-based costing system, we developed a management “flight simulator.” With this tool, plant managers could experience for themselves the operational consequences of the old finance system versus the ABC approach. Much to their surprise, the managers discovered that, because of the way overhead costs are allocated in the different cost systems, the old approach might lead them to continue investing in unprofitable product lines, or to underinvest in profitable ones.

The simulator was also a great way to introduce plant managers to the concept of systems thinking. Moreover, it encouraged a new way of learning, by getting people engaged in an interactive tool for understanding the advantages of ABC. In some cases, we went one step further and created a simulated microworld of a portion of their plant. This involved process mapping and costing a key operation to teach them about ABC using their data, not a text-book case or another Chrysler plant. Providing relevant information worked well in breaking down defensive posturing. So although the creation of individual microworlds was time consuming, the investment paid off.

In order to support the ongoing work of ABC, we created several additional seminars that were scheduled throughout the conversion process. For example, the “midstream” seminar, which was timed to coincide with the release of the first ABC-based reports, addressed the fear and anxiety people might feel when deluged with new information. At this point, we emphasized that the objective was to provide measurement for learning (as part of a Plan-Do-Check-Act process), versus measurement for reporting.

Finally, a transition seminar was held at the end of the project to deal with issues around ongoing commitment. This session was particularly valuable because in many cases of ABC implementation failures, we found that the breakdown occurred not because someone committed to an action and then didn’t follow through, but because the “conditions of satisfaction” for the request had not been clearly articulated and agreed upon up front.

In none of these seminars did we focus explicitly on “teaching people about organizational learning.” Instead, we simply used the tools of organizational learning as part of our everyday activities. For example, at the start of a workshop or meeting we would have a “check-in,” where we would go around the room and ask everyone to say what they are bringing with them to this meeting (see “Check-In, Check-Out: A Tool for ‘Real’ Conversations,” May 1994). Many people had never taken part in a check-in, so it signaled a very different way of acting with people. It is worth noting that we did not use the word “check-in- to describe this process, and in general we learned not to use organizational learning jargon. In our experience, the use of such terms actually increased resistance, and was unnecessary.

Management Involvement and Commitment

A critical success factor for this project was the active involvement of senior management and their role as a support network. Bob Lutz, the president of Chrysler, was a major spokesperson for the effort. He also created an environment that enabled the ABC team to productively share our concerns and beliefs. For example, at one point there was a very frank conversation about the need to slow down the project in order to allow time for the cultural changes that were necessary.

Jim Donlon, the corporate controller, and Gary Valade, the CFO, were actively involved in both the technical and cultural side of this effort. Their contributions included everything from persistently using the ABC approach in a variety of corporate decisions to learning and practicing many of the tools of organizational learning.

From Failure to Success

As a result of our work in organizational learning and team building, there was a dramatic change in the acceptance of ABC throughout Chrysler. Among the finance team, the difference could almost he felt in the shift in energy and stress levels. Pushing people around and trying to force change on them is an exhausting process, whereas listening to people and working with them around change is energizing. After some early successes, in which ABC data was used for cost reductions or investment proposals, plant managers began seeking us out to help them implement the new system.

Over time, people started to notice that the ABC group’s failures seemed to be turning into successes, and our work gained wider attention throughout Chrysler. Members of the ABC team appeared more relaxed than before, and they were no longer trying to tunnel their way out of the department. Outside people even expressed interest in joining the group, and their enthusiasm generated further excitement. As people noticed these changes, they began asking if they could attend our seminars. Based on the acceptance of ABC at Chrysler, we are now redesigning our financial systems to fully embed ABC principles throughout the costing systems.

The last thing we learned from ABC is that the rate of organizational change is limited by the rate of personal change — not by the rate at which we can introduce new technology.

Eventually, Chrysler decided that it would sponsor its own internal five-day Core Competency Course (based on the course offered by the MIT Center for Organizational Learning). To date, more than 600 people have attended the program, and many have begun applying the tools to their everyday work. An organizational learning approach is now being used in other large-scale change initiatives at Chrysler, including manufacturing and engineering.

Lessons Learned

In our experience with ABC. We learned that organizational transformation starts with personal transformation. We had to stop focusing solely on why the system is so dysfunctional (“What’s wrong? Who goofed up?”) and begin looking at how we each contribute to that dysfunction.

We also learned that change agents require a support network. Before the ABC initiative, we would typically take some bright person from a leading university, put that person in a plant and say, “OK, go ahead and make things different.” After about six months, that person would burn out because there would be nobody to help, to offer support, or to share experiences. It was just the individual against the system.

We found that, in addition to providing them with a support network, the change agents themselves can benefit from improving the way they make requests, offers, and promises. This helps create an environment in which people can feel more comfortable asking for help or offering assistance.

The last thing we learned from ABC, a lesson that is hard to swallow, is that the rate of organizational change is limited by the rate of personal change — not by the rate at which we can introduce new technology. Putting new information systems on the floor, incorporating a new technology into a plant, or designing a new product is a fairly straightforward process. It is how fast you can transform people that will govern how fast you can change the system in which they are operating.

The ABC initiative has been a five-year journey for us. One thing that we’ve all come to realize is that patience is essential when you’re facing large-scale change. It took us decades to form the mental models we have today, and we can’t expect them to change in one four-hour class. This work is really about deep-seated change, and that sort of effort takes time.

Dave Meador is manager of financial and performance measures at Chrysler Corporation, which involves redesigning many of Chrysler’s financial systems and implementing new performance measures. He is Chrysler’s liaison officer to the MIT Center for Organizational Learning.

Editorial support for this article was provided by Colleen Lannon.

The post ABC: Initiating Large-Scale Change at Chrysler appeared first on The Systems Thinker.

With a total of 300,000 employees, Ford operates in 50 countries around the world. It sells a huge array of products, and offers an equally widespread range of services — from financing to distributing and dealer support.

VENTURING INTO THE BADLANDS

When system and social complexity are high, the organization enters the realm of “the Badlands.”

Like any large organization, it’s also peopled by individuals who come from all walks of life — and who have the different outlooks to prove it. Engineers, accountants, human-resource folks — they all have unique backgrounds and view their work through unique perspectives. Add Ford’s various stakeholders to the mix, and you’ve got even more complexity. There are media stakeholders, shareholders, customers, the families of employees — all of them with different expectations and hopes for the company.

System and Social Complexity: “The Badlands”

Now let’s look even more deeply inside Ford to see what complexity really consists of. If you think about it, the complexity that Ford and other large organizations grapple with comes in two “flavors”: system complexity and social complexity. System complexity derives from the infrastructure of the company — the business model it uses, the way the company organizes its various functions and processes, the selection of products and services it offers. Social complexity comes from the different outlooks of the many people associated with Ford — workers, customers, families, and other stakeholders from every single country and culture that Ford operates in.

Why is it important to distinguish between these two kinds of complexity? The reason is that, if we put them on a basic graph, we get a disturbing picture of the kinds of problems that complexity can cause for an organization (see “Venturing into the Badlands”). We can think of these problems as falling into four categories:

“Tame” Problems. If an organization has low system and social complexity — for example, a mom-and-pop fruit market in a small Midwestern town — it experiences what we can think of as “tame” problems, such as figuring out when to order more inventory.

“Messy” Problems. If a company has low social complexity but high system complexity, it encounters “messy” problems. A good illustration might be the highly competitive network of tool-and-die shops in Michigan. These shops deal with intricate, precisely gauged devices that have to be delivered quickly. However, the workforce consists almost entirely of guys, all of whom root for the Detroit Lions football team — so there’s little social tension.

“Wicked” Problems. If a company has high social complexity but low system complexity, it suffers “wicked” problems. For instance, a newspaper publisher works in a relatively simple system, with clear goals and one product. However, the place is probably staffed with highly creative, culturally diverse employees — with all the accompanying differences in viewpoint and values.

The Winner: “Wicked messes,” or “The Badlands.” When an organization has high system and social complexity — like Ford and other large, globalized companies have — it enters “the Badlands.” Singer-songwriter Bruce Springsteen graphically captured that unique region in South Dakota characterized by dangerous temperature swings, ravenous carnivores, and uncertain survival in his song “Badlands.” But the area and the song also represent optimism and possibilities. More vegetation and wildlife inhabit the Badlands than anyplace else in the United States, and Springsteen’s voice and lyrics offer a sense of hope despite the song’s painful and angry chords.

What’s So Bad About the Badlands?

A company that’s operating in the Badlands faces a highly challenging brand of problems. The complexity is so extreme, and the number of interconnections among the various parts of the system so numerous, that the organization can barely control anything. Solutions take time, patience, and profound empathy on the part of everyone involved.

In Ford’s case, a number of especially daunting challenges have arisen recently. For one thing, the Firestone tires tragedy has left the entire Ford community reeling. Ford faces an immense struggle to make sure this kind of fiasco never happens again. The bonds of trust between company and supplier, and between company and customer, will take a long time to rebuild. In addition, Ford and other automotive manufacturers have come under fire not only for safety issues but also for environmental and human-rights concerns.

Clearly, Ford’s business environment keeps getting tougher. The company is held accountable for parts it buys from suppliers and for labor practices in the various parts of the world where it does business. It’s also accountable for resolving baffling patterns — for example, the demand for

All of these challenges come from a single error in thinking: the assumption that human beings can control a complex, living system like a large organization.

SUVs is rising, along with cries for environmentally friendly vehicles. The majority of Ford’s profits come from sales of SUVs; how will the company reconcile these conflicting demands? Ford’s newly launched initiative — to not only offer excellent products and services but to also make the world a better place through environmentally and socially responsible manufacturing — will probably be its toughest effort ever.

But here’s where the big lesson comes in. All of these challenges come from a single error in thinking: the assumption that human beings can control a complex, living system like a large organization. Systems thinker Meg Wheatley compares the complexity of large companies to that of the world. The world, she points out, existed for billions of years before we humans came along, but we have the nerve to think that it needs us to control it! Likewise, what makes us think that we can control a big, complex organization?

Yet attempt to control we do — often with disastrous results.

Our All-Too-Common Controls . . .

We human beings try to control the complexity of our work lives through lots of different means:

System Fixes. When we attempt to manage system complexity, we haul out a jumble of established tools and processes that seem to have worked for companies in the past. For example, we use something we blithely call “strategic planning.” Our assumption is simple: If we just write down the strategy we want to follow, and plan accordingly, everything will turn out the way we want. We even call in consultants to help us clarify our strategy — and pay them big bucks for it. The problem is that this approach to planning has long outlived its usefulness. The world has become a much more complicated place than it was back when organizations like General Motors and the MIT Sloan School of Management first devised this approach to strategy.

We also use financial analysis and reporting models that were probably invented as far back as the 1950s. These models don’t take into account all the real costs associated with doing business — such as social and environmental impacts. Nor do they recognize the value of “soft” assets, such as employee morale and commitment.

In addition, we all keep throwing the phrase “business case” around — “What’s the business case for that new HR program you want to launch?” “What’s the business case for that product modification?” In other words, what returns can we expect from a proposed change of any kind? Again, this focus on returns ignores the bigger picture: the long-term costs and benefits of the change.

Finally, we try to manage system complexity by making things as simple as possible through standardization — no matter how complicated the business is. Standardization is appropriate at times. For example, the Toyota Camry, Ford’s number-one competitor in that class of car, has just seven kinds of fuel pump applications. The Ford Taurus has more than 40! You can imagine how much simpler and cheaper it is to manufacture, sell, and service the Camry pump. But when we carry our fondness for standardization into areas of strategy — unthinkingly accepting methods and models that worked best during a simpler age — we run into trouble.

Social Fixes. Our attempts to manage social complexity get even more prickly. In many large companies, the human-resources department engineers all such efforts. HR of course deals with personnel planning, education and training, labor relations, and so forth. But in numerous companies, it spearheads change programs as well — whether to address work-life balance, professional development, conflict and communications management, or other social workplace issues. Yet as we’ll see, this realm of complexity is probably even more difficult to control than systemic complexity is.

. . . and Their Confounding Consequences

Each of the above “fixes” might gain us some positive results: We have a strategic plan to work with; we have some way of measuring certain aspects of our business; we manage to get a few employees thinking differently about important social issues. However, these improvements often prove only incremental. More important, these fixes also have unintended consequences — many of them profound enough to eclipse any gains they may have earned us.

The Price of System Fixes. As one cost of trying to control system complexity, we end up “micromanaging the metrics,” mainly because it’s the only thing we can do. This micromanaging in turn creates conflicts of interests. For example, when Ford decided to redesign one of its 40 fuel pumps to make it cheaper to build, it unwittingly pitted employees from different functions against each other. Engineering people felt pressured to reduce the design cost of the part, manufacturing staff felt compelled to shave off labor and overhead costs, and the purchasing department felt driven to find cheaper suppliers. Caught up in the crosscurrents of these conflicting objectives, none of these competing parties wanted to approve the change plan unless they got credit for its success. As you can imagine, the plan languished in people’s in-boxes as the various parties jockeyed for position as “the winner.”

Micromanaging the metrics can also create a “Tragedy of the Commons” situation — that archetypal dilemma in which all the parties in a system try to maximize their own gains, only to ruin things for everyone. For instance, at Ford (and probably at many other large companies), there’s only so much money available to support a new product or service idea. People know this, so when they build their annual budgets, they ask for the money they need for the new ideas — plus another 10 percent as a cushion (because they know the budget office would never give them what they originally asked for!). At the end of the year, everyone’s out of funds because they beefed up their budgets too much. And great, innovative ideas end up going unfunded.

The Price of Social Fixes. The biggest consequence of social fixes is probably a “Shifting the Burden” archetypal situation. Upper management, along with HR, tries to address a problem by applying a short-term, “bandage” solution rather than a longer-term, fundamental solution. The side effect of that bandage solution only makes the workforce dependent on management, thus preventing the organization from learning how to identify and implement a fundamental solution.

What does this look like in action? Usually, it takes the form of upper management’s decision to “roll out” a change initiative to address a problem. For instance, employees might be complaining about something — work-life tensions, conflicts over cultural differences, and so forth. Rather than letting people take responsibility for addressing their problems — that is, get involved in coming up with a shared solution — management force-feeds the company a new program (B1 in “Shifting the Burden to Management”). This might reduce complaints for a time, and managers might even capture a few hearts and minds. But these gains won’t stick. Worse, this approach makes employees passive, as they come to depend more and more on management to solve their problems and “take care of them.” The more dependent they become, the less able they are to feel a sense of responsibility and get involved in grappling with their problems (R3 in the diagram).

This “sheep-dip” approach to change — standardized for the masses — completely ignores employees’ true potential for making their own decisions and managing their own issues. For example, consider the difference between a company that legislates rigid work hours and one that trusts its employees to pull an all-nighter when the work demands it—and to head out to spend time with their kids

on a Friday afternoon because the work is in good shape. People can’t learn how to make these kinds of judgments wisely for themselves if their employer treats them like children.

“Sheep dipping” has another consequence as well: Because it makes employees passive, it discourages the fluid transfer of knowledge that occurs when people feel involved in and responsible for their work. Instead of looking to one another, anticipating needs, and collaborating as a team, employees have their eyes on management, waiting to be taken care of. Knowledge remains trapped in individuals’ minds and in separate functions in the organization, and the firm never leverages its true potential.

From Control to Soul

So, if we can’t control complexity, how do we go to work every day with some semblance of our sanity? Should we just give up hoping that our organizations can navigate skillfully enough through the Badlands to survive the competition and maybe even achieve their vision? What are we to do if we can’t control our work, our employees, and our organization? How can we take our organizations to places they’ve never been — scary, dangerous places, but places that also hold out opportunities for unimagined achievement?

The answer lies in one word: soul. “Soul” is a funny word. It means different things to different people, and for some it has a strong spiritual element. But in the context we’re discussing now — organizational health, values, and change — its meaning has to do with entirely new, radical perspectives on work and life.

To cross the Badlands successfully, all of us — from senior executives to middle managers to individual contributors — need to adopt these “soulful” perspectives:

Understand the system; don’t control it. As we saw above, we can’t manage, manipulate, or avoid problems in our organizations without spawning some unintended — and often undesirable — consequences. Understanding the organizational and social systems we live and work in makes us far more able to work within those systems in a healthy, successful way.

Know the relationships in the system. Understanding a system means grasping the nature of the relationships among its parts — whether those parts are business functions, individuals, external forces acting on the organization, etc. By knowing how the parts all influence each other, we can avoid taking actions that ripple through the system in ways that we never intended.

Strengthen human relationships. Success doesn’t come from dead-on metrics or a seemingly bulletproof business model; it comes from one thing only: strong, positive relationships among human beings. When you really think about it, nothing good in the world happens until people get together, talk, understand one another’s perspectives and assumptions, and work together toward a compelling goal or a vision. Even the most brilliant individual working alone can achieve only so much without connecting and collaborating with other people.

Understand others’ perspectives. This can take guts. People’s mental models — their assumptions about how the world works — derive from a complicated process of having experiences, drawing conclusions from those experiences, and then approaching their lives from those premises. Understanding where another person is “coming from” means being able to set aside our own mental models and earn enough of that other person’s trust so that he or she feels comfortable sharing those unique perspectives.

Determine what we stand for. Why do you work, really? Forget the easy answers — “I want to make money” or “I want to buy a nice house.” What lies beneath those easy answers? Around the world, people work for the same handful of profound reasons: They want their lives to have meaning, they want to create something worthwhile and wonderful, they want to see their families thrive in safe surroundings, they want to contribute to their communities, they want to leave this Earth knowing that they made it better. All these reasons define what we stand for. By clarifying what we stand for — that is, knowing in our souls why we go to work every day — we learn that we all are striving for similar and important things. That realization alone can build community and commitment a lot faster than any “rolled-out” management initiative can.

Determine our trust and our trustworthiness. Strong relationships stem from bonds of trust between people. To trust others, we have to assume the best in them — until and unless they prove themselves otherwise. But equally important, we also need to ask ourselves how trustworthy we are. We must realize that others are looking to us to prove our trustworthiness as well. By carefully and slowly building mutual trust, we create a network of robust relationships that will support us as we move forward together.

Be humble, courageous, and vulnerable. Understanding ourselves and others in ways that strengthen our relationships takes enormous courage — and a major dose of humility. It also takes a willingness to say “I don’t know” at times — something that many companies certainly don’t encourage. And finally, it takes a willingness to make ourselves vulnerable — to explain to others why we think and act the way we do, and why we value the things we value.

Find “soul heroes.” We need to keep an eye out for people whom we sense we can learn from — people who live and embody these soulful perspectives. These individuals can be colleagues, family members, friends, customers, or neighbors. If we find someone like this at work — no matter what their position — we must not be afraid to approach them, to talk with them about these questions of values, trust, and soul.

Tools for Your Badlands Backpack

So, to venture into the Badlands, we need soul — whole new ways of looking at our lives and work. But soul alone won’t get us safely through to the other side. We wouldn’t approach the real Badlands without also bringing along a backpack filled with water, food, first-aid materials, and other tools for survival and comfort. Likewise, we shouldn’t tackle the Badlands of organizational complexity without the proper tools.

These five tools are especially crucial:

Systems Thinking Tools.The field of systems thinking provides some powerful devices for understanding the systems in which we live and work, and for communicating our understanding about those systems to the other people who inhabit them. Causal loop diagrams, like the one in “Shifting the Burden to Management,” let us graphically depict our assumptions about how the system works. When we build such a diagram with others, we especially enrich that understanding, because we pull all our isolated perspectives into one shared picture. From there, we can explore possible ways to work with the system to get the results we want. These diagrams also powerfully demonstrate the folly in trying to manhandle a system: When we draw them, we can better see the long-term, undesirable consequences of our attempts to control the system.

Dialogue. The field of dialogue has grown in recent years to include specific approaches to talking with one other. For example, dialogue emphasizes patience in exploring mutual understanding and in arriving at potential solutions to problems. It also encourages us to suspend our judgments about others during verbal exchanges — that is, to temporarily hold our judgments aside in order to grasp others’ reasons for acting or thinking as they do. Dialogue lets a group tap into its collective intelligence — a powerful way of transferring and leveraging knowledge.

Ladder of Inference. This tool offers a potent way to understand why we think and respond to our world as we do. It helps us see how we construct our mental models from our life experiences — and how those mental models can ossify if we don’t keep testing them to see whether they’re still relevant. In the workplace, we all make decisions, say things, and take actions based on our mental models. By using the Ladder of Inference to examine where those models came from, we can revise them as necessary — and reap much more shared understanding with colleagues. (For information about the Ladder of Inference, see The Fifth Discipline Fieldbook published by Currency/ Doubleday).

Scenario Planning. This field has also grown in recent years. Numerous organizations, notably Royal Dutch/Shell, have used scenario planning to remarkable effect. This tool reflects the fact that we can’t control systems. Scenario planning encourages us to instead imagine a broad array of possible futures for our organization or even our entire industry — and to make the best possible arrangements we can to prepare for and benefit from those potential outcomes. This approach thus acknowledges the complexities inherent in any system; after all, there’s no way to easily determine the many different directions a system’s impact may take.

Managing by Means. New methodologies are emerging that can help us assess the true costs of running our businesses — costs to human society, to the environment, and to the business itself. And costs in the short run as well as the long run. We must grapple with these methodologies if we hope to achieve the only long-term business goal that really makes sense: business that doesn’t destroy the very means on which it depends.

Traditional change management methods build things to stick. They do not build things to last and are thus ineffective because well-intentioned people create the strategy, solution, and problem sets based on a narrow set of assumptions. To create a sustainable organization, we must work to understand the complex system dynamics of the environment and experiment with multidimensional strategies. We must also work to understand diverse social dynamics and allow multiple perspectives and behaviors to emerge. Finally, we must trust ourselves, hold true to our core convictions, and have courage, humility, and soul. In these ways, we can navigate through — and even prosper in — the most desolate and challenging of Badlands.

David Berdish is the corporate governance manager at Ford Motor Company. He is leading the development of sustainable business principles that will integrate the “triple bottom line” of economics, environmental, and societal performance and global human-rights processes. He is also supporting the organizational learning efforts at the renovation of the historic Rouge Assembly site.

The post Learning and Leading Through the Badlands appeared first on The Systems Thinker.

All businesses desire high and stable profitability, period after period for as long as possible. That surely is the goal of most performance improvement programs, including lean initiatives. However, such programs invariably boost profitability for only a while, followed by increasing instability and reduced performance until the cycle repeats and management once again rolls out another improvement program. Again, profitability increases for a while, followed by another disappointing downturn that leads to yet another improvement program. As a consequence of such improvement-initiative cycles, average results over the long term move in the opposite direction to the desired result, despite brief periods of improvement in the short run.

Unintended Consequences of Improvement

I believe this unintended consequence of improvement initiatives occurs because management’s view of what causes business results differs greatly from how the business system itself would naturally produce those results. In virtually all businesses today, and for the past 50 years or more, management actions meant to improve financial performance reflect a mechanistic view of what causes financial results. In that view, financial results are a linear, additive sum of independent contributions from different parts of the business.

In other words, managers believe that reducing an operation’s annual cost by $1 million simply requires them to manipulate parts of the business that generate spending in that amount each year. Because managers assume that all parts of their operations make independent contributions to overall financial performance, like the parts of a machine, they would consider any or all of the following steps to be equally effective: lay off employees whose annual pay equals $1 million; force suppliers to accept reduced prices for their goods or services; outsource employment or contract purchases to less-developed countries. It doesn’t matter what steps are chosen, as long as they eliminate $1 million of annual spending.

Were managers to assume, however, that the financial performance of business operations results from a pattern of relationships among a community of interrelated parts, and is not merely the sum of individual contributions from a collection of independent parts, their approach to reducing cost could be entirely different. In that case, managers might attempt to reduce costs by improving the system of relationships that determines how the business consumes resources to meet customer requirements. This would suggest that they view “improvement” primarily in terms of a system of relationships the human social system that is the business and not simply in terms of an arithmetic sum of separate parts. Viewing current operations through the lens of this vision would enable everyone in the organization to see the direction that change must take to move operations closer to that vision.

However, such thinking has not yet influenced business education and practice. Indeed, the thinking and behavior of almost all managers in today’s business world reflect a worldview grounded in the whole-equals-sum-of-parts and win-lose competitive principles of 19th-century mechanics and 18th-century classical physics, not the systemic, cooperative, and win-win symbiotic principles of 21st-century cosmology and life science. That explains, I believe, why virtually all improvement initiatives, including so-called lean initiatives, inevitably generate long-run financial results that fall far short of what was intended by the initiatives’ designers.

Confusion of Levels

This failure has to do with a “confusion of levels,” a phrase writers often use to describe what the 20-century systems thinker Gregory Bateson called a type of epistemological error. Bateson said that humans in any culture share certain premises about epistemology, that is, “about the nature of knowing and the nature of the universe in which we live and how we know about it” (Gregory Bateson, Steps to an Ecology of Mind, p. 478). Many of these premises, because they work at some levels and under certain circumstances, are misapplied to other levels. Problems occur when this happens.

People in Western cultures have premises for explaining or understanding the world at two main levels, referred to briefly above. At one level, call it the mechanical, all events are explained by the influence of external force or impact on independent objects. At the other level, call it the living, all events are explained by patterns of relationships connecting a world of self-organizing beings. The premises at the first level have been successfully used for nearly two centuries to study mechanical processes and to promote engineering technology. They are the basis for scientific and business education and practice in the Western world today.

But problems have grown increasingly severe from the erroneous application of these premises to human dealings with nature and to social organizations, such as businesses, that embody principles of living systems. For example, viewing reality through the premises of the first level, a management accountant in modern business views a spreadsheet of financial results as the company. Oblivious to premises at the second level, this person fails to see the system of human relationships that produces those financial results as the company. As a consequence, the person promotes policies to “improve financial results” by arbitrarily destroying relationships through layoffs or outsourcing, not by nurturing and reinforcing the features of those relationships that produce robust results. The long-term outcome, predictably, is less than expected.

Lean Practices Versus Toyota Results

In their customary way of doing things in business, managers confuse linear cause-effect connections at the abstract quantitative level of financial results with the non-linear, complex cause-effect connections that naturally exist at the concrete level of relationships among employees, suppliers, customers, owners, and community. Their business training and experience cause managers to believe that linear cause-effect connections at the abstract quantitative level apply everywhere in the world, including the level of real operations. Thus, they proceed to manipulate and control people and things according to the linear principles that apply at the abstract quantitative level.

Therein lies another confusion of levels. Whereas in a mechanical system, one-dimensional quantities can both describe results and enable one to control the linear process that produces those results, in a living system, quantities can only describe results, but cannot explain or enable one to control the multi-dimensional interactions and feedback loops of the process that produces the results. As I discuss in more detail below, this confusion of levels invalidates all management accounting practices in which businesses attempt to use financial quantities to explain and control financial results. Those practices, which are endemic to American management but are not evident at Toyota, are the main reason why lean initiatives fail to have their desired impact on financial performance in American business.

An example of the damaging impact of this confusion is in a case (co-authored with MIT Professor David Cochran) I describe elsewhere that compares the financial (and other quantitative) results in two automobile bumper-making plants (H. Thomas Johnson, “Lean Accounting: To Become Lean, Shed Accounting,” Cost Management, Jan/Feb 2006, pp. 3-17). One is run by an American “Big Three” automaker whose managers continually manipulate separate parts of the plant’s operations and arbitrarily increase output in order to achieve unit cost targets defined by an abstract financial cost equation. The other is run by Toyota, whose managers focus on nurturing systemic relationships in the plant according to a constant vision that has guided all operations in the company for many decades. The case demonstrates that Toyota does not confuse linear cause-effect connections at the abstract level of financial cost equations with the complex cause-effect connections at the concrete operating level of human relationships and that it, in turn, achieves lower costs and higher overall performance.

I believe lean initiatives fail to achieve results like those observed at Toyota because they do not change the underlying mechanistic thinking that has guided management decisions in virtually all American businesses for the past half century or more. Lean initiatives in non-Toyota companies invariably fail to embody Toyota’s unique way of thinking about business and the fundamentally different approach to management. Thus, businesses transplant Toyota practices into a context of alien thinking that overpowers and dilutes their effectiveness. As a consequence, such companies can demonstrate Toyota-style management practices, but not Toyota performance results.

“Going to the Place”

The prevalence of management accounting control systems in American business probably contributes more than any single thing to the confusion of levels that causes managers to believe they can run operations mechanically by chasing financial targets, not by nurturing and improving the underlying system of human relationships from which such results emerge. It is significant, then, to note that Toyota doesn’t use management accounting targets (or “levers”) to control or motivate operations. I argue that this is an important reason why Toyota’s financial performance is unsurpassed in its industry.

People at Toyota place great importance on genchi genbutsu, or “going to the place” where the problem occurs to see it firsthand. They don’t rely on secondhand reports or charts of data to get true understanding of root cause. Instead, they go to the place (gemba) where they can watch, observe, and “ask why five times.” This attitude shows a deep appreciation that results (and problems) ultimately emanate from and are explained by complex processes and concrete relationships.

Managers in a Toyota plant, unlike their counterparts in American organizations, do not refer to accounting documents such as standard cost variance budgets to discuss the state of current operations. Indeed, in 1992, during my first of scores of trips to Toyota’s Georgetown, Kentucky plant, I was told that the Toyota accounting system treats daily plant operations essentially as a “black box” that it does not enter. Accountants of course record everything that goes into the plant and all the products that come out. But within the plant they don’t track the flow between incoming resources and outgoing finished product. Everything one needs to know about the transformation that takes place inside the plant is inherent in the flow of the work itself. Indeed, a key feature of the Toyota Production System is that the work itself provides the information needed to control its state.

Professor Kazuhiro Mishina introduced me to this aspect of the Toyota Production System (TPS) in 1992 when he showed me a high-level “material and information flow map” for the Georgetown plant. He explained that the map is designed to show material flowing from left (raw material) to right (finished autos) and information flowing from right to left. Basically there was only one line going from right to left a line to represent the customers’ orders entering the plant each day and going directly to the body-welding operation. Today this type of map is familiar to anyone who has studied “value-stream mapping.” But Kazuhiro pointed out to me that no lines representing information enter the plant from either the accounting system or the production control system. The work itself provides all the information that in non-Toyota plants customarily comes from computerized material requirements planning (MRP) and standard cost variance reports.

While the value-stream mapping literature does an excellent job of showing how the TPS dispenses with the need for production controls in daily operations, it is silent on how the TPS also dispenses with the need for accounting controls in daily operations. This is an unfortunate lapse, in my opinion, because it has left the door open to the idea that lean manufacturing programs must include lean accounting controls.

In Toyota plants, all information needed to control operations is in the work, simply because all work flows continuously at a balanced rate through virtually every operation, from the beginning to the end of the manufacturing process. The work has been carefully designed so that one can “see” its current state quite literally. Is it on time to meet the day’s orders? If not, how much additional time will be needed? Have defects or other errors occurred along the way? Are components to final assembly being replenished on a timely basis? Has any undue inventory accumulated anywhere? Are problems being identified and addressed according to standard procedures? Such questions, and hundreds more, can be answered every moment in every step of the process throughout the plant. Any “exceptions” that managers might need to address to keep financial results on track are visible real time as the work is being done, not days, weeks, or months later in a report from the accounting department.

The Wrong Question

If traditional management accounting practices are the key problem preventing American businesses from emulating Toyota’s performance, what should companies do? Many proponents of lean accounting suggest that companies should reform management accounting itself by doing things such as activity-based value-stream costing, direct costing, cash-flow accounting, value-add capacity analysis, and more. These proposals should cause a sense of deja vu among those who are old enough to recall the proposals 20 years ago to gain better control over burgeoning overhead costs with activity-based cost (ABC) information. ABC seemed like a good idea at the time, but in retrospect it was a good answer to the wrong question. We see better today, when we understand more fully what Toyota does, that reducing manufacturing overhead costs requires a new way to organize work, not better cost information. The question that proponents of ABC should have been asking was how to organize work to eliminate the causes of overhead activity, not how to trace costs of overhead activities to products in more discriminating ways.

The question most companies ask now is how to control the financial results of business operations, as if financial results are a linear sum of individual contributions from separate parts of the business. Accounting control information seems the logical way to show how those contributions, and changes in those contributions, add up to the organization’s overall financial results. But if we assume that financial results emerge from complex interactions and non-linear feedback loops in the interrelated parts of a natural living system, then attempting to control those results with linear accounting information is not only erroneous, but possibly destructive to the system’s operations in the long run. In this case, the new question is: How does one control, if at all, the financial results that emerge from operations that abide by the principles that govern a natural living system?

Managing by Means

An early answer to this question was provided in the 1930s and 1940s by Walter Shewhart and W. Edwards Deming, both trained in mathematical physics and experienced in using state-of-the-art statistical tools in business and government. One of their lasting contributions was to devise a scientific way to estimate the “control limits” within which a business system’s results would normally fall until one of two steps were taken that altered the limits. One step was to ignore all but abnormal variation in results and work to improve the system itself, thereby narrowing the control limits and improving long-term performance. The other step, a less desirable but more common way of managing, was to try to improve long-term performance by intervening in the system every time results varied from a desired target. The inevitable consequence of the second step, Shewhart and Deming proved, is to widen the system’s control limits and impair its long-term performance.

In essence, Shewhart and Deming likened a well-designed business system to a living system in nature. Its results vary over time, but the range of variation has limits. However, in a human system such as the operations of a business, managers can improve performance by taking steps to reduce that range of variation. The key to performance improvement, then, is to nurture the system that produces results, not to drive the system to achieve targets that fall outside its normal performance limits. In his early work, Deming articulated 14 principles (or points) that defined what he meant by nurturing the system. Those principles included things such as create constancy of purpose, constantly improve systems by reducing variation, cease dependence on inspection, do not base purchases on price alone, do not reward individual performance, institute training, eliminate management by objectives, and more.

This is precisely the approach that Toyota takes to manage its operations. Toyota lives by a set of deep underlying systems principles that I tried to sum up in my own words with the concept “managing by means.” As I outlined it in my book Profit Beyond Measure, the essence of that concept is that satisfactory business results follow from nurturing the company’s system (the “means”), not from manipulating its processes to achieve pre-determined financial results (a mechanistic strategy popularly known as “managing by results”). In other words, nurture the process and satisfactory results will follow.

This sentiment is central to Toyota’s deep-seated belief that one cannot improve financial performance by intervening in the system and forcing operations people to achieve results targets. Instead, they emphasize the importance of defining the properties their operating system should manifest and of having everyone in the organization work assiduously to move the system toward those properties. Toyota people frequently refer to those properties as “True North.” True North in Toyota’s system includes safety, moving work always in a continuous flow, one order at a time on time, with no defects, with all steps adding value, and with the lowest consumption of resources possible. The assumption is that the more that every process in the system manifests the properties of True North, the better will be the company’s long-term performance.

These three approaches to managing operations the Shewhart-Deming approach, managing by means (MBM), and Toyota’s approach all suggest how different it is to nurture the system that produces a company’s financial results than it is to arbitrarily intervene in and wrench the system in an attempt to force it to produce a desired result beyond its current capabilities. The latter strategy is, of course, followed by virtually all large companies in the United States today, especially the large publicly traded companies whose top managers are pressured to deliver results demanded by financial markets and other outside interests. Many of those companies are pursuing lean initiatives in the expectation of achieving performance like Toyota’s. The fact that they will not or cannot forego pressure to drive operations with management accounting “levers of control” makes the likelihood of their realizing such expectations nearly zero.

Accounting Controls or System Principles?

If managers look primarily at financial information to judge the performance of a business, then they are certain to be working in the dark. Financial quantities cannot reveal if a system is improving or not. To assume otherwise is to fall prey to confusion of levels. If a company requires cost information to show the “savings” from “going lean,” it will never get there. When managers look at cost information in order to eliminate unfavorable unit cost variances, they discourage people from continuously removing sources of delay and error. Instead, employees will create workarounds such as rework loops, forks, and inventory to keep work moving (even if it is not continuously flowing). In other words, the demand to justify operational decisions with cost information causes people to forego root-cause problem solving and, instead, to build “cost-effective” workarounds that violate systems principles. Eventually the systems principles are forgotten, and managers spend increasing amounts of time working to improve the efficiency of the workarounds.

No company that talks about improving performance can know what it is doing if its primary window on results is financial information and not natural system principles. No amount of financial manipulation will ever improve long-term results. The dilemma facing all companies that intend to become lean is that they can follow a truly systemic path to lean or they can continue to use management accounting “levers of control.” They can’t do both.

Life-Enhancing, Not Life-Denying, Businesses

Management accounting controls impose a curse on lean management programs; they cause managers to believe that addressing the imperative of growth is compatible with the possibility of systemic well-being. Abstract quantities by themselves can of course grow without limit. However, the universe has never allowed any real, concrete system to grow endlessly. Such attempts inevitably fail.

Nevertheless, all businesses that chase accounting targets for revenue, cost, profit, or return on investment somehow believe they are an exception to this universal pattern. They are deaf to the primordial message being delivered every time their real operations fail to deliver the long-term performance that their abstract equations and their occasionally favorable short-term returns seem to promise. They fail to see that the pursuit of endless growth is incompatible with the long-term survival of the system.

This message applies to the entire human economy as well as to individual businesses. Even if every company in the world were to become as lean as Toyota, the economy in which they operate is not sustainable. Forces drive it to focus on quantitative goals, hence, on extensive growth. Government tax, spending, and monetary policies promote more and more production and consumption, to grow GDP endlessly. Financial markets drive companies, including Toyota, to play in the same game. But an economy that lives on steroids is no more sustainable than any growth-driven organization operating within it. Until they can escape the curse of endless growth, both the economy and all its members are doomed to collapse and die.

Our Earth and its life-sustaining biosystem, as well as all systems in the entire universe from which Earth emerged, reflect the existence of continuously open fields of possibility. The most fundamental and pervasive process in the universe, and especially on our Earth, is the constant emergence of newness out of what went before. Nothing ever constrained the flourishing of possibility in that process until humans introduced the idea of quantitative choice to the system. Quantity automatically limits possibility and emergence to outcomes that can be measured. Quantum physicists have suggested that undisturbed systems in the universe naturally stay in multiple states simultaneously, unless someone intervenes with a measurement device. Then all states collapse, except the one being measured. Perhaps what you measure is what you get. More likely, what you measure is all you get. What you don’t (or can’t) measure is lost.

By using quantitative targets to manage results without regard for the effect our actions have on the underlying system from which the results emerge, we close fields of possibility and limit ourselves to what our measures will produce. In effect, that describes existence inside a machine, not life. Life implies flourishing in fields of continuously renewing possibility. Mechanistic existence suggests a repetitive, homogeneous system running down to death, without hope of renewal or new possibility. Our worship of quantity virtually guarantees that the economy we inhabit today and the businesses within it are life-denying, not life-enhancing.

Businesses, like any living systems, should grow to be what they are supposed to be, not more. Ants grow to be ants, elephants grow to be elephants and humans grow to be humans. Each in its context flourishes in life, in being not in growing, accumulating, or having. Sustainability, as my colleague John Ehrenfeld has said, is the possibility that humans and other life flourish on the Earth forever. Nurturing that possibility is the challenge that companies, citizens, and the communities we inhabit must accept in the name of sustainability. Lean management in the sense of running companies according to living system principles is an important first step in meeting this challenge. Then comes the hard part: conducting our economic activities within the limits of Earth’s regenerative processes. To fail at that will make all the lean initiatives irrelevant. But we can succeed, as long as we choose to live according to the principles of living systems and not according to the imperative of quantitative growth.

© 2006 H. Thomas Johnson. All rights reserved. This article is adapted with the author’s permission from his 2006 working paper that received the 2007 Shingo Prize for Excellence in Manufacturing Research. A later version of that paper appeared as chapter 1 of Lean Accounting: Best Practices for Sustainable Integration, edited by Joe Stenzel (Wiley, 2007).

H. Thomas Johnson is Professor of Business Administration at Portland State University in Portland, Oregon, U. S. A. Direct comments to tomj@sba.pdx.edu.

For Further Reading

Bateson, Gregory. Steps to an Ecology of Mind (Ballantine Books, 1972).

Capra, Fritjof. The Hidden Connections: A Science for Sustainable Living (Doubleday, 2002).

Ehrenfeld, John. Sustainability by Design: A Subversive Strategy forTransforming our Consumer Culture (Yale University Press, 2008)

Johnson, Elaine B. The Dismantling of Public Education and How to Stop It. (Rowman & Littlefield, 2004), Ch. 3.

Johnson, H. Thomas., “Using Performance Measurement to Improve Results: A LifeSystem Perspective,” International Journal of Strategic Cost Management, Vol.1, No. 1 (Summer 1998), 1-6.

Johnson, H. Thomas, and Anders Broms. Profit Beyond Measure: Extraordinary Results through Attention toWork and People (The Free Press, 2000).

Joiner, Brian L., and Marie A. Gaudard. “Variation, Management, and W. Edwards Deming,” Quality Progress (December 1990), 29–37.

Rother, Mike. Toyota Kata (McGraw-Hill, forthcoming in Sept. 2009).

The post A Systemic Path to Lean Management appeared first on The Systems Thinker.

It was a long day of heated discussions with little agreement or progress against an ambitious agenda. Sam asked how I thought it had gone. I recall saying, “It depends on your desired outcome. If success meant getting through the agenda and getting resolution on the issues, you did not meet that objective. If, however, you wanted to get a view of the team dynamics, I believe you had a very successful meeting.” He laughed and said, “What should I do about this situation? I need a team of VPs who can work together to create uniform standards of manufacturing that are necessary for us to achieve our revenue and profitability targets. Can you help me?”

The Team’s Current State

In the meeting I attended, I observed a team that was ill equipped to work in a collaborative and productive manner. Some of the behaviors I saw included:

• An inability to focus on an agenda and make decisions
• A lack of willingness to engage in dialogue
• Poor capacity to listen to one another
• An apparent lack of respect for one another’s ideas
• A tendency to personalize the conversation and get defensive

These observations led to some preliminary hypotheses — that the group lacked trust and the willingness to operate as a team; that they were focused on furthering their individual agendas; and that they would be unsuccessful in creating a standardized manufacturing platform for the company unless they were able to come together and operate with mutual respect, trust, and a willingness to listen to and learn from each other.

In the meeting I attended, I observed a team that was ill equipped to work in a collaborative and productive manner.

During conversations concerning Sam’s 360-review, I had developed a rapport with each member of the team. I leveraged this to have open and honest discussions on what I’d observed during their business meeting. One of them commented, “It was embarrassing to have you witness that meeting. That is so typical of the way we operate. It’s a challenge to get through an agenda with this group.” These one-on-one conversations helped validate my hypotheses around specific concerns and enlisted the executives in Sam’s overall objective — of creating a cohesive team who could work well together in executing an aggressive and critical element of the organization’s strategy.

I also used a team effectiveness questionnaire from Edgar Schein (from Process Consultation: Its Role in Organization Development, Addison-Wesley, 1988, p. 57–58) to get the team to self-assess and have a structured view of their current effectiveness. When I shared the results of this assessment, one of the executives commented, “I had no idea we were so disruptive in the way we operated.”

Based on the assessments, and with Sam’s agreement, my mandate for a 12-month engagement was to create a team that:

• Made sound business decisions in a considered and timely manner
• Had the ability to work together to solve critical production and quality issues
• Engaged in meetings that were productive, energetic, and constructive
• Showed evidence of listening, collaboration, and mutual respect
• Set aside personal agendas and depersonalized the conversation
• Collaborated to develop and implement a world-class manufacturing strategy

The Design of Interventions

I saw this as an amazing opportunity to delve into territory that is typically not explored. I based the design of my interventions on a model of human structural dynamics derived from the work of David Kantor (see “Human Structural Dynamics Model”). This model suggests that human interactions are a function of the social context in which they take place and of what goes on in people’s hearts and minds (Ober, Kantor, Yanowitz, “Creating Business Results Through Team Learning, The Systems Thinker, V6N5, June/July, 1995, pp.1–5). I chose to focus on two aspects of this model—the team or what is described as the face-to-face structure, and the deeper individual structures and how they might influence the team’s interactions, either one-on-one or in the team.

I chose to include individual-level interventions because they cover ground that is typically less acknowledged and yet significantly impacts behavior — what we see at the face-to-face level. It also meshed well with my belief as an OD practitioner that all change starts with individual change, and that our behavior as adults is strongly influenced by our mental models, core beliefs, and stories — many of these arising from experiences in our formative years. I had a sense that if I was able to allow for the surfacing and at some point sharing of deep imagery from each individual, it would help this team coalesce and begin the process of trusting each other.

The Team Interventions

At the team level, the interventions were designed to help develop trust and connection, and start to develop the capacity for listening. The following models, beliefs, and assumptions influenced the choice of interventions:

• A high-performing team is characterized in part by strong personal commitments to the growth and success of each team member (Katzenbach and Smith, The Wisdom of Teams: Creating the High Performance Organization, Harper Business, 1993).
• Appreciation of individual experiences and gifts is a powerful foundation for transformation and allows for creation of powerful outcomes (Cooperrider and Whitney, Appreciative Inquiry, Berrett Koehler, 1999; Elliott, Locating the Energy for Change: An Introduction to Appreciative Inquiry, International Institute for Sustainable Development, 1999).
• The ability to listen deeply allows for connection and a foundation for collaboration and “thinking together” — the essence of dialogue (Isaacs, Dialogue and the Art of Thinking Together, Currency/Doubleday, 1999).
• Dialogue fosters and maintains the high levels of openness and trust that are present in healthy teams.

“Progress Toward Trust and Cohesiveness” demonstrates how the different elements were integrated to guide the team’s progress toward trust and cohesion. In addition to determining the current state, five other building blocks contributed toward creating a team that was able to sustain behavioral changes that enabled an environment of trust, collaboration, and cohesiveness:

Establishing Structural Elements. Sam wanted the team to own and follow basic housekeeping guidelines. This set of interventions was aimed at establishing a process by which the team could focus its discussions and deliberations and make decisions in an effective manner. It involved clarifying roles and responsibilities, delineating decision rights, and setting up operating guidelines between Sam and his team, as well as within the team.

PROGRESS TOWARD TRUST AND COHESIVENESS

The interventions were integrated to guide the team’s progress toward trust and cohesion.

Developing the Capacity for Deep Listening and Dialogue. The more challenging aspects of this engagement were around creating a safe container for the team to have strong dialogue. To achieve this, I introduced the principles and intentions of council to structure the meetings (Zimmerman and Coyle, The Way of Council, Bramble Books, 1996; Baldwin, Calling the Circle: The First and Future Culture, Bantam, 1998). These principles included always being seated in a circle and using a talking piece that the team co-created. The intentions of council are speaking from the heart or being honest and authentic; listening from the heart or being deeply present and attentive when another speaks; being “lean of expression” and learning to be succinct; and allowing for silence as well as spontaneous expression.

To facilitate their interactions within this structure and to help them make the distinctions that would allow them to realize the intentions of council, I introduced the four behaviors of dialogue as described by Bill Isaacs — voicing, listening, respecting, and suspending (see “Developing the Capacity for New Behaviors”). At one level, the intention was to help the team develop a capacity for listening without judgment and reaction, and at another it was aimed at helping them experience how deep listening could result in more powerful outcomes and decisions. Above all, it was aimed at building trust within the team.

DEVELOPING THE CAPACITY FOR NEW BEHAVIORS

The four behaviors of dialogue as described by Bill Isaacs are voicing, listening, respecting, and suspending.

Over the course of my engagement (and subsequently), the team adopted sitting in a circle as part of their meeting protocol. Initially they struggled with the some of the practices of council — in particular with holding a silence. They tended to reach for the talking stick before the person who was speaking had finished. Over time, as they became more comfortable with the practices, the use of the talking stick as a mechanism to allow “one voice at a time” and to help “hold the silence” evolved from a forced behavior to a more natural and comfortable one. Their discussions went from individuals fighting to say their piece to comments that were more indicative of listening and building on what has been said. The reaction to silence went from a rush to fill it to actually asking for a moment of reflection during the course of a conversation. Although there was evidence of progress, it was more of an iterative process than a linear progression. The awareness and reinforcement of dialogic behaviors was one that continued throughout my 12-month engagement with this team and continues to be a core part of the team’s operating model.

Appreciating the Diversity of Skills and Capabilities. While most of Sam’s team had been at this company for many years and had deep roots in the industry, some of the more recent additions were brought in with different industry experience, including experience in creating world-class manufacturing organizations. The input of these individuals was often not considered and valued by their colleagues. As Sam put it, “I hired Joel and Charisse for their expertise in Lean Manufacturing. I am concerned the rest of the team is shutting them out. I suppose I could be more directive by simply telling people we have to rely on their experience, but I don’t want to add to the resistance.”

The team needed to operate in an environment of respect and appreciation for the diversity of style, skills, experiences, and contributions. They also needed to understand how to work effectively with this diversity and leverage the strengths of each other. To create this culture and capacity, I used interventions derived from Appreciative Inquiry, team role preference (Margerison and McCann, “Team Management Profiles: Their Use in Managerial Development,” Journal of Management Development, Vol 4, No 2, pp 34–37, 1985), and individual assessments such as DiSC as building blocks on the foundation of dialogue.

These interventions had the desired impact. For instance, the Appreciative Inquiry exercise used in the first session allowed for a breaking of the ice in the team. The team found many points of connection — shared experiences, interests, hopes, and desires. After that session, some of the sources of tension dissipated, such as the resentment of the role an individual played or the lack of industry experience. In addition, the resistance to being seen as and operating as a team started to fall away as they worked through their stories of positive team experiences.

In using the Team Management Profiles, the team was able to appreciate the different work preferences and styles that were present in the room. It allowed them to identify strategies that would be most effective in interacting with this group of individuals and to value the different roles each member of the team tended to prefer in a team setting. It also gave them a snapshot of what might be missing and how they could develop those roles as a collective.

Becoming an Observer of the Self. As I worked with the team, I felt it was important to facilitate the development of their capacity for diagnosis and action in order to make them self-correcting and self-sustaining after I had transitioned out of the process. I also wanted them to have a greater awareness of how to facilitate a dialogue by understanding the roles they tended to gravitate to in a conversation. I introduced another element of structural dynamics — that of boundary profiles and, more specifically, David Kantor’s “four-player system” (Kantor and Lonstein, “Reframing Team Relationships: How the Principles of ‘Structural Dynamics’ Can Help Teams Come to Terms with Their Dark Side,” The Fifth Discipline Field book, Currency/ Doubleday, 1994).

My intention was to get this team of individuals to see their patterns of interaction. I believed if they were conscious of their operating tendencies, how these impacted their effectiveness, and what roles were being played out in their team interactions, they might be able to shift the roles they played and engage in more productive and effective dialogue. It would help them notice whether their conversations were dialogic in nature or at the level of discussion and debate. At a minimum, it would increase their self-awareness of how they showed up and help them develop a capacity to become observers of their own behavior. To facilitate their learning, I videotaped some of their meetings and had them analyze their interactions afterward.

One of the insights that emerged was the difference in expectations of how the team should operate. For instance, Sam expected his team to be his equal partners in the decisions they made. There were some members who would defer to Sam’s decisions. Another insight came from seeing two members of the team frequently engaging in a move-oppose dynamic and how it stymied the progression of the conversation.

Creating Sustainability of Change. The emphasis of each intervention was to help them not only become familiar with the skills but also to practice and develop a level of mastery with that skill. Each session built on the previous ones. The final intervention was a visual image storytelling process (Reeve, Creating a Catalyst for Change via Collage Inspired Conversations, unpublished Master’s thesis, Fielding Graduate University, 2005) where the team incorporated the various building blocks (i.e., practices of dialogue, appreciation and knowledge of self and other, and observation) to co-create their vision for their team. It required them to collaboratively create the guiding principles and core values of the team, and the behaviors that would govern their interactions going forward, by building on the values and vision of each individual. I chose a visual process to shift the context from the verbal, left-brain activities that this team was facile with to a process that would invite them to activate in a positive way some of the drivers of their behavior — their beliefs, values, and mental models. As the team moved from sharing individual values and beliefs to co-creating a shared set of guiding principles and vision, they exhibited respect for individual ideas and the diversity of opinions. There was a remarkable absence of the heated arguments that had characterized the first meeting I’d attended. In its place was an energy of collaboration and partnership, resulting in the creation of a shared vision that each individual had contributed to, owned, and had personalized through the storytelling process.

The Individual Interventions

While working with the team as an entity, I was also coaching individual members. A core outcome for the coaching sessions was to help the individual become an observer of the self and understand what drove behavior so they were able to choose how to act, rather than acting from a place of habitual tendency. The ultimate goal for the “Human Structural Dynamics Model” is authenticity; insight, mastery, and alignment are intermediate stages that lead to authenticity. In an effort to be pragmatic (and recognizing the journey toward authenticity is a lifelong one), I focused on a realistic goal of building the capacity for insight through self-awareness and inquiry into the underlying causes of behaviors, along with varying degrees of mastery.

Using a subset of the human structural dynamics model as a base, I worked to help each individual become aware of their feelings, mental models, belief systems, and deeper stories that governed their behavior in the team context. Specifically, the intent was to make visible those factors that were invisible or less visible and enable the individual to act in an authentic manner.

As I used this model to guide the individual coaching sessions with each executive, my role evolved in the following manner:

• Help the individual become aware of feelings, mental models, belief systems, and deeper stories
• Create and strengthen their capacity for embracing these deeper structures
• Facilitate their understanding of how these structures impact their behavior and how to recognize the shadow aspects
• Help them develop the ability to reframe and choose the internal structures that influence behavior

Interplay Between Individual and Team Interventions

Having simultaneous interventions at the individual and team levels and playing a dual role as facilitator for the team and as personal coach allowed me to observe shifts that occurred as individuals gained insight into their behavior and changed how they interacted with the team. The team meetings also provided me with direction on how to intervene at the individual level with different executives.

The Results

Over the 12-month period, there were many visible changes at both the team level and with individuals. For instance, the team’s interactions were much less fractious and chaotic. Their discussions resulted in key decisions being made in a timely manner with each individual feeling heard even if their idea was not included. They had greater appreciation and respect for what their colleagues brought to the team, “I had no idea Charisse had such wide-ranging experience. It is quite refreshing to have someone who hasn’t grown up in this industry.”

They were able to appreciate silence and the quality of reflection and insight that came from it, “I realized how much of my time is filled with doing things — meetings, conference calls. I never get time to think. I was actually able to think about and find a solution to this problem.” There was a greater sense of camaraderie and trust among them. In self-assessing their progress on the team effectiveness instrument used at the beginning of the process, on all measures, the team had moved from a “below average” score to an “above average” rating.

When I started my work with the team, I would have described members as exhibiting behaviors characteristic of “breakdown.” Probably one of the more profound changes I saw was their ability to maintain a quality of inquiry. At rare moments, particularly in our last session together, there were moments when their interactions had elements of flow.

At the individual level, the changes varied depending on the person. Certainly some of them moved more than others. As their capacity to observe their own behavior grew, it created greater awareness and ownership of their own issues, and led to more courage and honesty in their communications. As they stepped in to appreciate and value their own contributions and role on the team, their insecurities went down; they developed more confidence and demonstrated a greater sense of presence as leaders. The awareness and legitimizing of their individual stories allowed them to have respect for and appreciation of the same in others. By practicing compassion for themselves, they developed the capacity for compassion toward others. This in turn allowed for a level of trust and a commitment to each other’s success, which provided a strong basis for collaboration.

Critical Success Factors

I was operating at two levels of the system simultaneously and addressed not only the behaviors that emerged in team interactions but also the underlying triggers of these behaviors. One reason I was able to successfully take this path was Sam’s uncompromising sponsorship and support, as well as the trust we had built as a result of our long-standing relationship and my candor in the early stages of the engagement. Over the course of the 12 months, he allowed me tremendous creative freedom to introduce the ideas behind council practices and dialogue. He’d been exposed to the practices and was a great believer in the notion of “going slow to go fast.”

Although some members of the team were initially resistant to the team process, because of my work with them individually, they grew to trust me with their inner stories and thus trust the process I was taking the team through. Their cynicism and resistance started to wear down as they experienced having a voice in the conversation and being heard as a result of using council and dialogue practices.

One of the other unexpected contributors to the success of the engagement was my knowledge of the organization, its business, and the dynamics within the industry. It allowed me to connect the interventions aimed at strengthening team effectiveness to core business issues the team was dealing with, rather than have “stand-alone” team-building sessions. By integrating business issues into the design of the interventions, the team had an immediate context for applying and practicing their new skills, which enhanced the capacity for retention and recall of new behaviors.

Challenges Encountered

There were some challenges during the course of this engagement. Even as they saw the value of the practices of council and dialogue, the team didn’t readily embrace some aspects. It took a while for them to honor silence and not jump into the fray. “I find it so difficult to sit still and not say something when no one is speaking. It makes me wonder if I did something wrong,” said one of the executives early in our sessions. While this reflected the challenge of holding silence, it was also a powerful example of how our inner story shows up in our behavior. Over time, and with the help of reflective practices in their individual coaching as well as in their team sessions, they started to see the value of having silence and silent time in their process.

Another difficulty that was more present in earlier sessions than in later ones was a desire to be “in action.” This is reflected in the comment from a team member that “we talk a lot and I enjoy our sessions, but when do we make decisions for the business?” Fortunately, given Sam’s experience with dialogue, he was able to support me and provide a context of “We are making decisions. By talking about and resolving the issues, our decisions are becoming clearer.” It took them a while to realize that by being in dialogue, they were “in action” around decisions.

In creating the experience of being an observer of the self and using the four-player model, there were some unintended consequences. During the debrief, one of the team commented,

The human structural dynamics model provided a valuable set of lenses to examine this team’s issues.

“We sure were on our best behavior today. I suppose we knew we were being watched.” Had I anticipated this better, I might have introduced a disturbance to the system to raise the stakes, because when the stakes are high, people tend to revert to “default” or typical behaviors, especially in early stages of behavioral change.

Summary

The human structural dynamics model provided a valuable set of lenses to examine this team’s issues. At the same time, it allowed for improvisation in the choice of interventions used to address different team issues. The occasion to work with an intact team over an extended period of time helped create a robust foundation wherein the skills introduced had a chance of taking hold. It helped build trust with each individual and created a space for personal growth. This systemic approach presented a powerful learning opportunity for all of us engaged in the process.

A longer version of this article appears in Reflections: The SoL Journal on Knowledge, Learning, and Change, Volume 9 Number 1. For more information, go to www.solonline.org/reflections.

Deepika Nath (dnath@indicaconsulting.com) is the founder and principal of Indica Consulting, where her focus is on bridging strategy and organizational development to bring about growth and lasting transformation. She is a trusted advisor and coach to senior executives seeking to define an authentic and effective leadership style. Her experience spans 15 years of strategy and organizational consulting with leading firms such as the Boston Consulting Group and Ernst &Young. A member of SoL, she holds a PhD in Management and an MA in Organizational Development.

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In this way, the vertically integrated firms of yesteryear are transforming themselves into the virtually integrated supply chains of today. As such, many businesses are moving from producing all of their final products’ components and services internally to buying them from a network — or supply chain — of external suppliers. Why are so many companies taking this dramatic step? The benefits of this new business model include lower parts or service costs, lower up-front investment, and less financial risk if expected sales volumes do not materialize. But outsourcing has hidden drawbacks that may take several years to emerge. Ultimately, these “outsourcing traps” may actually increase a firm’s cost structure, reduce its products’ competitiveness, or in the worst case, lead to the emergence of new competitors.

How can businesses manage this major shift without falling into an outsourcing trap? Research shows that the design of a company’s supply chain is of decisive importance. In his book Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Perseus Books, 1998), Massachusetts Institute of Technology professor Charles Fine argues that supply chain design may be a business’s most important competency, and that deciding which components to make and which to buy profoundly influences long-term corporate survival. While conducting research for Professor Fine, we discovered that the key to making wise sourcing decisions is to understand the short- and long-term trade-offs of different choices.

Although supply chains are now hot topics within Fortune 500 companies, smaller firms have long recognized their importance. For example, consider a mortgage company. As soon as a home-buyer applies for a mortgage, the mortgage company requests a customer credit report from a supplier such as Informative Research. The supplier compiles its reports from several credit databases maintained by credit repository companies such as Trans Union. At this point, the mortgage bank that will actually fund the loan (which is often separate from the mortgage company) must examine and provisionally approve the loan. In most American states, once the bank provisionally approves the loan, the mortgage company orders a property appraisal, a flood certification, and a title insurance policy, each of which is provided by a separate firm with its own supply chain. Finally, at closing, the mortgage company collects its commission and turns the loan over to the mortgage bank. Many mortgage banks in turn sell their mortgages to another investment institution.

Coordinating all of these firms to provide the end customer with a complete product is a complex process, but similar transactions occur throughout the business world. Designing a supply chain to operate as efficiently and profitably as possible is a difficult but potentially fruitful endeavor. For example, a normal mortgage company takes two to three weeks to go from application to closing. However, one mortgage company we work with has brought both the mortgage bank and appraisal functions in-house. By underwriting its own loans, conducting its own appraisals, and establishing close relationships with local builders, this company can “crash” a mortgage from application to closing in 48 hours if necessary, thus improving customer service. Mortgage companies that do not have these internal capabilities cannot equal this performance. This “simple” example illustrates the critical importance of supply chain design resulting from sourcing decisions.

Although outsourcing has been extensively examined in the academic literature, most of this work has focused on topics such as the economies of scale that it can offer. We are aware of few sources that examine outsourcing from a systems perspective, taking into account the intricate relationships, time delays, and feedback processes that relying on a vendor sets into motion. Systems thinking and system dynamics provide the perfect tools to examine the trade-offs. Companies that fail to apply this level of analysis to the decision-making process may seriously undermine their competitive position by falling into one of the outsourcing traps.

Common Outsourcing Traps

As part of our research, we developed a system dynamics simulation model that identified several circumstances in which an organization may experience short-term gains from outsourcing followed by devastating — and unexpected — long-term consequences. We call these “outsourcing traps.” Three of the more interesting traps are:

An organization may experience short-term gains followed by devastating longterm consequences. We call these “outsourcing traps.”

1. A company loses its market dominance when its supplier acquires its proprietary technology and diffuses it to its competitors.
2. A company relies too heavily on a single supplier, which weakens its ability to negotiate favorable purchase agreements.
3. A company outsources a component or service to a vendor to reduce costs, only to encounter higher expenses or reduced functionality when putting the final product together.

We examine each of these dynamics in more detail below.

Boosting — or Creating — a Competitor

One possible consequence of outsourcing is that a competitor may gain access to critical technology through a common supplier. This can occur when the supplier offers the technology for purchase or when the supplier’s engineers bring the knowledge gained from working with the original firm to projects with other companies. If a competitor then uses the information to duplicate or improve on the original product, it may erode the first company’s market position (see B1 in “The Secret’s Out” on p. 1).

The classic example of this dynamic occurred when IBM was developing its new personal computers (PCs) in the early 1980s. The company made what turned out to be a crucial decision to outsource production of the PC’s microprocessor to Intel and development of its operating system to Microsoft. Little did IBM know that by doing so, it was opening the door for direct competitors such as Compaq and Dell to purchase the two components of the PC that are most difficult to duplicate. The result is that IBM today is only the third-largest maker in an industry that it created.

General Motors and Ford may have fallen into this trap when they decided to spin off their component divisions. The two new companies, Delphi and Visteon, are busily expanding their customer base beyond their parent corporations. As they do so, the risk of another automaker gaining access to once-proprietary technology grows. GM and Ford’s knowledge of the components may also become obsolete, leaving them helpless to make any innovations in component performance.

Auto companies may be most vulnerable in the area of automotive electronics, which has become the decisive factor in advancing car comfort, safety, and performance. Toyota is avoiding this trap by bringing some of its automotive electronics back inhouse after 45 years, even though its supplier, Denso, is the world leader in cost and quality. Toyota sees electronic components as critical to automobile performance and wants to keep at least some of its technology proprietary to gain a market advantage. It has made this move just as U. S. manufacturers are divesting themselves of this same capability.

“The Secret’s Out” also shows another twist on this situation. As the supplier grows more efficient at making the component and learns more about the component’s functionality, it may become sufficiently skilled at manufacturing the entire product to become a direct competitor (B2). U. S. consumer electronics firms fell into this trap in the 1960s and 1970s when they outsourced production of televisions and other electronics to Japanese suppliers. Ultimately, as domestic suppliers failed to develop their own capabilities, they fell further and further behind their own vendors. The suppliers eventually began to sell products under their own names — including Sony, Panasonic, and Mitsubishi — driving U. S. manufacturers such as Zenith and General Electric out of business. Today’s U. S. electronics and software companies may be repeating the same mistakes, as they increasingly outsource design activities to international suppliers.

Held Hostage by a Supplier

Another common but subtle outsourcing trap occurs when a supplier holds a firm hostage. If a company — or an industry — becomes too reliant on a particular vendor or set of vendors, power may shift to the supplier, allowing it to reap most of the profits. This dynamic is an extension of the IBM PC example above. Little did IBM know that the PC assembly industry would become primarily a commodity business, as the functionality that differentiated performance migrated from circuit boards to semiconductor chips and software.

As Professor Fine emphasizes — and as IBM presumably learned the hard way — the key is to “outsource capacity, not knowledge.” When IBM farmed out the bulk of the PC’s intellectual property to the software and semiconductor houses, it gave up a great deal of power in the supply chain. Intel and Microsoft could sell to any number of circuit-board manufacturers that could readily duplicate IBM’s design, but IBM could purchase Intel-compatible processors only from Intel and Windows-compatible operating systems only from Microsoft. This virtual monopoly enabled Intel and Microsoft to capture the bulk of the profits in the supply chain.

IBM tried to buck this trend by developing OS/2, its own operating system, in the late 1980s. It was arguably a better operating system than Windows. However, customers would not buy it because most software applications available at the time functioned only on Windows. Furthermore, because Windows had many more users than OS/2, Windows customers could more easily trade documents or software with other users than could OS/2 customers. In the end, the OS/2 system did not offer enough new features to convince users to switch. Because of the difficulties in competing with Microsoft and Intel, IBM and many other PC firms are instead trying to expand beyond the unprofitable PC business by moving into the maintenance and technical support of PCs, which offers more comfortable profit margins. Others are outsourcing as much of their production as possible to Asian contract manufacturers with lower personnel costs.

Another possible adverse consequence to outsourcing is that a company may lose the ability to intelligently purchase components — and suppliers may take advantage of this ignorance and price them at a premium. An executive for a top PC manufacturer recently stated that when the company first outsourced its notebook computer manufacturing, it could do so efficiently. However, after three years, the technology had changed sufficiently that internal people no longer knew enough about the product to determine whether a contract bid was competitive — especially because they suspected their vendors of engaging in price collusion and price gouging. The suppliers had the PC company in a difficult position, because they knew that the firm could no longer make the product themselves and that they had even lost the ability to determine the cost of the products they were buying.

As shown in “Paying the Ransom,” outsourcing initially decreases the cost to purchase the product (R3). As the supplier gains leverage and the firm loses it ability to determine the component’s cost, the supplier may eventually boost the price above what it would have cost the original company to produce if it had not outsourced it in the first place (B4).

The danger of falling into this trap is especially acute for companies that outsource a component to one supplier for a long period of time. Lack of expertise within the original company about creating the component leads to increased in-house manufacturing costs, which makes outsourcing even more attractive (R5). This “Success to the Successful” dynamic can prove costly if the firm ever desires to make the part again. As time passes and the knowledge of how to make the component diminishes, it can become prohibitively expensive to reverse the outsourcing decision. If the firm determines in the future that this component is vital to the performance of the product, it may need to invest heavily to bring the knowledge back in-house. However, this penalty may be necessary to regain some bargaining leverage with suppliers.

Reassembling Humpty Dumpty?

A firm also needs to know enough about its components to effectively integrate them into a single coherent product. As stated earlier, firms commonly choose to outsource because they can purchase a component from a supplier for much less than they can make it themselves. However, outsourcing may weaken more than just a firm’s ability to make and price a component; it may damage its ability to integrate multiple components into a final product.

Industry experts believe that one of the reasons Toyota decided to bring production of its electronic components back in-house was so that it could better integrate those components into a coherent whole. Forty years ago, automobile electronics were confined primarily to radio, lighting, and starter systems. Understanding electronics was not essential to automotive design. However, electrical systems control nearly every aspect of modern cars — from engine responsiveness to suspension behavior. Without understanding the intricacies of automotive electronics, it is difficult for manufacturers to design and produce cars that will meet customers’ expectations of automotive performance and comfort.

In another example, SAP, a German provider of enterprise-wide integrated software packages, experienced serious implementation problems with many of its North American clients. These software packages, often known as enterprise resource planning programs (ERPs), integrate all the information processing activities in a firm, from purchasing and manufacturing to order fulfillment and accounting. SAP ultimately traced its difficulties to its outsourcing of implementation to third-party consultants. Because SAP did not participate in the implementation process directly, the company did not gain knowledge to feed back into product improvements. Many of these problems have lessened since SAP began to join its alliance partners in actual implementation projects.

Manufacturing a component or performing a service can thus give a firm a decisive edge in knowing how to integrate it effectively into the final product (for more on this topic, see E. G. Anderson and G. G. Parker (2000), “Learning, Product Integration, and the Dynamics of the Make/Buy Decision,” University of Texas McCombs School of Management Working Paper, available from the author). Many of Microsoft’s detractors claim that the software giant uses its in-depth knowledge of the Windows operating system to give it an edge over its competitors in designing the features of its applications software. If this is true, then splitting Microsoft into an operating systems company and an applications software company may have a hidden cost to the consumer. The new applications company may become less familiar with Windows as the operating system changes over time and former Microsoft employees leave, leading it to design less effective products.

The third trap can lead to a possibly fatal balancing loop (see “All the King’s Men . . .”). As a company’s knowledge of its products’ components diminishes, integrating those components to provide a high-quality product or service can become prohibitively expensive (B6). Because the total product cost is the sum of the cost to make or buy components plus the cost to integrate them into the final product, any benefit received from cheaper components may be eliminated by increased integration costs.

Overcoming Outsourcing Traps

How does a firm overcome these outsourcing traps? One way is to avoid outsourcing altogether. This approach may be necessary for firms concerned about the leakage of proprietary knowledge through a supplier. If the company still wants to pursue outsourcing, it may need to have vendors sign binding nondisclosure agreements. However, even the best of these will only slow, not stop, the diffusion of knowledge. Companies cannot prevent suppliers from transferring personnel to projects for different clients. And, even if transfers could be stopped, as long as the supplier is selling to more than one customer, some information leakage will necessarily occur.

On the other hand, complete insourcing may not be the right solution. Companies that make components in-house may avoid the supplier hostage and systems-integration traps, but they must assume all the costs of producing the component or service. So, are there ways to obtain both the low risks and low integration costs of insourcing and the low component costs of outsourcing? We have found that there are (see, “Avoiding Outsourcing Traps” on p. 5). In many instances, by making just a small percentage of the components (or one of a number of similar components) in-house, a firm can maintain adequate knowledge to control many outsourcing risks and integration penalties while still reducing the average cost to make or buy those components. Toyota has pursued this strategy in its relationship with Denso. The automaker knows that it cannot produce electronics control systems more cheaply than its supplier, so it lets Denso produce most of the components. However, by designing and manufacturing others, Toyota can gain enough knowledge to utilize the full potential of its electronics control systems when designing new automobiles. This approach also helps prevent Denso from holding the company hostage.

Businesses can pursue a similar strategy when outsourcing services. Franchisers that also maintain company-owned stores are classic examples of partial outsourcing. For example, in 1988, Dunkin’ Donuts operated only 2% of its 1500 locations itself. However, it specifically used its company-operated sites to pilot all new distribution and marketing programs before asking the franchisees to adopt them.

The success of the partial outsourcing strategy depends on a number of variables, including economies of scale, the pace of technological change, and the modularity of components. But most important are the fixed costs associated with the component or service. If both the firm and its suppliers incur high fixed costs, then pursuing this partial outsourcing strategy may not be feasible. For example, silicon wafer fabs, which make semiconductor chips, cost several billion dollars to build and are unsuitable for low-volume production. Because of such huge capital requirements, partial outsourcing is unlikely to be cost-effective in this industry. On the other hand, in the software design industry, the majority of fixed costs—such as providing workers with high-end computers and Internet access—are based on the number of programmers employed. Hence, maintaining a small fraction of programming activities in-house is unlikely to be prohibitively expensive.

There are other possible solutions to the outsourcing dilemma as well. For example, a firm can lower its integration costs by hiring and training people with certain specific systems-integration skills, such as systems engineering. If employees carefully design a product so that its component interfaces are well defined and well understood, then the organization can avoid many thorny integration problems. For example, products that are designed to use “snap-in” components are usually much easier to assemble into a final product than those designed with parts that must be screwed into place. HewlettPackard has pursued this approach in tandem with increased outsourcing over the past five years.

Avoiding the IBM PC’s Fate

In this article, we have looked at just a few of the difficulties that can result from a decision to outsource. The outsourcing traps highlight how a seemingly simple decision to have a vendor produce a component or service can have devastating effects on a company’s future well-being. Using system dynamics, we can look beyond the short-term benefits achieved by outsourcing and analyze the long-term consequences, including what effects these decisions may have on future economic and market positions. We can be almost certain that IBM’s management did not envision the future that it created when it chose to farm out its microprocessor to Intel and its operating system to Microsoft. Perhaps IBM’s fate in the personal computing market and the structure of the entire industry would have been different if the company had used the tools that system dynamics and systems thinking offer to anticipate the potential pitfalls— and promise—that supply chain design can offer.

Edward G. Anderson Jr., Ph. D., (Edward. Anderson@bus.utexas.edu) is an assistant professor of management at the University of Texas McCombs School of Business. His research focuses on employing systems thinking and system dynamics in outsourcing and other knowledge management issues. Mary Ann Anderson (CABS@texas.net) is a principal consultant with the Computer Aided Business Strategies Group in Austin, Texas. The firm provides strategic solutions to businesses utilizing system dynamics.

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At Boeing, a major aerospace company, a team leader and his R&D group recently found themselves in uncharted territory as they faced a new project. They needed to create a leadership infrastructure to bridge the learning that happens in the workplace with more structured classroom learning. The framework would span multiple organizations, missions, locations, and personnel. The temptation to leap into action was hard to resist. But the project team realized that taking the time to develop an implementation strategy would help them to be more effective in the long run. In order to do so in a systematic way, they chose to develop an Operational Strategy Map to guide their efforts.

The Operational Mapping Methodology

Developing a map of strategy isn’t a new idea. Most organizational improvement methodologies (such as total quality management, reengineering, and the balanced scorecard) recommend some form of mapping in order to facilitate understanding of an organization and its processes. All mapping methodologies have benefits as well as limitations. Because maps are necessarily a representation of reality — and not the reality itself — it’s important to choose a framework that captures the essence of the system in a way that helps the organization most effectively navigate through the unfolding strategy.

The Operational Strategy Mapping (OSM) framework synthesizes elements from three disciplines — system dynamics, skilled facilitation, and balanced scorecard—to create a process and product that can enhance the creation and implementation of organizational change efforts (see “Operational Strategy Mapping”). Using OSM, a strategic planning and implementation team clearly articulates what the strategy should accomplish, how it works, and what unintended consequences might result. In the process of developing the map, team members generate understanding of, and commitment to, the overall plan.

System Dynamics. OSM uses system dynamics mapping and its underlying paradigm of the world. System dynamics incorporates two different visual languages: causal loop diagrams and stock and flow maps. In order to quickly get up to speed on the terminology and launch into the mapping process, groups may begin with causal loop diagrams. Causal loops can be extremely useful for eliciting important interdependencies that will impact and be impacted by the strategy.

Because OSM requires exploring questions such as “How does/will it work?” the strategy team will eventually need to build stock and flow maps to generate this “operational” focus. Although doing so may initially require a little more effort than creating causal loops, the value derived from this additional effort of differentiating between conditions and activities that change those conditions will dramatically increase the rigor and quality of any strategy discussions. Using stock and flow maps, groups can look at the factors inherent in the strategy that may contribute to unintended consequences during implementation.

OPERATIONAL STRATEGY MAPPING

The Operational Strategy Mapping (OSM) framework synthesizes elements from three disciplines — system dynamics, skilled facilitation, and balanced scorecard—to create a process and product that can enhance the creation and implementation of organizational change efforts.

The paradigm of system dynamics asks us to move from thinking about our organizations in terms of one-time events and isolated functions to considering them in terms of continuous, dynamic, integrated processes. To implement OSM, a team needs to look at the strategy as something that will unfold over time, with natural ebbs and flows, and will likely require adjusting in terms of the magnitude and timing of different elements. The system dynamics approach also suggests the need to identify forces that might slow or impede implementation. It offers guidance in predicting natural delays in the system; knowing about these delays is vital to generating an effective implementation plan.

Skilled Facilitation. Skilled facilitation, based on the work of Roger Schwarz, provides the framework for the process of building OSMs. It offers tools for assessing if the appropriate stakeholders are involved, how effective the group dynamics are, and how to facilitate conversations around building and testing the usefulness of the map. Because skilled facilitation applies an explicit approach to developing shared mental models (both about the content of the project and the group’s process), it is a natural fit with the system dynamics approach to mapping.

The Balanced Scorecard. The third discipline built into the OSM methodology, Kaplan and Norton’s Balanced Scorecard (BSC), has become popular for helping businesses and public-policy organizations build and revise visual strategic “bubble maps” as part of an ongoing, iterative learning process. The BSC’s four quadrant perspective — Financial, Customer, Internal Processes, and Learning — provides a useful guide for ensuring that the strategy map covers the organization’s different facets. (Although not all OSMs cover the four quadrants, groups should be conscious about choosing to eliminate one or more quadrants from the map.) However, the stock and flow language is better able to depict how processes work than “bubble maps” and can serve as the basis for computer simulation at a point in the future if the team finds this additional step helpful.

The steps for building an OSM are the same as those described for the BSC. In their book, The Strategy Focused Organization (Harvard Business School Press, 2000), Kaplan and Norton describe strategy management as following four principles:

1. Translate the Strategy to Operational Terms
2. Align the Organization to the Strategy
3. Make Strategy Everyone’s Everyday Job
4. Make Strategy a Continual Process

As you’ll see, the distributed learning team at The Boeing Company followed these steps as they developed and used an OSM.

Building an OSM at Boeing

The Boeing Company is an organization widely distributed across geographies, business segments, and product lines; it also includes several engineering disciplines. The decision to sponsor a leadership initiative in the company reflected an understanding that, although the culture focused primarily on formal learning events, more than 80 percent of learning and leadership development occurred on the job. The “Workplace Leadership Initiative” would integrate formal and informal learning and would support participants in pursuing their individual learning agendas on their own time. In turn, employees would contribute their own content/expertise through a personalized web site and a community space that would be integrated into the leadership program’s learning experience. Putting together the various pieces of the program was a challenging opportunity. The development team decided to create an Operational Strategy Map to help them “mentally simulate” how they might execute the initiative.

Translating the Strategy to Operational Terms. The first phase of developing the OSM was to get background information on the project and develop a “strawman” map of the strategy. Getting background information usually requires phone interviews with a few stakeholders/experts. This interviewing process serves two purposes: (1) Gathering information from throughout the system of interest, and

(2) Generating understanding and commitment from the stakeholders for the process and subsequent map.

For this project, the team leader possessed the knowledge to provide enough input for the initial map.

The team leader was concerned about the following areas of execution: creating the initial workplace leadership system, generating enthusiasm among potential users, and building support among senior managers (who might not be users, but who would likely encourage or discourage the use of the system among their staff). He had several hypotheses about how the system might work, but felt that the OSM process would force him to better articulate those assumptions, integrate the team’s assumptions more effectively, test the accuracy of the combined assumptions, and ultimately communicate them to management.

Based on initial conversations, the group chose to focus the core structure of the map on the system’s end users. In this case, the core structure (often referred to as the spinal cord or main chain of the model) assumes that users can move from being Unaware of the WL (abbreviation for “Workplace Leadership System”) to being Aware of and May Use WL. (See the section labeled “Core Structure” in the diagram “A Virtuous Cycle” on p. 4.) After experiencing the Workplace Leadership System, they might become an Advocate for WL — or they might become Resistant to WL.

The stocks and flows visually represent the movement of people from one state to another. The stocks (boxes) are the accumulation of people (how many in each state at any point in time), and the flows (circles) are the processes that advance people through the various stocks. The initiative would need to carefully manage the movement from Unaware to Aware and then ensure Advocates were generated while simultaneously limiting the flow into Resistant to WL. The team spent hours further defining attributes associated with the stocks: What type of person was in each stock? Is there a better name for the stock? Is there anything missing in the main chain?

After focusing on the stocks, the team was ready to begin thinking through strategic implications by analyzing what might drive each of the flows. They quickly realized that they couldn’t directly affect the stocks — they needed to design policies directed toward the processes that move people from one state to another. The group determined that they could have a direct impact on awareness by having focus groups and other public relations-type events. People would move into the Advocates stock through word-of-mouth; their experience with the WL system would influence the level of Advocates and Resistant folks, because the more positive the experience, the faster the rate of acquiring new Advocates.

As always happens, the team identified weaknesses in the draft map’s assumptions. Foremost among these was the map’s aggregation of the learning initiative’s attributes into a single stock. The team suggested three categories of attributes: Useful Content, Features, and Ease of Use. The discussion around the development of these features was heated. Through it, the team found an appreciation for the level of precision that OSMs bring to what’s often a fuzzy process.

As a result of the conversations to improve the assumptions in the map, the team identified a virtuous cycle they wanted to set in motion. An important element of the Workplace Leadership System is users’ ability to add their own content, wisdom, and expertise—and Advocates would likely contribute the most. The greater the content that the program has to offer, the greater participants’ overall satisfaction will be (the team called this the “Wow!” effect). High levels of satisfaction in turn create more Advocates. A nice loop to get going! The team realized, however, that a limit to growth for this loop would be the ease of use. If it’s not easy to add content, then Advocates probably will not do so, making it difficult to set the cycle into motion.

The team found that the mapping process surfaced a dark side of implementation that they hadn’t consciously discussed before: the buildup of folks resistant to the initiative. At first, the group was dismayed to think about the potential for Resisters to develop in

A VIRTUOUS CYCLE

An important element of the Workplace Leadership System is users’ ability to add their own content, wisdom, and expertise. The greater the content that the program has to offer, the greater participants’ overall satisfaction will be. High levels of satisfaction in turn will create more Advocates.

the organization. But after some discussion, they realized that because they now knew the possibility existed, they could look out for it.

Further, they decided that if budding Resisters were identified early enough and were listened to, two things would happen. First, they would likely have feedback that would improve the overall system. More importantly, they might move over into the stock of Advocates. The team believed that people who cared enough to be Resisters could become strong Advocates — the energy would just be directed differently. The team referred to this as an aikido approach to resistance: Rather than push directly back against critical feedback (the natural tendency of a design team), they would redirect the energy behind the criticism — and apply it to improving the product. The team also strongly believed that the process of listening would generate Advocates.

The group developed a large wall hanging with crisp high-resolution graphics. Over the course of a couple of weeks, they used the map in their meetings and presented it to managers and other stakeholder groups within Boeing. In discussions and presentations, team members were able to walk up to the map, point directly at the area of strategy they were describing, and quickly get everyone’s reactions.

As a result of these meetings, the map was modified slightly — yet the core structure remained the same. The team found they could present the map without the aid of the project consultant. In that sense, they owned the map, its assumptions, and the implications it had for their strategy — it provided a common framework that guided their discussions.

Aligning the Organization to the Strategy. The second step in the process is to align the organization to the strategy. The team did so by using the map to develop a team project plan. They focused on the flows in the map and assigned tasks to different individuals. Although the group could have used sophisticated project planning software, for this effort they imported snapshots of map segments into Excel worksheets and added roles and responsibilities (see “The Project Plan”).

Results from the Initiative

The project is still underway, but the team has already reaped several benefits from developing the OSM. The most significant impact is that the team focused their early effort on a seven-day process to set in motion a virtuous cycle around the project. The goal of this experiment was to learn as quickly as possible about potential Advocates and Resisters. The team tested the initiative’s ease of use, features, and useful content in order to assess the “Wow!” factor, identify the number of individuals in various categories, and analyze the quality of their experience in moving to being an Advocate or a Resister.

As a result of this exploration, the team reconceptualized the project’s web interface. If they hadn’t learned from this experiment with setting a virtuous cycle in motion, they might have wasted a large portion of their 2005 budget in trying to implement a system without thoughtful consideration of Advocates and Resisters.

The team was pleased to find that the map was still valid even after the shift in emphasis. This process confirmed that the level of aggregation was sufficiently useful, that is, it allowed them to examine the implications of their implementation strategy at a high level, without becoming so specific that they needed to modify the map every time they made minor modifications to the actual program.

Making Strategy Everyone’s Everyday Job. Another result of the OSM process was that the team developed a shared language. This terminology improved the quality of conversations, because it made implicit assumptions about the strategy explicit. It created an environment for making

THE PROJECT PLAN

The team developed a project plan by focusing on the flows in the map and assigning tasks to different individuals. They imported snapshots of map segments into Excel worksheets and added roles and responsibilities.

strategy everyone’s everyday job. When people pointed to a piece of the map to describe the impact of a certain proposal, everyone understood what they were referring to. Having a shared language also had the unintended benefit of increasing camaraderie.

In most cases of strategy development, management knows the underlying assumptions, but the implementation team is left in the dark. The OSM process integrates assumptions from the entire team. The group as a whole owns the strategy, the implementation, and of course, the results. Talk about empowerment!

Another benefit of the process was that the team found it easier to be brutally honest during implementation. For example, as word of the Workplace Leadership Initiative spread during the development of the map, the team not only heard from folks with a favorable impression of the project but also from those with an unfavorable view. In other circumstances, the group might have filtered out the negative input. But because the map suggested that they pay attention to potential resisters, and that by doing so they could generate a positive trend, the team accepted the early criticism and incorporated some of the constructive comments in their implementation plan.

Making Strategy a Continual Process. As part of continual learning, the Boeing team may choose to go into more detail in some areas of the map. They are exploring the potential benefits of developing simulation models of certain aspects. Further, the group may build additional maps or revise the current one. Even so, they will continue to use the OSM they’ve developed in building and implementing strategy for months to come.

Using the Methodology in Your Organization

If you’d like to use an Operational Strategy Map to help guide your strategic planning and implementation, here are a few things we’ve learned:

• You won’t get the map perfect the first time. The process of building the map is where the learning is. Create a prototype (what we’ve called the “strawman map”) as quickly as you can. Then let the strategy development team critique, modify, and ultimately own it. The process of their owning it will make it better. Trust us!
• Identify as quickly as possible the “main chain” of the map. Use the main chain to ask questions about how the system in question works and what might be some unintended consequences of any activities.
• Focus on analyzing the major dynamics in the map. In the case described here, the team focused on the major virtuous cycle for a week. They asked questions about it, tested its usefulness and likelihood of occurrence — and in the end, they developed a whole new approach to the overall project.
• Fit the map on one page if you can. The Boeing team struggled on occasion as it tried to add nuances to the map that added complexity. The understanding generated from these incremental add-ons was usually minimal. You can always create separate maps of more detailed processes at a later date.
• Once the strawman map has been developed, modify it only in the presence of the whole team. Otherwise, you will not have the buy in needed to implement any new insights. Plus, you’ll likely miss something important when making the change.
• Develop simulation models only to the point where doing so provides an adequate return for the time and money invested. The process of simulation modeling is often a laborious one; it may take months to develop a reasonably sophisticated computer model of the strategy. The siren call of “We’ll find the answer” often tempts teams to try to develop the Mother of All Models. But this quest can become a journey of diminishing returns, in that simulation modeling may not generate enough additional insight to be worth the investment. The team in this article will develop a few small models to deepen and refine their understanding of implementation dynamics.

The OSM methodology holds potential for all organizations. The process of developing a simple, one page stock and flow map of the organization’s strategy generates strategic insight and commitment to implementation. If your organization has been struggling to execute its strategy — or even to develop a good one — you will find building an OSM useful. It’s a perfect tool to get everyone on the same page so that when you come to a fork in the road, you’ll be more likely to take the better path.

Chris Soderquist (chris.soderquist@pontifexconsulting.com) is the founder of Pontifex Consulting. He consults to organizations and communities in order to build their capacity to create and implement sustainable, high-leverage solutions to their most strategic challenges. Mark Shimada (mark.s.shimada@boeing.com) is a program manager in The Boeing Company’s Leadership Development and Functional Excellence Group. He supports his peers to accelerate business results through extraordinary leadership development programs.

The post Operational Strategy Mapping: Learning and Executing at The Boeing Company appeared first on The Systems Thinker.

The planning team, comprised of five internal stakeholders from both companies, realized that in order to transcend the barriers that existed between the two organizations, participants had to come together in conversation. Working with Laurie Durnell from the Grove Consultants International, Lenny Lind from Covision, and me from Conbrio, team members chose a bold design that combined graphic facilitation, computer-assisted fast-feedback technology, World Café principles, and Storymapping in ways that created a whole much larger than the parts. This combination of tools, the planning team reasoned, would prompt breakthrough conversation and ultimately a commitment to invest time and resources in resolving key issues.

That’s exactly what happened. “It turned out the synergy of the design elements coming together created a unique situation beyond what we or anybody else expected,” said Lenny. “The amount of work accomplished was enormous.” By the end of the conference, participants mapped out specific action plans in five categories. What follows is what Laurie, Lenny, and I saw and heard, the discoveries we made, and the questions we’re still living with.

At a Snail’s Pace

First, some background. For the two companies (they want to remain anonymous), the walk toward convergence began five years ago, when both sought to solve the problem of providing superior service to the world’s largest companies in the U.S., Europe, and Asia. The companies are in an industry where it’s difficult to grow organically. At the same time, neither wanted an outright merger with the other. Their solution was to strike a partnership. Two years ago, they decided to strengthen that partnership and to both market and serve clients as if they were one organization.

Since making the agreement, implementation moved slowly so slowly that frustration boiled up in both companies. Negotiations on branding and a short list of other items necessary for a successful joint venture slowed to a snail’s pace. There was talk, some of which leaked to outsiders in Europe, that one company would spurn the other for a better match. It became clear that the December meeting would be vital for moving the partnership forward.

I began my work with the two companies in the spring of 2005, in time to participate in the May semi-annual meeting. The meetings were started three years earlier to bring together large account managers and leaders from both companies across the globe to build relationships so they could better team to seek new and serve existing customers. More than a hundred people participated in each of these events.

The May conference was a dud. A meet-and-greet affair, it was long on long-winded speeches and short on participation by attendees. A barely understandable economist held forth on the state of the world. An interminable panel discussion tried and failed to shed light on customer needs. A tour of locations around the city offered little insight into markets. One guest sitting next to me whispered, “This is a lot to go through for a free drink.” A U.S. participant was so disgusted that he bailed 36 hours after arriving and flew home.

A Fresh Start

The client planning team vowed then and there that the December meeting would be more focused and engaging. In July, when the five members gathered in San Francisco with the consulting team, they began to make good on that vow. They decided on a real give-and-take meeting, where podium time for talking heads would be at a minimum, computers would capture and share participants’ thinking, and graphics would play an important part in showing the whole picture. The team would hand-pick participants, keeping them to senior leadership and those who could actually make things happen – fewer than 100 were to be invited.

The meeting design drew on our consulting team’s collective experiences. Laurie and the Grove have a decades-long history of working with groups using visuals and visual language, including graphic facilitation. She says, “Visuals, graphics help draw people out, communicate ideas, and organize information.” Since 1992, Lenny has used computers in large group meetings to speed feedback among participants. The technology he has developed, called Council, allows people to enter ideas or view-points into computers and then instantly displays them to everyone in the room. And having used the World Café process several times, I knew the seven café principles – clarify the context, create a hospitable environment, explore questions that matter, encourage everyone’s contribution, connect diverse perspectives, listen together for insights and deeper questions and harvest and share collective discoveries would work well in this context.

All three of us agreed that any one methodology, one process, one tool graphics alone, for example wouldn’t be quite enough because, in Lenny’s words, “It would leave this other thing, like need for information or outlet for planning, that wouldn’t be addressed.” Together, however, Lenny’s technology and Laurie’s graphics combined with our collective sensitivity to group dynamics and our ability to blend, orchestrate, and facilitate elements would allow us to cover all the key areas of presentation of issues, discussion, and action planning.

Once we had established the tools we thought would be effective, the next step was to ask, What exactly will the people at the meeting talk about? What issues needed to surface? Where was the line they could not cross? What could this December conversation accomplish? In our July meeting, Laurie helped the client planning team untangle these questions. She drew simple star people with thought bubbles coming from their heads, one for each stakeholder, seven in all, with outcomes in each of the bubbles. Leaders, for example, needed to better understand the business case for the two companies moving closer together, while company reps in Europe and Asia needed to learn what American clients expect.

Now that they could see the outcomes, the planning team was able to go forward to rough out the hour-by-hour first draft of a three day agenda. They decided to use a custom-drawn “infographic” to visually portray the results of a client survey they would present to spur the first day’s discussion. And they agreed that since all the outcomes couldn’t be fully realized in one meeting, they would focus the conversation on making the case for change. Subsequent meetings would delve more deeply into how they would implement the agreed-upon changes.

COMPUTERS AND CONVERSATION

Participants sat three to a table. This setup facilitated both the Café discussions and teams’ use of computers to input responses. The infographic, which was positioned along a wall, provided a context for the process.

Drafting a minute-by-minute agenda was the next big task. This process guided the subsequent rounds of discussions with the planning committee. Like a script used by a stage manager to call a Broadway musical, the final agenda – 20 pages long contained directions for times, speakers, room set-ups, props, and other notes. Lenny, Laurie, and I used the agenda to work out how we would blend the details of the technology, the graphics, the World Café, and other elements. It also included a mock competition designed to show off the companies’ differences from its competitors and a panel of account supervisors who would illuminate customer service issues. “The planning was 40 to 50 percent of the intervention,” Lenny recalled. “The strong upfront process allowed us to design the session step-by-step so that it achieved all of the planning team’s goals while deeply engaging participants in creating a new future for the organizations.”

After the usual opening segments, results of a customer survey would be the main event of the first day. We would use the infographic to focus the presentation and then shift to World Café conversations. Lenny’s computers would capture reactions, quickly feeding them back so that participants, and especially key leaders, could see the collective thinking that emerged in the room. This back-and-forth between presentation and feedback was the structure that allowed creative problem-solving to emerge over the course of the meeting. The next day, we would start more café dialogues then move to a panel discussion, the mock competition, and more café conversations focused on action. Action planning in breakout groups would end the second day. The same groups would continue their action planning the morning of the third day. The conversation would wrap up at noon.

The planning team took those first minute-by-minute drafts and, in a series of meetings and conference calls with us during the fall, made them their own. They wrote, rewrote, and wrote again the café questions. They changed and changed again the infographic. They flipped and reflipped agenda activities. They ordered more implementation planning. They let more presentation time creep in, then, reluctantly, pulled it out on our recommendation. They settled on the final draft just days before the event.

The Main Event

The conversation opened just past noon in a ballroom at the Four Seasons Hotel in San Francisco. Participants entered to find the room set up with small, three-foot-diameter round tables, three chairs per table. Lenny put a computer at each table on top of a large sheet of paper that participants could use to take notes. We placed three dots one red, one blue, one green on the paper. Participants had one of the three colored dots on their name tags. In changing from table to table during café rounds, they could sit only at places where the dots on the table matched the dots on their name tags. The dots were meant to mix participants from different parts of the globe and different ranks in the organization (see “Computers and Conversation”).

Lenny, Laurie, and I went round and round on table size. The ideal number of people per computer is three. Lenny had been used to seating six people per table with two computers, partly because of wiring issues. Café discussions are best when four people sit at a small table because all can easily participate in the conversation. My fear was that larger tables would stifle discussion. I sought out Juanita Brown, co-creator of the World Café, who settled the issue when she advised us that three people per table would work much better than six.

As part of the first hour of the conversation, Lenny introduced his Council technology with three icebreaker questions. This process familiarized participants with the technology. Everyone could see all the answers on their screens, displayed without attribution. The anonymity continued throughout and allowed for an open and honest exchange.

Laurie explained the 14-foot-long infographic, how it was put together to tell the story of worldwide trends, what customer needs resulted from those trends as reported in the customer survey, the companies’ combined response to those needs, and the gaps between needs and responses. Then leaders began their presentation, using the infographic to which the group had just been oriented.

The first café round came after the first half of the presentation. It was a two-question round with participants entering their responses into their computers by table as they neared the 15-minute limit for conversation. Another round came after the second part of the presentation, this time with three questions. The final question was “What’s important for you as a group to explore further and understand?” At the end of each round, four participants, whom we dubbed the “Theme Team,” sorted through the answers, distilling them into themes, key questions, and comments.

The next morning started with the “Deep Dive Café.” Participants tackled three more questions, designed to support disclosure of the deeper issues, rotating to new seats after each question. The questions were straight-forward:, “What’s taking shape? What are the unsaid issues around these themes? What’s the most important insight from our discussions so far?” Table groups entered answers to the last question into their computers.

A Pivotal Moment

It was during the Deep Dive Café that one of the most senior leaders became anxious and nearly cancelled the rest of the event because the discussion strayed into areas of overall strategy. The client planning team pushed back, pointing out the concerns voiced in conversations at the tables and through the computer were overwhelmingly similar and reflected what people were really thinking. The leader allowed the meeting to continue. “The planning team’s work ahead of time combined with the theme team’s work during the conversations gave the team’s members complete confidence in addressing this leadership challenge,” said Laurie. “They understood how things flowed, and when things got rocky over the issues in the room, it allowed them to remain calm, convince the leader to continue, and then successfully complete the agenda.”

Now past the pivotal point, the attention turned to learning more about the gaps between customer needs and service capability. Four representatives who led global customer service teams told of their triumphs and frustrations. Participants both posed questions and made comments through the computer. Following lunch, participants broke into three groups to simulate a sales pitch. One of the three played the role of competitor and soundly beat the other two because, as one integrated global company, it had more and better services to offer the prospective client and in a way that better met the client’s needs. Through the computer, participants identified gaps in each team’s service offerings.

Each of the processes works well alone, but in combination, the strengths were maximized and the weaknesses minimized.

Participants went next into the Action Café. Again rotating between questions and entering answers into the computer, participants chose the three most critical gaps to work on for the rest of the conference. And they suggested specific areas that might be improved branding, for example, and global project tracking. Drawing from the responses, participants broke into nine different groups to plan how to close the gaps over the next six to 18 months. They worked on the specifics through the end of the day and throughout the next morning, focused by wall sized versions of a planning tool developed by the Grove called the “Graphic Roadmap” (see “Graphic Roadmap Template”). Each breakout group presented their plans to the rest of the participants before the final café rounds closing the conference.

GRAPHIC ROADMAP TEMPLATE

Designed by the Grove, the Graphic Roadmap is a large-format worksheet of actions and target dates for deliverables on a project or an organization change process. A signature element is the identification of “milestones.” These are the key dates for events and deliverables that everyone will work to achieve.

“Softening Hard Soil”

In analyzing the conference results in a conversation with Laurie, Lenny, and I, Juanita Brown saw that the combination of the visuals, the World Café process, and the Council technology “heightened the possibility of collective intelligence. One of the big things we find over and over in café work,” she said, “is this very intentional cross-pollination of mix, mix, mix. It’s softening hard soil, so the soil can be receptive to new ideas.”

The computers served as the “common tablecloth on the café table of conversation,” Brown said, that everyone in the room could refer to. It made the collective knowledge visible and led to an accepted conclusion in the whole room at a much earlier stage than is the case in many meetings. In a normal café dialogue where there aren’t any computers, she said, people sense their common conclusions, but they don’t have the level of detail to support them that the computer feedback supplies. The anonymity of the answers also helped with the positive meeting result, Brown said. “You don’t know where the ideas are coming from, so people can more easily accept innovative thinking as it is revealed in the spaces among participants. The space between the ‘me’ and the ‘we’ becomes more fluid and the ‘magic in the middle’ has the opportunity to emerge more easily.”

Conference attendees were just as enthusiastic. As they moved to close the conference, participants answered one last question through the computer: How did this conference compare to the last? “Phew! We had to work this time. The format, structure, people were spot on.” Said another, “It was great!”

So what did we learn? What questions remain unanswered? We learned the whole was far greater than the sum of its parts. Each of the processes works well alone, but in combination, the strengths were maximized and the weaknesses minimized. Also, we confirmed again risk-taking combined with collaborative planning are important. So is quickly creating a sense of “we” in a room divided into many camps.

Will the agreements made, the visions offered, hold up? We don’t know. The big question is how a process can further deepen commitment to action, and how, really, conversation in big groups can ultimately lead to significant action.

Bill Bancroft (bbancroft@conbrioamericas.com) is founder and principal of Dallas-based Conbrio. He designs and leads conversations for companies, organizations, and communities to help leaders with strategy, team building, communications, culture, and other organization issues.

The post Confluence of Process and Technology Brings Two Companies Closer Together appeared first on The Systems Thinker.

About six years ago, Colonial Pipeline had a defining moment: One million gallons of diesel fuel spilled from a ruptured pipeline into Reedy River in South Carolina. This accident damaged the company’s reputation with both the public and regulators. Forced to scrutinize how we conducted business and maintained the pipeline, we discovered that human factors are as important to the operation of the pipeline as mechanical, electrical, and computer systems. In response, our leaders worked with employees to begin making changes in the ways we did things. Relying on our frontline workers to provide answers and to become change agents has proven invaluable in the journey to operational excellence.

Conduct of Operations Guide

Over the past several years, all employees from the executive offices to the pipeline facilities have become involved in continuous improvement and learning. One of our first realizations in the aftermath of the Reedy River accident was that we didn’t have a set of administrative policies that guided the performance of daily operations tasks. In 1998, by working with people in field operations such as maintenance, quality assurance, and engineering, we developed a “Conduct of Operations” document that specifies the proper use of procedures, communication techniques, written information in logs, control of equipment, professional behaviors in operations areas, verification techniques, and so on. Operations employees recently updated the document, which had been based on a model from the nuclear industry.

Compiling the Conduct of Operations reflected a shift toward involving the people who do the work in setting policies and solving problems. At the same time, we adopted a guideline that any person has the authority to shut down the pipeline if he or she thinks there’s a problem. Although ceasing operation is undesirable from a business perspective, we would rather shut down and lose revenue while we investigate the cause of the unusual indicator than take the chance that there’s a leak or spill. Protecting the public, the environment, and our employees needs to be the top priority.

STAR. One of the elements of the Conduct of Operations is STAR, which is an acronym for Stop, Think, Act, and Review. This tool has proven to be a simple but powerful way to avoid errors. When a person does a task, he or she stops before doing the first step, thinks about the correct action, acts by doing the step, and reviews to ensure the actual result matches the expected result. For example, if I’m going to open a valve to start gasoline flowing through the pipeline, I’ll stop, think about what I’m going to do, push the correct button, and then look to see that the valve for gasoline is open. If there’s a problem, I can immediately recognize and correct it. Through our voluntary near-miss reporting system, we receive regular accounts of how STAR has prevented errors or other problems.

We introduce and reinforce the use of STAR in a number of ways. The most effective is a yellow foam star similar to that shown in “The STAR Process.” These stars or small signs with the acronym are visible at all facilities as a constant reminder that this simple tool can prevent errors. Some people have even adopted the STAR process at home.

The Power of Teams

Each of Colonial Pipeline’s four districts, which span the entire pipeline, and its operating control center in Atlanta now has an OPEX team. The teams have between 7 and 12 members and include operators, technicians, project team personnel, and an operations manager. Individuals are chosen based on their experience and expressed interest in representing their local units as operational excellence “champions.” Team members regularly communicate with each other through quarterly meetings, conference calls, and e-mails. All teams have similar charters and goals that are linked to corporate, district, and individual goals.

The members of the OPEX teams have been invaluable in leading change initiatives at their locations. With the support of local and corporate management, they have conversations with their coworkers about ways to achieve “spill-free, error-free performance.” In many cases, the OPEX team members have received training as on-the-job coaches or procedure writers. One individual has led an effort to develop operating procedures that are task-specific, designed with the user in mind, and focused on mitigating risks. After five years, these procedures are used at all facilities. They have played a large part in ensuring safer operations and are used as training tools for new employees.

To increase team effectiveness, we’ve used The Team Memory Jogger, a publication of Goal/QPC. OPEX team members regularly evaluate their meetings and use the ideas in the book to solve problems. They also use the “personal skills checklists” in the book to improve their own performance.

At the end of the year, all 50 team members are invited to a two-day Operational Excellence Summit. One manager calls this event “a family reunion, celebration, info-mercial, tent revival, cheerleading clinic, and time of learning.” Participants take advantage of the time together to share learnings. So team members can share their experiences with their coworkers back home, we have a graphic recorder document the event in evocative words and images. Reproductions of the illustrations are still being passed from location to location nine months after the last Summit, providing a rich source of discussion topics.

New Approaches

Based on our success with these kinds of tools, we have tried other things that we would not have attempted several years ago. Last year, all technicians who had been with the company less than five years participated in technical training. The training involved studies of electrical and mechanical principles, basic math, print reading, and assembling and disassembling valves and pumps. It also included storytelling. If someone had told me 10 years ago that our technicians would be involved in telling stories to one another as a part of their training, I would have laughed.

In any case, we know that people learn best when they are sharing meaningful experiences. At the different sessions of the technician course, participants were required to think of a story about their work. At each class meeting, one individual shared his or her story. This approach proved very successful in helping attendees understand what being a technician at Colonial means. It also aided people from different locations and backgrounds in creating a network of support.

I recently used another technique with the Operations Leadership team, which includes those leaders in all areas of the organization who are involved in strategic initiatives and decisions. They were dealing with a complex issue about organization redesign that required a common understanding of all the challenges and mutual agreement about the path forward. I adapted a tool called “Visual Explorer” for the group. As I travel around the pipeline system, I habitually buy postcards that convey metaphors or show local scenes. For example, last year I purchased postcards with images of Amish agriculture and people working together building barns in Lancaster, Pennsylvania, the setting for a technicians’ meeting.

At the meeting, I spread lots of the postcards on a table. After listening to a presentation, participants wrote down their thoughts about what was important to them regarding the redesign. They then went to the table and looked at the postcards until they found one or several that “connected” with both them personally and their thoughts about organization redesign. Finally, they went back to their seats and wrote about the meaning the cards had for them in this context.

I didn’t know what to expect when the time came to discuss the images. What occurred was a thoughtful conversation about many aspects of the issues involved in organization redesign. Although participants didn’t come to a final conclusion about how to approach the task, they agreed on the need to work together to build new capabilities in the organization’s workforce.

Writing this article has made me realize that our mission statement about delivering energy solutions and linking folks who need one another doesn’t just apply to transporting petroleum products from suppliers to consumers. We can supply energy for learning to one another, and we can continue to link employees with learning tools that develop individuals, teams, and the organization. Linking, conversing, developing, working together—these practices energize our workforce and lead to more systemic learning.

The post Systems Learning for “Error-Free” Performance at Colonial Pipeline appeared first on The Systems Thinker.

We can learn how to recognize and work more effectively with these dynamics by applying systems thinking to:

1. Illuminate the often non-obvious interdependencies among multiple elements that create such problems,
2. Increase awareness of how people unwittingly undermine their own efforts to achieve their stated aims, and
3. Point to high-leverage solutions that benefit the system as a whole.

This article briefly introduces several principles for analyzing the root causes of complex problems; applies them to gain a deeper understanding of the current financial crisis; and recommends high-leverage actions that political and business leaders can take to improve economic performance in sustainable ways.

The Instability of Reinforcing Feedback

The performance of a complex system is largely determined by interdependencies among its elements, many of which are indirect, circular, and non-obvious. Perhaps the most salient of these relationships is reinforcing feedback, which explains the dynamics of both exponential growth and spiraling decline. Such phenomena as compound interest that dramatically increases savings over time and engines of business success that fuel expansion are familiar illustrations of positive exponential processes. On the other hand, vicious cycles such as epidemics and economic collapse are indicative of negative reinforcing feedback.

In order to understand the current financial crisis, we first need to recognize that the same engines that stimulate exponential growth can also lead to sudden collapse. Economic bubbles tend to burst, and bull markets can suddenly turn into bear markets. In the case of the recent housing bubble, low interest rates generated easy credit, which was amplified by new financial instruments such as credit default swaps that spread and leveraged investor risk. Easy access to mortgage money increased housing prices — until higher adjustable mortgage rates kicked in and led to mortgage defaults and foreclosures, steep declines in housing prices, the collapse of key financial companies, and the tightening of credit.

In the case of the stock market, rising credit led to increased consumer confidence and increasing stock values, which in turn created greater purchasing power and fueled more purchases and higher market values. However, the sudden loss of confidence spurred by the financial crisis and declining stock prices has now led to reduced purchasing power, belt tightening, and a widespread recession. The bear market is intensified by (1) the long-term accumulation of debt resulting from credit-driven growth, and (2) the dependence of the previous bull market on purchases of largely non-renewable consumer and military products that have undermined investments in more sustainable innovations and growth. The dynamics of reinforcing growth and collapse are summarized in “The Instability of Reinforcing Feedback.”

Two high-leverage strategies for avoiding the dependence on reinforcing feedback as an unending source of growth are:

• Anticipate and prepare to address natural limits to any growth process. This means remembering that there are no free lunches and that promises of infinite growth inevitably prove false.
• Evaluate and manage growth in relation to independently meaningful goals rather than as an end in itself. We need to understand that money can enhance the quality of our lives by making it easier to realize our aspirations and express our values, but that the single-minded pursuit of money is ultimately deadening.

Managing Unintended Consequences

Another systems principle is that most quick fixes have unintended and delayed consequences that usually neutralize or reverse immediate gains over time. In the case of the current financial crisis, the bailout not only risks significant complications in years to come, but has also led to negative unintended consequences in the short term. First, the bailout has not achieved its immediate aims of opening credit markets or increasing consumer confidence, because banks have largely held onto the money to ensure their own solvency. Second, the resulting increase in the federal deficit, which will be compounded down the line by looming increases in Social Security and Medicare payments, will likely create significant tax increases that reduce purchasing power even further. A higher federal deficit will also generate inflation that reduces purchasing power and increases interest rates, thereby further limiting people’s ability to borrow as a way to stimulate growth.

One higher-leverage way to shift these dynamics is to address the root causes of the financial industry collapse instead of just its symptoms, i.e., prevent foreclosures by restructuring the mortgages of people at risk, and change the financial rules of the game (including incentives and instruments) that led to the collapse in the first place.

The performance of human systems is significantly affected by people’s deeply held beliefs and intentions. With regard to our economic system, many political and business leaders believe that growth measured primarily in financial terms is inherently good and that the ultimate goal of the system is to increase it. This belief results in high pressure for growth, which our country has tended to achieve by stimulating borrowing instead of savings (at the individual, corporate, and national levels) as the basis for investment, and encouraging spending, especially on consumer products and a strong military. For example, consumer spending has been spurred by low interest rates, and military spending has been increased to combat terrorism. The consequences of these strategies include increased deficits (again at all levels) and relatively low investment in renewable resources such as education, research and development, preventive healthcare, and alternative energy.

In order to reduce the high costs of an economic paradigm based primarily on financial growth, we need to shift to a new paradigm designed to achieve sustainable development. This entails:

• Reallocating federal spending and redesigning tax incentives to develop renewable resources such as people and alternative energy.
• Stimulating consumer and business spending based more on interest earned from savings than on interest paid for loans. One way to encourage savings is to gradually shift the tax structure toward reducing income taxes — because earned income tends to generate economic value — while increasing sales taxes (with credits for low-income families) — because consumption often destroys value.

This kind of economic stimulus package can reduce the federal deficit in the short term by decreasing mortgage defaults and thereby strengthening the financial industry. The deficit would decline in the long term due to changing policies that reduce lending risk and increase savings, and by the higher tax revenues generated from a more sustainable economy. These strategies for meeting the financial crisis and redesigning how we approach our economy are shown in “Framework for a New Economy.”

Facilitating Continuous Learning

s In addition, there are several other applications of systems principles that can help political and business leaders make wiser decisions about how to respond to the current economic crisis:

• Because most actions have both unintended and intended consequences, decision makers should always ask themselves what might be the accidental impacts of the solutions they propose before acting. Congress attempted to do so in challenging the bailout, but the fear of further immediate financial collapse resulted in Congressional approval without adequate oversight of how the money would actually be spent.
• Since unexpected outcomes are so common, processes for learning and correction should be built into all decisions. For example, since the bailout has done little to restore the economy so far and many people question its underlying rationale, policy makers and analysts should deeply question the reasons for the shortcomings and make adjustments as needed.
• Most actors in a human system unwittingly create or contribute to the very problems they are trying to solve. This means that as part of the learning about the bailout, decision makers must question their own responsibility for the problem rather than blame other stakeholders for what happened.
• Changes in complex systems often require significant time and patience to take hold. Therefore, any short-term learning and correction needs to be carefully judged against a theory of change that explicitly takes time delays into account.

In summary, systems thinking can support decision makers to increase both the short- and long-term effectiveness of their decisions. The current financial crisis offers an opportunity to alter previous policies and transform the way we develop our economy.

David Peter Stroh is a principal with Bridgeway Partners (www.bridgewaypartners.com) and a founding director of Applied Systems Thinking (www.appliedsystemsthinking.com). His areas of expertise—developed over a 30-year career consulting with private, public, and non-profit organizations around the world—include applying systems thinking to facilitate organizational and societal change, visionary planning, and leadership development.

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Trust and Community

The year before Marianne took office, the division developed a new strategy to ensure that customers’ orders were filled in an optimal way. This initiative had significant organizational consequences, because business units had to cooperate in a way they had not done before. Up to this point, they had operated independently from different countries and locations. To support this strategy, the company installed an integrated IS-IT system, which required a standardization of work processes and a change in mindset for employees.

The financial function mirrored the complexity of the division. A year after this change was introduced, staff members still resisted aligning their work processes with those of other business units and utilizing the IT system’s full capacity. For them to share their knowledge and competency more effectively with each other, the financial group needed to reduce internal competition, establish greater trust, and feel as if they belonged to a community that served the whole division.

The Power of And

To address these challenges, we decided to promote the power of “and.” In all of our activities, we linked seemingly disparate concepts, such as vision/values and reengineering systems/practices; creativity and complex financial issues; fun and tough business problems; and individual growth and team empowerment.

When people understand and identify with the whole, they recognize the importance of their contribution and can better align their unit’s vision with that of the company as a whole.

Behind this double focus were some core beliefs and assumptions:

• People offer the highest leverage for bettering an organization. When individuals become aware of the potential for improvement and are involved in setting the direction and establishing the values they want to live by, they naturally move in that direction.
• To be engaged, people must have a clear image of what they want to create. In addition, they do best by starting with small steps and achieving results quickly.
• When people understand and identify with the whole, they recognize the importance of their contribution and can better align their unit’s vision with that of the company as a whole.

We decided that the best way to put these beliefs into action was through large-group events. Twice a year, we conducted two-day gatherings where people worked on specific, ongoing organizational goals. The setting was informal, and people were invited, not ordered, to attend. To attract participants, we worked to establish a reputation for providing challenging, fun, and result-oriented activities. Before each gathering, we clarified the results we wanted and looked for ways to incorporate creativity, play, and an element of surprise. Throughout the event, we carefully monitored activities and changed the program’s content if people became tired or disinterested.

At every event, one or two top executives talked about the main strategy and development plans for the division, often using material prepared by the financial group in this larger context. These presentations gave the group a sense of the big picture and signaled the importance of their individual contributions. We kept employees who didn’t attend informed of the results through an intranet newsletter.

Vision/Values AND Reengineering Systems/Practices. Before we began conducting these events, the financial group had only a vague idea of its role within the company, which many perceived as simply providing financial reports and business analysis to management. When people came together as a community, a new vision emerged: to create value for the division by being a proactive team player in business decisions, seeing the big picture, focusing on the future, being flexible and energetic, and continually seeking improvement.

To reach this vision, during one of the gatherings, the group decided it needed to establish a culture characterized by respecting the individual, sharing knowledge, challenging each other, and recognizing and rewarding success. As they began to work together differently, based on these values, new opportunities became visible. The group was able to identify “low-hanging fruit,” that is, easy-to-do actions that yield high-leverage consequences. No one could see these possibilities before because work processes had been fragmented.

Creativity AND Complex Financial Issues. To keep energy high and encourage innovative ideas during the events, we employed creative methodologies, including the World Café. In the World Café, four to six people from different functions, levels, and locations sat at each of dozens of small tables scattered throughout a large room. The tables were covered with sheets of paper, and participants used colored pens to record the ideas that emerged from their conversation. Members from each group then moved to other tables, carrying the “seeds” from their conversation with them to share with others.

The method’s success lies in coming up with a question that “travels well” (see “The World Café: Living Knowledge Through Conversations That Matter,” V12N5). Some questions we used were: What does it mean to create value for the division? How can we make the new business system the heart of the financial community? The café setting created a relaxed atmosphere in which people felt at ease sharing their thoughts and listening to others. Losing much of their defensiveness, participants began to appreciate diverse perspectives and engage in intense business-oriented discussions that often yielded remarkable discoveries and insights.

Fun AND Tough Business Problems. We wanted our team-building efforts to be tied directly to increased productivity and results. As such, the games we used related specifically to strategic initiatives and were grounded in daily tasks. For example, to help participants understand process thinking, we gave each group a set of papers, each marked with an element involved in cake baking. Participants had to arrange them in a flow chart, indicating inputs, outputs, activities, and tools. As a result, many felt they finally understood what process thinking was all about.

Another favorite activity was learning how to line-dance, which we presented as a metaphor for understanding the importance of aligning systems. Decked in special t-shirts with cowboy music booming from the speakers, participants struggled to master dance’s difficult steps. When achieved success, with everyone moving together, the group burst into spontaneous clapping.

Individual Growth AND Team Empowerment.

We made stress management a theme at several events. Participants appreciated being able to share their struggles with pressing deadlines and uncomfortable situations. They were surprised at how common their problems were and learned stress-reduction techniques.

To give participants a sense of continuity, momentum, and accomplishment, we allotted time for presenting project results to the whole group. The group then provided feedback and celebrated milestones. This process made individuals more visible to the entire division and also gave everyone a sense that their input was needed and welcomed.

At every large-group event, Marianne awarded the “Golden Glue” prize to individuals who clearly contributed most across business units. We usually had a closing ritual at the end of each gathering that summed up the accomplishments of the event; for instance, each person might describe in one word their most important learning.

Group Achievements

The financial organization has radically changed in the past three years. By pooling individual competence, using integrated systems, and improving processes with a focus on creating value for the division, it has become a proactive, future-oriented partner with other business units, providing valuable input on strategic division-wide decisions. Taking on new responsibility and succeeding has released creative energy into the organization. This enthusiasm was particularly obvious when the group completed a large process analysis in record time on top of ordinary workloads.

In 2000 the financial organization received a prize from the Norwegian Association of MBAs. Although the award was specifically conferred upon Marianne, she openly shared the honor with her colleagues for their willingness to try a new approach and for following through with dedication and determination.

Currently, the whole aluminum division is being reorganized and downsized to become more effective and efficient. In addition, the parent company has made a large acquisition with substantial integration challenges. We believe that, through their participation in this change process, the individuals in the financial community have become better equipped to deal with the challenges they are now facing.

Marianne M. Aamodt was CFO of Hydro Aluminum Metal Products Division from 1998-2002. She is currently head of the Organizational Structure and Dimensioning team for the integration of the newly acquired international German-based aluminum company. This acquisition is the largest in Norwegian history and makes Hydro Europe’s largest, and the world’s third-largest, aluminum company. Mara Senese (senese@online.no) is a senior partner in Senese & Depuis Associates. An American living and working in Norway, since 1987 she has served as a coach and consultant to executives and their organizations facilitating creative learning environments as well as teaching personal mastery, communication, creativity, and intuition development.

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