But the importance of service quality is not limited to service industries like banking, insurance, or package delivery. As the global environment grows fiercer every day, manufacturing companies are realizing the importance of focusing on the quality of their services, not just their products.

“You can’t touch or feel a service, nor can you inspect it after the service is completed. At the point of ‘delivery,’ everything that is needed to provide the service must converge in order to provide the customer with high quality.”

“Moments of Truth”

Improving service quality promises a myriad of benefits. It costs far less to keep a customer than to win a new one, for example, and perceived high-quality service firms can often charge up to 10% more for their products than competitors. The question is how to do it.

In the rush to reap the benefits of improving service quality, companies may be too quick to borrow from past experience in manufacturing. But there are important differences that make improving service quality much more elusive.

One obvious difference between products and services is that one is tangible while the other is not. You can’t touch or feel a service, nor can you inspect it after the service is completed. At the point of “delivery,” everything that is needed to provide the service must converge in order to provide the customer with high quality. Each of those interactions are the “moments of truth” which determine whether you are seen as a high-quality service operation or not, according to Jan Carlzon in his highly-acclaimed book, Moments of Truth.

Quality, as seen by the customer, is determined by each moment-of-truth encounter with frontline personnel. The net benefit of millions of dollars worth of capital equipment, buildings, salaries, etc. that a company has assembled will be judged, in large measure, by the quality of those interactions. Those moments of truth are numerous, ephemeral and difficult, if not impossible, to measure. And yet, the long-term reputation and success of a service company is largely riding on them. This suggests that many companies are investing far too little in their front-line personnel. How many moments of truth are actually “moments of despair” for their customers?

Just-in-Time vs. Just-in-Case

For some companies, providing high quality service means creating a just-in-time (JIT) operation, where all the necessary ingredients converge at the point of delivery exactly when it is needed. In a JIT production system, inventories are kept to a minimum throughout the factory by making sure there is just enough inventory at each step of the process to supply the next batch. But it is dangerous to carry the JIT philosophy too far in the service arena.

In manufacturing, the product has already been designed; all that remains is to run the production line as smoothly as possible. Variances in the production line can then be control-charted and maintained. In a service setting, however, front-line personnel have to be ready to produce a service whose design is not fully complete until they interact with the customer. Unlike the manufacturing setting, customers often introduce variances that cannot be controlled in advance. Having adequate capacity online is critical to providing high quality service. In a JIT production system, if the production line goes down, the down-time does not affect the quality of the next product off the line. If there are enough buffer stocks of finished goods, the customer won’t even experience any difference in delivery. If you are under capacity in a service setting, however, there is no way to make it up in real time with “buffered” service time. In addition, it is virtually impossible to “recall” a poorly delivered service. A flight that arrives two hours late and causes people to miss a meeting cannot be changed. A package that is delivered too late for a speech is simply too late. The capacity has to be online and available precisely when the customer requests it. This suggests that, unlike JIT, one may need to plan in terms of Just-in-Case service capacity—that is, service capacity should be weighted more towards peak volume than average volume.

Complexity Line Model

Complexity Line Model

Work can be divided into simple and complex tasks. If the intrinsic needs of the customer is a 50-50 mix, there is a quality gap if any of the quality indicators differs from that mix. For example, Quality Goal assumes a 6040 mix, so a Gap 1 exists.

The Complexity Line Model offers a way of looking at service quality in terms of four different capacity requirements: voice of the customer, the quality goal, working quality standard, and actual quality. In the Complexity Line Model, all service work is viewed either as simple (processing) work or complex (technical) work. In reality, there are many gradations, but for ease of use we will work with the two categories. Simple work means things that can be handled by an entry-level person. Complex work, on the other hand, requires a lot more experience and skill. In general, complex work also requires more time.

Suppose we are managing a customer service call center. Ideally, we should be staffed to match the exact needs of the customer as shown on the Voice of the Customer line (see “Complexity Line Model” diagram). Suppose that the intrinsic needs of the customer calls coming into our center are split 50-50 between simple and complex. That is, on any given day, 50% of the calls are routine. The other 50% are complex and require more understanding about the business.

Gap 1: Understanding the Voice of the Customer. In reality, we never know exactly what the customer needs. The customers themselves may not fully know what they need. The quality goal line represents our current understanding of the customer’s needs. For example, we may be staffed and prepared to handle a call volume that we believe is 60% simple and 40% complex. Gap 1 represents the difference between what the customer actually needs and what we think the customer needs. In this case, 10% of the customers will not receive proper service. Reducing this gap requires an investment in understanding what the voice of the customer is.

Gap 2: Understanding the Voice of the Process. The Working Quality Standard line may be different from the quality goal if the service capacity in place is not sufficient to provide the stated quality goal. In this case, say the people doing the work are capable of handling a call volume where 70% of the work is simple, and 30% is complex. Gap 2 represents our lack of understanding of what our current system is capable of (voice of the process) relative to what we are asking it to do (quality goal). In this case, we fall short of our own goal by another 10%.

Gap 3: Managing Customer-Generated Variance. The Actual Quality line represents the day-to-day moments of truth in which the customer actually experiences our service quality. If we are staffed to meet a 70-30 complexity mix, and the volume of calls stays relatively constant, customers will experience quality at the working quality standard level. Suppose, however, that incoming call volume suddenly jumps by 20%. What will the pressure in the system do to actual quality? The only way to serve a larger number of customers with the same number of people and skill mix is to reassign complex work as simple. The work can then be given to less experienced staff (“I know Joe’s only 2 weeks on the job, but I think he can handle this one”) or we can treat it as simple and spend less time on it (“I don’t think they need to know about all the other options…”).

So now work is handled as if it is 80% simple, 20% complex, which represents the actual quality. Gap 3 represents the daily adjustments that have to be made when customer volume and special requests exceed the capacity established by the working quality standard. Although our working quality standard has not changed, actual quality has grown worse. If this becomes a frequent occurrence, the quality standard can be pulled downward toward actual quality. As the quality standard adjusts to a lower level, actual quality can get pulled down still further the next time the call volume exceeds the already lowered capacity (see “Quality Erosion over Time” diagram).

Drifting Goals Structure

The dynamics of service quality can be captured in a “Drifting Goals” archetype (B1 and B2 in “Managing All the Quality Gaps”). A gap between the quality goal and working quality standard can be closed in one of two ways—lowering the goal (B1) or raising the standard (B2). Lowering the goal is easy and quick; raising the standard takes time and investment (see “Drifting Goals: The Boiled Frog Syndrome,” Toolbox, October 1990).

Focusing on the needs of the customer can help balance the pressure to reduce the quality goal. The voice of the customer increases Gap 1 which increases the pressure to raise the quality goal (B3). In this model, we see that the art of setting quality goals requires balancing the voice of the customer with the voice of the process. In terms of TQM, this means continually trying to identify the intrinsic needs of the customer (voice of the customer) and understand the systems and processes enough (voice of the process) to design them to be in line with those needs.

Managing All the Quality Gaps

Achieving service quality excellence means managing all three gaps to set quality goals that are sensitive to the voice of the customer and the capabilities of the current system.

Maintaining the working quality standard without losing ground requires managing the gap between actual quality and working quality standard. A high-quality operation should have adequate capacity to handle the majority of the variance it encounters and should keep actual quality within a narrow band around the working quality standard. An operation that is out of control would have a wildly-fluctuating and persistent gap.

Managing All the Quality Gaps

Achieving service quality excellence means managing all three gaps simultaneously. Focusing exclusively on the customer and making your quality goals aligned with their needs will reduce Gap 1, but it will only make Gap 2 worse. If you raise the quality goal without investing in the requisite training, personnel and systems, employees will see it as nothing more than banner-waving and go on with business as usual.

If you focus exclusively on reducing Gap 2, however, you may encounter tremendous pressure in the system to close the gap by lowering the goal. The history of the quality standard can often provide compelling evidence that the quality goal is out of line with the “real” system, and lead to “Drifting Goals.” Focusing exclusively on eliminating Gap 3 will create an identical tendency for the standard to float with actual quality.

The customer’s experience of quality is determined by the sum of all three gaps. The challenge for service companies (as well as manufacturing firms with service operations) is to develop the ability to identify and eliminate all three gaps even as the voice of the customer continually changes. It requires investing in service capacity ahead of the current requirements in order to be able to treat each moment of truth with the quality that the customer intrinsically needs or wants. The Complexity Line Model is based on the work of Bob Bergin and Gerri Prusko at Hanover Insurance Co. (Worcester, MA). The author has developed and used a Service Quality Management computer simulator to provide practice fields for managers to understand the complexity line concepts. The software runs only on Macintosh computers. If you wish to acquire a copy, please write to Daniel II. Kim, MIT Organizational Learning Center, MO-294, 1 Amherst St., Cambridge, MA 02139.

Further reading: “Now Quality Means Service Too,” Fortune. Apri122, 1991; Jan Carlzon, Moments of Truth (New York: Harper & Row, 1987).

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According to project manager Janet Gould, the research will address three basic questions:

• What does it mean to be competent in systems thinking?
• What skills must people acquire in order to become competent in systems thinking?
• What additional skills are necessary to become an active facilitator of systems thinking within an organization?

Much of the initial work in the project has been devoted to defining what should be included in a list of systems thinking competencies. The diagram at the right shows a proposed framework for addressing the issue. Deciding what specific skills fall under each matrix cell is a crucial aspect of the research and will re-main fluid for some time. Even the current definition of the axes is a tentative selection.

Although dialog about the course content continues, a few formats for delivery of the course have been suggested. One possibility is to conduct an intensive, five-day course which would immerse the participants in the principles of systems thinking. Such an experience, explains Tom Grimes of Hanover Insurance Company, a sponsoring company, might help participants retain the lessons from the course. “We have such a capacity to think linearly in our lives,” he explains, “that it’s going to take a major learning experience to turn it around.”

Another possible format would be to have three days of instruction followed by “refresher courses” held every few months. In between, participants would keep logs describing how systems thinking is affecting their work. The iterative process could continue for a year or more, notes Gould.

Regardless of its final format, an essential element of the course will be team learning. Groups of people from the same division of a company will be encouraged to go through the course together and to continue using the skills they have learned back in the workplace. Explains Gould, “We think the learning might last longer with this method, because the participants would be working with a group of people with whom they can continue talking about systems thinking, rather than being isolated.”

Initially, the content of the course will be modeled after two courses already available—the MIT Summer Session, a week-long introduction to systems thinking, and a five-day course designed by consultant David Kreutzer for his clients. Both courses teach participants simple feedback loops and how to build simple computer models of complex systems. A limitation of both course designs, however, is that the skills covered do not fully address all the cells of the research matrix.

Grimes hopes to address four main objectives with the course:

1) To raise awareness of the limits and some of the potential dangers of linear thinking.

2) To use systems thinking as a way of identifying the assumptions we make underlying our decisions.

3) To develop a common language for talking about systemic issues.

4) To critique and expand our view of reality without getting into issues of personality or emotionality.

A prototype course should be ready in a few months. At that point, the researchers will begin to implement it in four or five participating companies. But Gould emphasizes that the course design is only part of the research project. “We also need to know from a research standpoint whether this course is going to do anything for a company. Are people actually learning what we’re expecting?”

…an essential element of the course will be team learning.

In order to evaluate the course, participants will answer questionnaires that test how well they have assimilated key concepts. Not only will their answers help the researchers gauge the success of the course, but Gould notes that the participants will also be able to track their own progress.

Internal facilitators will also play a crucial role in implementing systems thinking in a company. “Essentially you need to build up internal expertise in systems thinking,” explains Dan Simpson, Director of Planning at The Clorox Company. “Without that internal expertise, it’s unlikely any new thinking mentality will infiltrate the organization very well.” Simpson adds that a separate, more intensive course may be necessary to train the facilitators who will continue the systems thinking learning process inside their companies. “These people will continually make the translation from what is an academic field of study into operational action inside an organization.”

Despite the questions on how well the course might implement systems thinking in companies, there is no doubt among the course planners that systems thinking is a valuable tool for organizations. As Simpson describes it, “Systems thinking helps practicing managers begin to think through the ‘ripple effects’ of their decisions. It’s often not clear when you make a decision as a practicing manager in one area that there are interactions with other areas, intended or not. Systems thinking offers a way to control—or at least consciously manage—the ripple effect, as opposed to just letting things happen.”

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In 1982, however, a period of massive change began. The president of the college was forced to resign, and the college subsequently went through four presidents over a span of 13 years. After the most recent departure, an interim CEO was brought in to “clean up the mess” while the board of directors searched for yet another replacement.

Although the interim president was considered highly competent, he had a reputation for being more like Atilla the Hun than Stephen Covey in terms of his leadership style. And despite the board’s assurances that any interim replacement would not be eligible for the position, the acting president was eventually hired permanently. This decision, on top of years of change and instability, sent the organization into a state of shock. Daily rumors circulated about potential firings, and few people in the college felt secure enough to take risks. In order to regain our effectiveness as an organization, we needed to somehow work on rebuilding our community. But first, we needed to address the underlying issues that had bred a culture of fear and mistrust.

Examining the Culture

In September 1994, I discovered an article in The Systems Thinker by Greg Zlevor entitled “Creating a New Work-place.” The article asserted that all organizations operate at some point along a “community continuum”: somewhere between “disciety” (dysfunctional society) and “community.” It seemed to me that in order to improve our organizational climate, we first needed to identify where we were on the continuum.

I shared the article with the director of research at MATC, and together we decided to conduct a “quick-and-dirty” survey based on Zlevor’s model to get a sense of how our colleagues viewed our organization (see “MATC Community Survey”). Once it was complete, we mailed the survey to the entire management council of the college (over 125 people).

To our surprise, we were inundated with phone calls the next morning. Many of the callers were struck by the candor of the statements, which were considered “undiscussables” in the organization. (The statements were taken verbatim from Zlevor’s description of the different positions on the continuum.) Some callers had questions about confidentiality (their names were inadvertently included on the back of the survey, due to the internal mail routing labels). Several callers wanted to know if the new president was behind the survey. Still others were relieved that our organization was beginning to talk about these issues:

Amazingly, we received more than an 85% return rate on the surveys. We separated the responses into five piles, each representing a point along Zlevor’s continuum. The results were almost perfectly bimodal: people either saw the college as dysfunctional (“This place is so political”) or formative (“We have our ups and downs, but mostly ups”). We surmised that because there was no shared sense of the community as a whole, people’s experience of the college depended to a large extent on the ups and downs of their daily experience.

We brought our data to the next meeting of the senior administrators (all of whom had been recipients of the survey) in order to explore the results. The dynamics of the ensuing discussion were as revealing as the survey results had been. Some people immediately demanded to know, “Why was my name put on the back of the survey?” Others became defensive, wondering, “Why wasn’t I told about the original article?” The group as a whole seemed to attack the validity of the survey itself, asking, “Why was this even done?” Their reactions seemed to reflect the overall climate of the organization—one of fear, mistrust, and well-entrenched defensive routines. At the conclusion of the meeting, they recommended that the entire survey episode be put to rest. However, it was not going to be forgotten that easily.

MATC Vision Deployment Matrix

To get a better picture of current reality at the college, and to paint a picture of the desired future. the STOL group used a tool called the Vision Deployment Matrix!”. This diagram shows the collective responses of the STOL group to the first two columns of the matrix.

Reframing the Work

Earlier that year, a small group of people representing a cross-section of management began meeting regularly to learn more about systems thinking concepts and tools. The official title for the group was STOL—for Systems Thinking and Organizational Learning—but we jokingly referred to our get-togethers as “Systems Thinking over Lunch.” Since our group had been using different case studies to hone our skills, I brought up the survey as a good opportunity to explore the larger dynamics at play in the organization. However, we quickly realized that the implications of this project were larger than any of our previous case studies—it really involved reframing how we thought about the nature of our entire organization.

As one of the ways to provide a framework for this effort, we decided to use the Vision Deployment Matrix TM, a tool developed by Daniel Kim for helping groups articulate an action plan for moving from current reality toward a shared vision (see “Vision Deployment Matrix T”: A Framework for Large-Scale Change,” February 1995). The nine members of our STOL group filled out the Vision Deployment Matrix individually, then worked together to weave the individual perspectives into a collective matrix (see “MATC Vision Deployment Matrix”). After we filled out the first two vertical columns of the matrix—”Desired Future Reality” and “Current Reality”—we decided to get the president’s input to see how his perceptions compared to our own.

After hearing a short explanation of the matrix, the president also filled out the first two columns. Interestingly, his responses were similar to ours. For example, in the box that indicated the systemic structures needed to achieve the vision, the STOL group had noted a need for “shared decision-making” and “effective communications,” while the president expressed a desire for “more constructive meetings.” This gave the STOL group confidence that the president shared our understanding of the vision and current reality of the college. In addition, his willingness to participate sent an important signal that he supported our efforts to examine and improve our organizational culture.

Improving Communication

Through the process of developing our matrix, we began to realize that one of our biggest obstacles to achieving our vision of improved community was the unspoken mental models held by members of the college—the untested assumptions that were preventing open and effective communication. This became clear at the next meeting of the Management Council, when the president gave a presentation on the issues facing the organization. After his talk, the STOL group then conducted a “left-hand column” exercise, in which the participants wrote down on the right side of the page what the president said, and on the left side they voiced what they thought or felt in reaction to his comments.

What the group discovered through the process was that we all tend to hear what we expect to hear. For example, the people who anticipated hearing only “bad news” heard precisely that. Those who expected to see a “tough guy” in the president had their predictions confirmed. And, intriguingly, the people who were open to organizational change saw the shifts that were occurring as a positive development for the college (see “Left-Hand Column: One Perspective” for an example of this exercise). This exercise opened up our awareness of the significant role our mental models play in selecting what we hear and don’t hear, and it had the desired effect of opening the group up to a deeper level of conversation. Our work in developing a deeper level of community was beginning to take hold.

Preliminary Results

When the STOL group developed its Vision Deployment Matrix, we noted that one of the indicators of progress toward developing community would be an openness in communication throughout the administration of the college, as well as an increased ability as a group to suspend our assumptions and inquire more deeply into each other’s reasoning. The area where we have seen the greatest progress toward this goal has been in the Management Council meetings. In the past, they were full-day sessions that consisted primarily of lectures given by the president and/or his direct reports. The attendees often felt “talked at” for hours on end. There was very little participation, and many attendees passed the time by surreptitiously doing paperwork. When we did a quick analysis of the cost of the meetings, we discovered that the college was spending approximately $100,000 per year on a function that yielded very little benefit.

We decided, therefore, to use the Management Council meetings as an opportunity to work on developing better communication, and to begin to tap into the collective intelligence of the members. We shortened the meetings to half-day sessions, eliminated the speakers, and refocused the agenda on working together in small groups to tackle some of the serious issues facing our institution. At the first of the redesigned management meetings, two college-wide issues that were generally considered to be undiscussables were addressed: (1) how to better implement the entire CQI process; and (2) how to productively examine the positive and negative effects of the changes that occurred within the organization during the last several years.

In order to facilitate more productive communication at the meeting, we assigned people to small groups, each of which represented a cross-section of the college. As the groups were invited to share their insights with the entire council, previously undiscussable issues were sufficed, and some very productive conversations ensued. For example, the “undiscussable” issue of a compensation and benefits inequity between union and non-union employees was raised, and specific recommendations were made for further action. After the meeting, we shared the outputs with the president (who chose not to be present during the meeting so as not to inhibit open communication), and we forwarded the results to the CQI Steering Committee of the college.

Left-Hand Column: One Perspective

After a talk by the president to the Management Council the STOL group conducted a left-hand column” exercise. In order to surface the mental models operating in the group.

Our Ongoing Work

The evaluations from our first redesigned Management Council meeting were very positive. Many people commented that the college was “finally moving forward.” But even as we are celebrating this modest success, we recognize that we have a long way to go toward our goal of developing a healthy community at MATC. In order to continue our work on organizational integration and community building, the STOL group has identified four areas for further action:

• continue to work on building communication and trust
• make systems thinking courses and materials available to others at the college
• continue to develop systemic solutions for problems at the college, working with the president to effect high-leverage changes
• re-survey the Management Council to accurately assess current reality at the college

As we develop our skills in community building and in creating structures that will sustain that community, we believe we can make a profound difference in the organizational culture. With the help of organizational learning tools, we are confident that our culture will continue to move toward openness and community.

James B. Rieley directs the Center for Continuous Quality improvement at Milwaukee Area Technical College. He also consults with business and industry, government, and educational institutions. Editorial support for this article was provided by Diane J. Reed and Colleen P. Lannon.

This story was presented at the 1995 Systems Thinking in Action”‘ Conference.

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“What you do thunders so loud, I can’t hear what you say.”

These two quotations capture the difficulties inherent in trying to change an organization from one that is considered “ordinary” by today’s standards to one that strives to practice moral excellence. By “moral excellence,” I mean more than just avoiding what is illegal, or simply conforming to contemporary ethical standards. Instead, I mean embracing age-old moral truths and pursuing their practice with the same vigor and commitment with which we strive toward technological, marketing, or financial success.

Why make such an investment in moral excellence? Because moral excellence drives human energy. Human energy—in the form of initiative, creativity, fortitude, and stamina—drives product and service excellence, which, in turn, enhances financial performance. In my estimation, the pursuit of moral excellence is the most effective and enduring way to energize organizations, because it taps into our noblest aspirations. In addition, it can engender a social ecology in our companies that fosters individual maturation and happiness:

A Difficult Journey

Most employees want to be moral, and they prefer to spend their working lives in moral environments. Similarly, most leaders, including the members of the board of directors and CEO, want their organizations to be moral. Then why is it so difficult to transform an organizational culture to one based on moral excellence? I believe there are three reasons.

First, after decades of being treated as a herd of “hired hands,” employees are highly skeptical of new schemes of governance. They say to themselves, “I hear what management says, but do they mean it? Will they personally practice what they preach?”

Second, most corporations have not undertaken major efforts to develop the philosophical and moral underpinnings of their governance systems. Most are based on a hodge-podge of notions derived, in part, from Roman army ideas about control, technological innovations aimed at maximizing efficiency, scientific principles about measurements, and lately some accommodations to Douglas McGregor’s Theory Y. Few corporations have actually made a systematic effort to design their methods of governance in congruence with how human nature has evolved and is evolving.

Third, most managers have received minimal, if any, instruction about the moral dimension of exercising their responsibilities. Moral excellence in an organization must be undergirded by a network of managers who have paid attention to their own formation as human beings, a subject seldom found in the curriculum of our corporate management education programs or business schools.

Building a Culture to foster Moral Excellence

So how does one begin the arduous task of retrofitting a corporation’s culture to introduce the pursuit of moral excellence at its core? I believe we should begin by taking an honest look at our routine business activities (see “The Moral Stepladder”). To what degree do actions, intended to maximize self-interest, interfere with the company’s overall interest? Are decisions influenced by political connivance? Does bureaucracy overwhelm individual responsibility? Do rules and procedures take precedence over human judgment, even when the application of the rule to a particular situation is counterproductive or unjust?

Morality is either facilitated or hindered by the environment. People who may be moral at home are often less moral at work because only the most courageous of us can step out of roles and expectations when it feels like everyone else is “selling out.” The journey toward moral excellence entails an ongoing ratcheting up of personal moral formation in tandem with creating a culture that supports and expects such practices. I believe that transforming the moral ecology of a corporation entails two broad-gauge strategies: (1) establishing moral principles for human relations in a company, much as financial information is based on accounting principles; and (2) encouraging managers to pursue their personal moral formation with the same vitality with which they develop professional skills.

Guiding Principles

To identify central organizing principles for human behavior, we can rely on much wisdom that has been collected and tested over the centuries. From my experience as a business practitioner, I would suggest four basic guiding values: localness, merit, openness, and leanness.

Localness is a philosophy that guides the conduct of relations between different levels in an organization. It is more than just decentralization—it is about liberating employees from the oppressive features of the command-and-control structure so that each individual may use his or her job to stretch his or her talents in ways that also benefit the organization. Localness disperses power to competent people in an orderly, disciplined way. Over the brig term, wisely distributed power produces better economic results than lees centralized power.

Merit means directing ever: decision and action toward the organization’s goals and aspirations, while being consistent with the company’s other values. In practice, merit helps to cure the office politics and proliferation of bureaucracy that can demean the dignity of people engaged in work.

Openness and honesty are the world’s best navigational instruments. These qualities enable an institution or individual to take stock of where they are, and to chart a course for where they want to go.

Leanness tempers the human inclination for excess comfort and expansion, so that an organization or individual will maintain its health in both good and poor economic times. It embeds the ancient virtue of thrift into the soul of the corporation.

Another foundational principle, which I believe underlies the four values stated above, is love. I am not referring here to the romantic or familial connotations of the word, but to “love” in its most universal meaning: extending one’s self toward helping another person to become complete. In this sense, love is a predisposition toward helping our employees, customers, vendors, owners, or other constituents. It is an attitude that we can cultivate and direct by our will, just as we do with other personality characteristics. The central question to ask oneself in putting the value of love into practice in the workplace is, “What can I do to help Joe or Mary (or ten thousand employees) complete themselves more fully as human beings?’

Practicing the value of love in business is not a soft undertaking, nor is it without tension. The loving manager is always faced with the pressure of achieving the business imperative—balancing the common good of the organization with the needs of the individual. Oftentimes, rendering that help requires inflicting short-term hurt, such as telling someone things he or she would rather not hear. Have no illusions—delivering or receiving this kind of message is not fun. But when it is done for the purpose of assisting in growth, it is a loving act. And if it is genuinely intended, it will be heard and appreciated, even when it hurts. If a loving manager is quick and tough in addressing issues when they surface, most damaging organizational issues can be kept at a minimal level.

Moral Formation of Managers

In order to embed these guiding principles in our workplace, we must cultivate value-based relationships, particularly between individuals at different echelons. This leads us to the second aspect of creating a culture based on moral excellence: promoting the moral development of managers. Those who have highest operating responsibility in an organization should have an equal responsibility for their own moral formation. I believe that when a company engages a manager in a leadership position, his character is as important a consideration as his professional competency.

The emphasis on the importance of promoting the moral formation of mangers is not meant to imply that the majority of managers are immoral. That has not been my experience in more than 35 years in corporate life. But I do believe that most managers operate in a system where morality is underdeveloped in relation to professional skills in technology, finance, communications, etc. Many managers do not achieve the excellence they are capable of, simply because they have not devoted enough time to reflecting on the application of the wisdom of the ages to their professional responsibilities.

Leaders who intend to build corporations that tap into the full inner resources of their people must pay as much attention to their own moral formation and that of their key managers as they do to mental and technical proficiency. As an individual assumes more responsibility in the organization, moral formation becomes even more important. The depth of commitment that employees make to the company’s well-being is directly related to their perception of the moral formation of their boss and their boss’s bosses. The same can be said to a lesser degree about a customer’s loyalty to a supplier.

When a board of directors removes a CEO because the company doesn’t respond to his direction, or when a leader loses his position of power because his followers reject him (as happened to Richard Nixon), those who have known the deposed individual frequently say, “Success didn’t change him. It unmasked him.”

Behind that comment is the tacit belief that the individual had some chinks in his character all along, but he was still able perform his responsibilities competently and move on to even higher levels in the company. But what are minor cracks in moral formation in upper middle management positions can be fatal flaws in senior managers, because they set the moral tone for the organization as a whole. This is a critical point that is often underestimated by those with the responsibility for anointing senior executives or CEOs and by those preparing themselves for higher responsibility.

Leadership Qualities

Creating a culture based on moral excellence requires a commitment among managers to embody and develop two qualities in their leadership: virtue and wisdom. The dictionary defines virtue as “moral excellence; right living; goodness.” Virtue comes from the Latin word virtus, which means “manliness,” or “virility.” Yet, in modem management circles, virtue is often associated with notions of softness and weakness. Let there be no doubt, transforming corporate rat races into morally uplifting cultures that earn superior financial returns requires an inner toughness on the part of leaders—a willingness to stand against the crowd, an ability to question well-rationalized assumptions, and a faith in the power of the human spirit.

Wisdom, in turn, is more than intelligence. It suggests a special quality of judgment in human affairs, based on knowledge of moral principles, human nature, human needs, and human values. Wisdom is more than what people know, it is who they have become; and who they have become is determined by how congruent their behavior is with their knowledge.

Getting from Here to There

Creating a values-based organization is a formidable undertaking. This is true whether you are the CEO of a complex corporation with 100,000 employees or the manager of a small, autonomous division. It is a lifetime’s work, and with each step forward, there are new obstacles to overcome and new risks to be taken. Just as your organization reaches one plateau, a new mountain will emerge on the horizon.

It took Jack Adam (my predecessor as CEO at Hanover) and myself six years to see the link between the changes we made in our governance structure and the improved economic performance that followed. It took us an additional six years to build what we considered a mature, values-based, vision-driven culture — meaning our experiment in corporate governance reached a point where it produced consistently superior financial results and widely recognizable individual growth through a process that we knew how to replicate.

Why does it take so long? Because in order to bring about such a transformation, management has to change some of its long-held mental models and replace long-standing habits (see “Challenging Our Mental Models”). People quickly grasp the intellectual dimension of these ideas, and the over-whelming majority, in my experience, conceptually agree with them. But internalizing the ideas and translating them into practice takes quite a bit longer. There needs to be debate and discussion, as individuals wrestle with the personal implications of the new ideas. These conversations will then be followed by the application of the concepts to authentic situations.

Take a Look Inside

Embedding a new philosophy in an organization consists of a series of small successes, followed by bigger successes. All the while, management must live up to the philosophy — in both good times as well as times of crisis. In other words, people must see that the new philosophy works better than the culture being phased out, and also see that their manager is “walking the talk.” While this progress is taking place, there will be periods of skepticism and times of enthusiasm, periods of doubt and times of confidence.

Ultimately, the quest for organizational transformation must begin with a personal commitment within each individual to pursue moral excellence. Pushing for the transformation of an organization’s culture entails risk, and we can only face that risk if we are clear about our convictions and the beliefs we want to live by. It comes back to Ghandi’s observation that transformation takes place when you “become the change that you wish to see in the world.”

Although this type of cultural change will take time, the potential pay-off is immense. The benefits of releasing bottled-up human energy through the pursuit of moral excellence will show up in a tremendous increase in productivity, as well as unimagined improvements in relationships with external constituencies, who will respond positively to the quality of the experiences they have with such an organization.

It has been my experience that when people are free to choose between high-quality ideas or inferior ones, they inevitably choose the former. They deserve to have this choice in our corporations.

This article is an edited version of B. O’Brien. “Moral Formation for Managers: Closing the Gap Between Intention and Practice” (Cambridge, MA: MIT Center for Organizational Learning Research Monograph, 1995). Copyright 1995 by Bill O’Brien. Bill O’Brien was the chief executive officer of Hanover Insurance Company until his retirement in 1991. During his 21-year tenure at Hanover, Bill coauthored a business philosophy that resulted in a significant corporate turnaround. By applying the concepts of organizational learning, he and his staff created one of the most respected companies in the insurance industry, both in terms of the work environment and its profitability. Editorial support for this article was provided by Colleen Lannon.

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With the emergency staff and two surgical teams fully occupied, the supervisor is about to direct staff to temporarily divert new paramedic patient arrivals to other hospitals. Two of the three closest hospitals already are diverting patients due to overload. A few minutes later, paramedics radio the Medical Center. They just picked up a woman near one of the diverting hospitals. She is having a severe asthma attack. She needs attention quickly. Can the Medical Center take her?

Such scenes as the one described above were occurring with greater frequency at the San Jose Medical Center (SJMC) in the late 1980s. A hospital goes on temporary diversion status when it cannot safely accept more emergency patients because of insufficient staff, operating rooms, or beds. In San Jose, the proportion of time in which paramedic patients were diverted to other hospitals gradually increased from a monthly average of 5% in 1986 to 35% in 1990 (see “Paramedic Diversion Rate” graph). The increase in paramedic diversions was not confined to SJMC. Other hospitals were experiencing diversion rates ranging from 25-65%. The county-operated hospital, which had the heaviest emergency patient load, also had the highest diversion rate — more than 80% in early 1990.

The growing diversion rates indicated a number of stresses in the San Jose community hospital system. Between 1986 and 1988, for example, the shift from scheduled admissions to emergency admissions grew at a six percent average annual rate. During the same period, demand for hospital critical care services increased by four percent per year.

While demand for these services was growing, actual hospital capacity for critical care services remained fixed or declined. The demand for emergency-origin patients had grown faster than capacity, and the community-wide emergency medical system was becoming dysfunctional.

Decreased Quality of Service

The community incurs tremendous costs when its emergency service system has such frequent closures. When paramedic diversion rates increase, service quality suffers because of the longer time delays as paramedics “circle” around looking for an open hospital. Not only is treatment delayed, but the paramedics are distracted from their patient care duties while they spend time on the radio trying to find an open hospital.

Since already overloaded hospitals are more likely to accept patients whose conditions arc less severe, medical conditions are more likely to be misrepresented in the field. And, as the paramedics’ frustration mounts, the number of patients brought in with no prior alert — and therefore no hospital preparation — increases. These unexpected arrivals only add to the overload and lengthen the already long wait.

Systems Thinking Approach

San Jose Medical Center was particularly concerned with the growing problem of paramedic diversions since it has a history of commitment to emergency medical service. SJMC operates the busiest of three designated trauma centers in the county, and its location near the center of the population and several freeways makes it a leading hospital for paramedic patients. But as the number of diverted patients from other zones had grown, SJMC’s capacity to treat patients from its own market was greatly reduced. The result was frequent patient backlogs at various points within the Medical Center.

To address this problem, our team of department directors and executives at SJMC applied a systems thinking approach to better understand and address the growing unavailability of Medical Center capacity for emergency patients.

The key questions we addressed were:

• Where are the highest-leverage points for improving our capacity to serve emergency patients?
• What will it take (resources, structural changes) to implement those strategies?
• How much of the gap between current diversion rates (35%) and our short-term goal of 12% can be reduced by internal interventions?

(Editor’s note: Readers may want to try their hand at answering the above questions and perhaps identify analogous “emergency service” situations in their own organizations.)

To address the problem of capacity constraints and paramedic diversions, the SJMC project team began by gathering subjective data. Our goal was to collect team members’ “conventional wisdom” (mental models) about the emergency care system — its problems, the causes, and possible solutions. We then identified measurable outcomes SJMC wanted to attain, compared our actual performance with the desired performance, and calculated the gap we needed to close. To develop a preliminary understanding of the potential leverage points within the system, we developed a conceptual model which described how the system works in terms of typical operational situations.

Domino Effect

When we looked more closely at current operations of individual hospitals, we found that when the county-operated hospital diverted paramedic patients, a nearby community hospital would also go to diversion status to avoid becoming overloaded and receiving “undesirable” emergency patients. This behavior worsened the impact on other hospitals, particularly SJMC, which would then receive both hospitals’ overflow (see “Domino Effect of Paramedic Diversions” graph). The overflow would cause SJMC to go into diversion status more rapidly, causing diverted patients to flow to the next hospital, and so on. In effect, a primary cause of the overall paramedic diversion problem was the ripple effects of capacity limitations at one hospital.

Our initial project goal had been to reduce SJMC’s diversion rate, because diversions meant not meeting one of our most basic responsibilities — to provide emergency medical care to our community. But now that we understood the broader community-wide system, we realized that the more SJMC increased its capacity in order to prevent going to diversion status, the more patients we received from other hospital diversions. The result was an even greater strain on capacity, and more SJMC diversions.

Shifting the Burden Structure

As long as other hospitals were diverting a significant proportion of paramedic patients, stepping up capacity at SJMC would simply result in our seeing more and more diverted patients until we exhausted our added capacity (loop BI in “Shifting the Burden of Emergency Care”). In addition, our efforts to increase internal capacity were unintentionally alleviating pressure on the system to resolve the broader problem — an overall lack of emergency capacity at the community’s hospitals (loop B2).

Domino Effect of Paramedic Diversions

When the county hospital and another area hospital go on diversion status, SJMC receives both hospitals’ overflow. As a result, SJMC is driven into diversion status more quickly, creating a “domino effect” of diversions throughout the community emergency service system (left).

We began to realize that the fundamental solution to the community-wide problem was a public policy intervention that would ensure that all hospitals maintain a generally “open” emergency medical service. That way, no one hospital or group of hospitals could disrupt the entire system.

Ironically, our previous capacity expansion efforts had masked the need for a public policy intervention (loop RI), because the burden of providing adequate emergency service capacity had been shifted to SJMC. We concluded that the single, highest-leverage solution to the problem was to implement public policy that would require all hospitals in the emergency medical care system to receive paramedic patients (except in rare instances).

Reframing the Problem

In light of the above insights, we revised our definition of the problem. It was now evident that external action was likely to have the greatest impact on SJMC’s diversion rate. Internally, however, several questions still remained: If the community-wide diversion rate were reduced to a reasonable level, would SJMC continue to have an emergency capacity problem? If new capacity were needed, which internal interventions will produce the greatest yield in terms of freeing up capacity and enabling more patients to be served? In order to address such questions, we developed a computer model.

Our initial work had provided a great deal of insight into the diversion/ capacity issue; the computer model now allowed us to leverage our understanding even further. If the initial phase took us from an understanding level of one to five, using the computer allowed us to leap to a level of nine. The model enabled us to test out specific policy recommendations, compare the results with other policies, and access which ones were more desirable — all without risking a single patient’s life or a physician’s career.

We tested alternative strategies for improving internal capacity such as adding staff, adding beds or operating rooms, altering protocol for paramedic diversions, improving system productivity, and moving patient bed locations. We then measured various outcomes: patient waiting times, number of patients treated, and financial result. Among the 35 suggestions that we originally collected from the project team, we were able to isolate two key leverage points: reducing treatment times in the critical care and telemetry units and improving the shared nursing arrangements among three departments to increase their ability to meet surges in demand.

Initial Outcomes

Our SJ MC team completed the systems thinking project in the summer of 1990. Since then, on the joint initiative of the Hospital Conference of Santa Clara County (which included SJMC representatives), the County , Medical Society, and the County Emergency Medical Services Agency, the San Jose community implemented a public policy that maintains an “open” emergency status at all of the community’s hospitals. Although it is still too early to evaluate the long-term results, the diversion rate virtually disappeared in the initial months. In light of the systems “rule of thumb” that quick fixes do not produce lasting results, we expect diversion problems may creep back up during the coming months. Over time, we may need to refine the public policy approach so that long-term adjustments are made and the system is restored to balance. In addition to working on the community-wide capacity problems, at SJMC we are currently using the insights gained from the computer model to develop strategies for improving our internal capacity.

Bette Gardner is a healthcare management consultant in Morgan Hill, California. She is applying systems thinking in her work at San Jose Medical Center and elsewhere.

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If people really are a company’s most important asset, it is strange that most companies do so little to keep track of, understand, and benefit from their full capabilities. Aside from things like number of employees, payroll costs, and headcount by department or function, there is little information available for assessing the intellectual capital of an organization. Yet there is an abundance of usable information for managing capital equipment, patents, inventories, and other physical (or financial) assets.

If financial statements were merely used as snapshots for reporting an organization’s status to its stock-holders, this omission would not be a problem. Unfortunately, financial accounting data is also used for managing the business (see “Double-loop Accounting: A Language for the Learning Organization, February 1992). As long as we manage our organizations according to current financial accounting measures, people are likely to be treated as variable costs and nothing more.

Redefining “Assets”

If you were to ask a coach or a conductor about the capacity of a team or orchestra, he or she would be able to tell you in great detail about the capability of each individual. Their job is to understand and build upon those individual capabilities to enhance the capacity of the whole group. They create synergy by making the whole performance more than the sum of the individual parts.

“In our current system, “as employees grow more productive, they show up as higher expenses. When times are good, the higher expenses are ‘covered.’ But when times get bad, people tend to be seen as expenses that can be cut.”

A lot of good managers see their job as precisely that of coach and mentor. They understand the organizational needs and recognize the importance of developing people who can meet and exceed those needs. But how does that normally get translated into an organization’s financial statement? The people who are “appreciating” are given promotions and raises which show up on financial statements as higher expenses — without a concomitant visible increase in the asset base of the company. As employees grow more productive, they show up as higher expenses. When times are good, the higher expenses are “covered.” But when times get bad, people tend to be seen as expenses that can be cut.

A football team does not lay off half of its starting players because it had a bad season and revenues were down. To try to go through a season with half as many players is not going to improve its chances of winning. Of course, it is a lot clearer what capabilities are necessary to create a winning football team than those of a successful company. In the absence of such clarity, we hire and fire people as if only the total number of people is important and not their capabilities. What if we really treated employees as assets — not just in words but on our financial statements? For starters, we would add another category in the asset column and devise a way to assess the value of the intellectual capital of the organization. Unlike physical assets, people assets could appreciate over time. We would still account for people’s salaries, benefits, and other employee-related costs as expenses, but we would also have a corresponding valuation for the people-capacity of the organization. The people-asset column would provide corporate visibility that the people-capacity was being enhanced.

Putting employees on the balance sheet as assets could also change the way we think about cost-cutting. Training would be viewed as an investment and would not be automatically cut when times get tough. Vacation days would be considered vital investments that help our most important assets become even more productive. Employees would not be seen as expenses to be cut out, but assets which we could invest in and expect to get a return in terms of higher productivity, new products, better quality, and a myriad of other possibilities that we have not yet begun to identify.

The Learning Organization’s Dilemma

Being able to track the appreciating value of people-assets could help address a dilemma that arises out of continual learning and improvement in worker productivity. A Vice President of Quality at a semiconductor manufacturer posed the dilemma this way: If a company is pursuing quality improvement and the productivity of the workforce is continuously improving, either the company has to keep growing at the same rate or it has to continually reduce its workforce.

His experience told him that an annual improvement of 20% was reasonable and sustainable over a long period of time. But if the company improves productivity by 20% (that is, the same number of people can produce 20% more than before), what should they do with the additional people that are freed up? He argued that the only options were to keep growing the company (by expanding current business or redeploying the people into new markets) or layoff the workers (and distribute the additional profits to the stockholders). When his own company was unable to expand during a drawn-out industry slump, people were laid off. The message to the employees was that they were improving themselves out of a job. Improvement rates slowed considerably.

A learning organization faces a similar problem as it learns to become more effective on all fronts. The rate of improvement can be substantially higher than 20% per year, which may make the pain of the productivity growth even more acute. What happens as people “learn” themselves out of their current jobs? If they are redeployed into new markets, continually expanding the company, the organization as a whole could either hit diminishing returns as it expands and loses focus, or it might have to lay off its workers. Neither alternative is very attractive.

Direct Channel to the Community

The ability to take “people-deductions” allows companies to deploy some of their workforce directly into the community. This short-circuits the usual flow of money: from companies through the government (social services, research funds, and grants), and — after much delay and many dollars chewed up in the process—to the community.

A Modest Proposal

One possible solution to this dilemma is to allow companies with appreciating people-assets to contribute those employees who wish to take on a new challenge to a non-profit organization for a period of time and take a tax deduction for it.

By allowing companies to redeploy their people-assets outside of the firm, a number of problems can be addressed. First, it gives companies an option other than endless expansion or layoffs. It can also provide employees with tremendous opportunities which they normally would have to leave the company to pursue. Second, it helps address non-profit companies’ need for technical expertise and experienced professional managers. Matching the asset of a knowledgeable worker with the needs of a nonprofit can be far more valuable than any monetary contributions. Third, corporations can become more directly involved in the role of distributor of wealth within their local communities. Corporations have always been wealth creators as well as wealth distributors, but the emphasis has been more on creation. Distribution of wealth has primarily come in the form of employment, dividend payments, and charitable donations.

Allowing such tax deductions for such actions begins to blur the artificial distinction between for profit and non-profit organizations. Both types of organizations are responsible for producing the maximum return to their stakeholders. From a systemic perspective, however, the distinction is artificial in the sense that we are all stakeholders to varying degrees in both types of enterprises.

Think Globally, Act Locally

Implementing this proposal could radically change the role of both business and government in community development (see “Direct Channel to the Community”). Currently, the U.S. federal government serves as the largest centralized institution for redeploying wealth back into the communities. The bureaucracy required to run such a system rivals the now-dismantled system of the former Soviet Union. The federal government’s role could shift toward providing the laws, incentives, guidelines, and information to work toward the common good. The people and organizations closest to the local conditions could have the freedom to act in their local interest — thinking globally, acting locally.

As the role of business becomes redefined as an active community player, perhaps a new corporate measure will become a standard by which a company will be assessed by society — its nonprofit-to-profit (N/P) Ratio. The ratio could serve as an indicator of how effectively an organization can develop its people-assets to create a surplus that would them support the work of nonprofits and social programs. The higher the ratio, the more effective the organization is in producing returns to society.

By giving a tax deduction for redeploying employees in nonprofits, much of the means and responsibility for community development and social work can be turned over to those who are local citizens (individuals and corporations). It will not only redefine the role of government, but also the purpose of business.

The scope and scale of change implicated by such a shift is enormous and would require a long time horizon. But then, the current system is in need of a serious overhaul. The Social Security system is basically bankrupt. Poverty and homelessness is on the rise. Bureaucratic inefficiencies continue to chew up millions of dollars (as well as people). Our education system is in a state of crisis and lags far behind that of most industrialized countries.

As Professor John Sterman of the MIT Sloan School of Management pointed out (“Not All Recessions Are Created Equal,” February 1991), the downturn of the economic long wave “is a time of radical change.” The imbalances it generates spill out into the social and political realm, creating new threats and opportunities — in effect, changing the rules of the game. Just as the seeds of the growth of the federal government were sown at the last trough of the long wave, perhaps a new direction can be plotted as we near the bottom of the current cycle.

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Contrary to conventional wisdom, Americans are proving not only able but willing to separate their garbage. In fact we’re becoming such ferocious recyclers that old newspapers are piling up by the ton with no place to go.

As the market for used newsprint crashes, some recyclers are getting discouraged, and some purveyors of conventional wisdom are saying, see there? Recycling just doesn’t work. There’s no market for it.

It would be more accurate to say we don’t know if recycling works; we haven’t yet tried it. When we do, gluts and scarcities will be signals not that there’s no market, but that the market is working the way it always works — in fits and starts.

What we are doing so far is separating, not recycling. We’re beginning to reclaim materials before they get to the dump. We have barely begun to close the loop — to reuse major materials in the same products: newspapers back to newspapers; plastic soda bottles back to soda bottles.

Product-to-same-product recycling is the only kind that can work in the long run.

Product-to-same-product recycling is the only kind that can work in the long run. Turning newspapers into cattle bedding will be helpful for a while, but eventually it will clog, either because we use newspapers faster than cattle bedding, or vice versa. Similarly the plastics industry is congratulating itself too soon for turning soda bottles into plastic flowerpots. Given the nation’s consumption rate of soda versus flowerpots one can easily predict a market collapse due to flowerpot glut.

What works is illustrated by the nation’s one smooth-running and economical recycling system—aluminum cans back into aluminum cans.

Even when newspapers are printed on recycled newsprint and the plastics industry makes new bottles out of old, there will be glitches, scarcities and overflows. These are inevitable in the evolution of any production system, especially one that is guided by the market. The only way the market can sense a large potential supply of something new is to let that something accumulate somewhere. The only way the market can stimulate a demand is to bring the price down low enough, and be sufficiently assuring about future supply, to stimulate new users.

In short, don’t let a temporary newspaper glut discourage you. We’re just at the beginning of a major industrial transformation. We’re working out a material-supply system consistent with a finite planet. It will be totally different from the wasteful, polluting system we have now — and it will take a while to get it right.

It’s worth keeping part of our attention cast ahead of the immediate economics to the place where we’re ultimately headed. A sustainable, economic, ecologically supportable materials system will re-use everything it can. It will add virgin materials only as necessary to sustain product quality. It won’t waste materials on unproduc-tive purposes such as packaging—it will use uniform and minimal packaging, standard bottles or boxes of standard sizes, interchangeable among products, for easy re-use. Only the label will distinguish the product.

” ..gluts and scarcities will be signals that the market is working the way it always works—in fits and starts.”

Marketers will have to attract consumers with a reason to buy their product that’s more important than glitzy packaging.

For easy recycling the use of mixed materials in manufacture (like the infamous squeezable ketchup bottle with seven different laminated plastics) will be discouraged. Products will be designed to last longer and be easily repairable. There will be thriving businesses that refurbish or recapture the components of large appliances. All this can be brought about simply by adding a tax to each product equivalent to the real cost of its disposal. That’s not distorting to the market, it’s correcting the market by adding a cost signal that should have been there all along.

When materials are finally so well used that they must be thrown out, they will be more carefully separated than they are today. First and most important, toxics — heavy metals, organic chemicals, radioactive materials — will not be allowed at all in municipal waste streams or sewage treatment systems. Toxics will go into entirely separate collection and disposal systems.

With the hazardous wastes out of the way, all organic wastes will be composted, along with sewage sludge. That single step will reduce garbage volume by 30 percent and provide tons of safe, free fertilizer. If glass, paper and metals are recycled, that would bring the garbage flow down to just 10 percent of what it is now. And that doesn’t include the possibility of recycling plastic.

No part of this dream system is impossible. Every piece of it is operating somewhere. Denmark has a model system for processing toxic wastes. The Netherlands has a massive composting system, as do many American cities. Technologies exist to reclaim paper, glass, metal and some plastics. Put them all together and we’d have the same material quality of life but with less mining, less air and water pollution, less traffic, less taxes, and 90 percent less stuff to haul to the curb every week.

Along the way toward a sustainable materials system — or any large social goal — there will be fits and starts, market failures, and disappointments. It’s worth hanging in there. We’re on the right track.

Donella Meadows is an adjunct professor of environmental and policy studies at Dartmouth College. She writes a weekly column for the Plainfield. NH Valley News.

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Both people were convinced that their perspective was right. The technical leader was focused on the longer term — what he knew could be done to delight the customer 12 months down the road. The business manager, on the other hand, was focused on the customers’ present needs. She wanted the team to look at the problems that needed to be solved in the next product release, due out in three months. The argument escalated until the two were shouting at each other across the table.

Although it appeared that the two perspectives were in opposition, the truth was that both people were in violent agreement on the underlying value of meeting the customer’s needs. Their conflict was due to fundamental distinctions in the way they thought about, processed, and perceived the world. The technical leader was focused on the longer-term vision, while the business manager was focused on the next practical step — both equally important and valuable perspectives that held the customer as the number one priority.

Fortunately, another team member noticed this distinction and explained what was happening. He pointed out how their different personality dynamics were leading to this disconnect, and that they really were on the same track in many ways. The two players both stopped in silence, suddenly realizing how they were caught up in their own perspectives. Meanwhile, another engineer, expressing his characteristic gift of empathy, admitted, “And 1 feel your pain!” Everyone in the room broke up with laughter, releasing the tension that they, too, felt. The group was then able to move on and develop some productive solutions that would serve the customers’ long-term needs, while still addressing the immediate issues that needed to be resolved.

Human Dynamics

This incident, which took place earlier this year within Digital’s Networks Software Group, is an example of how many people are beginning to apply a fundamental new understanding about how human beings function, called Human Dynamics”’. This technology has been researched and developed by Dr. Sandra Seagal since 1979, and it offers a frame-work for understanding differences in the way people learn, communicate, relate, and develop as human beings. Human Dynamics presents a systemic approach to the complexities and wonders of human functioning that is clear, logical, and structured, yet broad and flexible enough to encompass the infinite nuances that make each of us unique human beings (see “Human Dynamics: An Overview”).

Human Dynamics was introduced into Digital Equipment Corporation in 1993, and it has since become a central part of everyday functioning for people in many groups across the organization. Some say it has become as fundamental as knowing the alphabet — so much a part of the way they think and communicate that they take it for granted.

The Beginning

It all began in August 1992, when we in the Networks Group recognized that Human Dynamics was a critical technology that could enhance and leverage Digital’s return to profitability. That was also the beginning of two years of restructuring, downsizing, and cost containment, which was the mandate if we were to survive as a viable company.

As the company launched itself into that difficult work, our concern was, “What are we doing for the survivors?” Research statistics on large corporations who downsize clearly show that only a fraction of them actually return to profitability — and an even smaller fraction return to previous levels of employee productivity and morale. From our prior work with systems thinking and learning skills, we knew that the most fundamental obstacle to improved product quality and customer satisfaction — and hence profitability — lay in the absence, avoidance, or break-down of authentic communication between human beings (see “A Journey Through Organizational Change,” April 1995).

Our work in Human Dynamics initially started as a “grass-roots” effort. Funds were “tincupped” from five concerned middle managers and used to train two people to become licensed Human Dynamics facilitators. When they returned from their training, the two facilitators could hardly stop talking about the power of Human Dynamics for helping build team synergy and productivity. Soon the first formal request for a workshop came in. In May 1993 this workshop was delivered, and it received an evaluation of 5.5 on a 6-point scale.

That same month, Sandra Seagal and David Home came to Digital in Littleton, MA, and delivered a workshop for the Networks Group vice president and his newly forming leadership team. As a result of this experience, the team was able to recognize, understand, and appreciate the special gifts that each of them brought to their work — knowledge they used over the next several months as they established Digital’s core Networking Business.

A Boost In the Middle

From initial experiences like these, word of the power and usefulness of Human Dynamics soon spread. For example, a program manager needed some critical decisions to be made by a technical leader. She knew her own personality dynamic and his, and she was aware of the distinctions and potential points of conflict in their communication processes: she would naturally approach the issue by building up from the details until the structure emerged, whereas he would identify the principles and structure first, and then fill in the details. Knowing this, she designed her communication to best suit his process, by starting with the structure first. As a result, they secured the required decision in one 15-minute conversation. Prior to her understanding of the significance of personality dynamics, the same issue would have been addressed through multiple two-hour arguments and discussions. While the result might have been the same, the cost — in terms of time, energy, and goodwill — would have been much greater.

Such anecdotes drew the attention of the late Peter Conklin, who was then serving as leader of the Engineering Excellence Program. He saw the importance of this work in engineering, where teams deal with increasingly complex issues that require the clearest possible communication to make rapid decisions that are also sustainable. So, in January 1994, Peter funded the training of four new facilitators — and Human Dynamics became an official educational program under the auspices of Digital’s Engineering Excellence Program.

Over the next four months, we began offering four to five workshops per month, each one jointly facilitated by two of our Human Dynamics facilitators. Workshops were delivered to “intact” teams who focused on delivering a product, service, or specific set of results. These teams usually spanned organizational, functional, and hierarchical boundaries.

We were very encouraged by the ongoing requests for workshops. Our past experience showed that the best indicator for the value or usefulness of any new technology is the level of continued demand. Since the Human Dynamics work began as a bottom-up effort, and continued as a middle-across effort through the Engineering Excellence program, we knew that no one was seeking a workshop just because he or she was being pressured by upper management.

Naturally, there were people who were somewhat skeptical of what they saw as another “team-building” workshop. Engineers in particular (who made up about half of the participants) were very wary of what they called “touchy-feely” stuff. The vast majority of these skeptics, however, saw the practical value of Human Dynamics by the end of the first day of training. This was in large part due to the open, interactive process of the workshop, and the fact that it centers on self-identification. In addition, people seemed to appreciate the holistic nature of the Human Dynamics technology, along with its recognition of each individual’s intrinsic value and infinite developmental capacity.

A few people (about 3%) continued to be skeptical, even after the training, because of their fundamental objection to any form of categorization or “labeling,” as they saw it. These negative reactions were rooted in past experiences with traditional typologies, where people were not only categorized by an “expert,” but they often felt judged as being of lesser value than other types. There is no such value judgment inherent in the Human Dynamics work, but it clearly remains a concern for some people.

A Setback

While the groundwork in Human Dynamics was being laid, Digital was still struggling to get back on its feet financially. The quarter ending in December 1993 was a profitable one — the first in a very long while. It felt good, but many of us were afraid that it was only a “blip” on the screen due to short-term actions and symptomatic fixes. As it turned out, the company was seriously back in the red the following quarter. As a result, starting in May 1994, the company underwent the severest belt-tightening yet. Among many things, this included an immediate stop to most training expenses. Overnight, the Human Dynamics program came to a halt. Even worse, five of our six Human Dynamics facilitators left the company as a result of cutbacks in overhead functions.

Yet although no new people were being trained in Human Dynamics, those that had been trained continued to use their understandings to work more effectively. One group vice president faced a reporting structure above her that changed four times during this period. Fortunately, she knew her own personality dynamic and that of each new manager. From her Human Dynamics training, she understood what this meant in terms of differences in communication preferences, and the way they each approached problem solving and decision making. So she used her understanding to tailor her communication to each person, consciously using the most helpful language for that individual. As a result, she continued to get much of the support she needed for the success of her business, despite the many changes in the hierarchy above her.

Many of us using Human Dynamics at Digital continued to deepen our understanding of the methodology through tutorials and lunchtime, “brownbag” seminars. The aim was to share our actual experiences with Human Dynamics and to coach people in its everyday application. By this time, we were using Human Dynamics as a kind of short-hand that alerted us to listen more effectively to each other by understanding the special gifts and perspectives that each of us brings.

By late 1994, the company was finishing the final stages of its restructuring, and it was settling down to about 60,000 employees world-wide — half its original size. The moratorium on training expenses began to lighten. After a seven-month hiatus, a Human Dynamics workshop was delivered in December 1994. As before, word quickly spread and more requests followed.

Margaret Ledger, the new manager of Digital’s Technical Competency Development Group (TCDG), began to see Human Dynamics as a foundational technology for effective project team leadership and operation across the company. With support from key people in the newly formed business segments, including Peter Conklin and Jean Proulx, Margaret incorporated Human Dynamics into the TCDG’s core curriculum, to be delivered on demand across the company. Once again, Human Dynamics is formally embedded in a “middle-across” program, this time alongside the delivery of technical training such as C++, Object Oriented Design, and Windows 95.

Sustainment

Today, Human Dynamics has reached almost 600 people across the company, and the demand for more workshops is steady. In April 1995, three new facilitators were trained.

A key challenge we now face is to establish more frequent and regular mechanisms for sharing experiences and offering “refresher” seminars. Also, we have yet to learn how to surface the really difficult “undiscussables” that Chris Argyris talks about. But we do know that Human Dynamics has given us an immensely valuable springboard from which to begin this work.

Digital has now enjoyed three consecutive profitable quarters. But many of us feel that we cannot sustain this forward momentum without enabling the continued empowerment, connection, and creative potential of each and every employee. What better foundational technology to utilize than Human Dynamics, which goes to the very core of human functioning and development. We hope, in time, to build on our bottom-up and middle-across success and add a third and final piece to the strategy of Human Dynamics at Digital—top-down engagement and action.

Chris Strutt Is a consulting engineer, Systems Thinking Methods, in the Network Integration Software Segment at Digital Equipment Corporation. She is also a senior facilitator of the Human Dynamics Program for Individual and Team Empowerment.

Editorial support for this article was provided by Kellie Wardman O’Reilly.

The post Individual and Team Empowerment: Human Dynamics at Digital appeared first on The Systems Thinker.

Our fate and future is and always has been intertwined with nature, despite the widespread failure of most humans to act in a manner that reflects a deep understanding of this relationship. And now, for the first time, we have gone full circle, causing the fate and future of nature to become entwined with our own.

The contours of the future we are now forging, however, are yet to be fully determined. Simply restated, the future is emergent and, within limits, plastic. While conscious design is unlikely to afford us the capacity to control the future directly, how we craft our sphere of concern and how effectively we link this to action will likely influence the future in profound ways.

In the recent past, many have assumed that economic growth is a surrogate for social progress. But some are beginning to value learning over economic growth as the vehicle for bringing about a more sustainable and desirable world for all. My goal in this article is to explore some of the likely requirements and potential stumbling blocks associated with employing learning, and in particular social learning, to achieve a vision of the future I refer to as “ecocultural sustainability.”

Ecocultural Sustainability

Ecocultural sustainability refers to both a state of dynamic equilibrium and a social process that is desirable and ecologically sound. It requires that a society can, at a minimum, continually renew itself and its members by supporting:

• the flourishing of rich cultural and biological diversity;
• forms of governance that are just, egalitarian, transparent, and participatory; economies that are sufficient, equitable, accountable, and bioregionally sound; and
• production and consumption that promotes universalizable lifestyles and keeps its wake in check by both learning from and working with nature and limiting its total life-cycle costs (social, environmental, and financial).

Successful implementation of the ecocultural sustainability paradigm rests both on integrating reason and emotion and on inculcating a balance between the needs of individuals and the imperative of the common good (human and nonhuman). It calls for educational processes and systems that nurture active citizens and open minds by encouraging wonder, creativity, tolerance, cooperation, and collaboration. By propagating the skills to regularly monitor and evaluate the activities of individuals and organizations — to learn from their mistakes and celebrate their successes — it promotes vigorous self-criticism, combats rigidity and apathy, and fosters anticipatory decision-making and adaptive learning. And by cultivating the agility to distinguish between needs and wants, meaningful innovation and sheer novelty, the sacred and the profane, and a balance between specialization and generalization, such societies prepare their individuals, organizations, and institutions to counteract maladaptive forces and respond to unforeseen challenges and changes that are beyond their control with hope, joy, and imagination.

I am interested in exploring whether social learning inspires and fosters planned, directed action and behavior that is more consistent with our highest values and aspirations regarding improving quality of life. If so, is this force strong enough to counterbalance the historical tendency toward anthropocentric and ethnocentric approaches that tend to advantage narrow self-interest? In short, does social learning give an edge to anticipatory, holistic, egalitarian, and non-anthropocentric planning processes and decisions that favor continual quality of life improvements for all — humans and the biosphere as a whole?

The Gap

Our generation isn’t the first to experience a gap between the world of our aspirations, hopes, and dreams and the world we create with our policies, practices, and everyday actions. Of particular significance to our contemporary dilemma is the seduction of material affluence and the corresponding failure to recognize, appreciate, or effectively respond to the predicament of our seemingly interminable quest for ever greater consumption and its potential to undermine the ecological and social basis of our existence.

What is most surprising or perhaps troubling is that while environmental concerns and attitudes are widely supported and long-standing, they have generally not, at least in the U. S., translated into consistent, effective actions and behaviors — voting habits, purchasing decisions, and lifestyles — for improving environmental quality. Similarly, on the international level these concerns and attitudes have not generated effective treaties for responding to contemporary, global-scale environmental challenges. Simply put, awareness of a problem, accessibility of extensive information on its origins and impacts, and even stated concern about it do not guarantee action or imply that, if taken, the action will be appropriate or effective.

The Greening of Progress

The ideological commitment to sustainable development as continuous improvement in the overall conditions of human life is unavoidably rooted in the notion of progress — at least for those of us in the West. The orthodox view of the idea of progress, which dates back to at least the time of Xenophanes in the late 6th century B. C. E., holds that moral, political, economic, technological, and social betterment are inevitable. Such a view of ineluctable, boundless progress became widely adopted in the West during the Enlightenment and continues to be broadly embraced today. This perspective has been justified by — and tied to — humankind’s expanding capability to control and manipulate nature. It is also wrapped up in a conviction that humankind is perfectible. Yet many of today’s interconnected environmental and social problems — over-consumption, poverty, over-harvesting, climate change, stratospheric ozone reduction, over-population, biodiversity loss, pollution, fresh water shortages, invasive species, fisheries collapse, deforestation, over-grazing, erosion, desertification, and salinization — are the unintended, generally unforeseen (but not necessarily unforeseeable) consequences of a failure to recognize, adequately appreciate, or effectively respond to the reciprocal character of humankind’s relationship with nature.

The famous American environmentalist, Dave Brower, was fond of saying that he was not “blindly against progress, but against blind progress.” This phrase could be a mantra for the less dogmatic, constructive critics of the orthodox notion of progress. Their work suggests that progress is multifaceted and contingent. Progress in one realm need not imply progress in another. In fact, progress in one realm can be inversely related to progress in another. Excessive progress in one realm can even foster a lack of resilience that engenders collapse. What’s more, past gains can be irreversible — and irretrievable, as with lost languages or the skills, traditions, and wisdom that are forfeited when a culture becomes extinct.

The fundamental challenge is to better understand our nature — and learn how to work with it — to identify levers that can help us bring about the change we seek.

I have coined the term “greening of progress” to refer to the process of modifying the orthodox notion of progress to support a transition to ecocultural sustainability. This revising of progress incorporates three assumptions. First, the idea of progress cannot be separated from our values and assumptions about human nature (are humans inherently good, bad, both, or neither), technology, economics, what is sacred, and our views about the way the world works. Furthermore, every decision will, almost inevitably, generate tradeoffs. Second, humankind’s quality of life is ultimately tied to, and constrained by, our ability to maintain the health and flourishing of nature and the planet’s various ecosystem services along with our ability to stay within the planet’s biogeophysical carrying capacity. Third, the rate and character of progress are shaped by our concern for the common good; our ability and proclivities to acquire, process, evaluate, and share information about nature and the current state of affairs (particularly feedback data); the types of decision-making processes and criteria we employ; our proficiency at understanding and reflecting our highest concerns in our institutions, policies, and lifestyles; our adeptness at acting in an anticipatory and adaptive fashion (as opposed to a simply reactive one); and our capacity to support individual and institutional self-renewal.

In contrast to others, I have specifically chosen not to include a formal requirement for radical value change. I have done this because I believe the surveys of the public’s environmental attitudes and concern demonstrate that the underlying values to support such change, while possibly not deep enough or well enough informed by science and a sophisticated understanding of causal relationships, nevertheless already exist, are sincere, and are widely embraced. Rather than eliciting a sweeping change in values, the more fundamental and crucial steps may involve better understanding our existing palette of values (and their relative implications for improving quality of life), reprioritizing or realigning our values in relation to this improved understanding, and eliciting greater consistency in their application.

Niels Röling offered a provocative and challenging admonition that alludes to the essential change embodied by my “greening of progress” perspective when he stated, “Until now man has fought nature. From now on, he will fight his own nature” (translation of French). Rather than fight our nature, however, I believe the fundamental challenge is to better understand our nature — and learn how to work with it — to identify levers that can help us bring about the change we seek.

From my greening of progress perspective, I take Röling to mean that environmental management must become much more about managing people—especially the way we learn, form and test our values, and use nature to satisfy our needs and desires—than managing nature per se (i.e., attempting to control and manipulate soil, forests, marine environments, and ecosystems). I would also modify Röling’s insight to incorporate the idea that a greening of progress tradition, or at least a countercurrent, has existed for at least several millennia. But why hasn’t this modified view of progress taken hold? The pivotal issue, in my mind, is to clarify the role that learning can play in supporting the greening of progress and in facilitating a transition to ecocultural sustainability.

Social Learning and Ecocultural Sustainability

If a transition to ecocultural sustainability is ever to take hold, unprecedented individual and collective change must occur. Change of this character and scale, however, has no chartered course. While no society has yet to successfully make such a transition, it is not for lack of interest or effort. Comprehensive, coordinated change — spanning our behavior, practices, policies, institutions, and, perhaps, values — is extremely difficult.

Any planned, directed change by individuals or collectives is built on learning. Using the Oxford American Dictionary definition as a rough guide, I define learning as the process of acquiring knowledge, skills, norms, values, or understanding through experience, imitation, observation, modeling, practice, or study; by being taught; or as a result of collaboration. I also note that “understanding” is interpreted very broadly here to also include intuition, which may be the product of extensive study, spiritual practice, divine inspiration, or even serendipity, rather than conscious reasoning alone.

Contrary to widely held views, I do not believe that learning must necessarily engender behavioral change. Not all learning warrants behavioral change and sometimes competing interests, goals, and objectives militate against change. It is only through learning, however, that we acquire our values, attitudes, and concerns along with our conception of reality. By acquiring new information (or exploiting existing information), we have the possibility to test these values and concerns against our understanding of reality and, if warranted, we can take measures to rethink our values, realign our behavior and action, or do both. When corrective responses result from anticipatory learning (as opposed to simple adaptation), I refer to them as planned change.

In contrast to others, I view almost all learning by individuals as some form of social learning. The exception is pure trial-and-error learning through direct personal experience, essentially immune from the influence of others. When individuals engage in the process of learning, they more frequently employ observation, imitation, modeling, self-instruction, conversation, and mentoring, among other strategies. All of these strategies, however, rest on some interaction with living beings or at least employing the artifacts (e.g. language, tools, books, drawings, videos, music recordings, software, etc.) of living, or once living, beings.

Albert Bandura has argued that modeling, from the standpoint of behavior elicitation, is the most significant form of learning in which individuals engage (Social Learning Theory, Prentice Hall, 1977). His social learning theory explains human behavior in terms of continuous interaction among cognitive, behavioral, and environmental influences. Bandura separated the conditions for successful behavioral modeling into four components:

1. Attention — a “model” behavior in the environment must grab or capture a potential learner’s notice.
2. Retention — the learner must remember the observed behavior.
3. Reproduction — the learner must be able to accurately replicate the observed behavior.
4. Motivation — the environment must offer a consequence (reinforcement or punishment) that increases the probability for a learner to demonstrate what they have learned.

While Bandura’s social learning theory was developed to explain individual behavior, it can be applied to collectives with great efficacy, too.

As long as learning, by individuals or collectives, involves some form of input drawn from others, I characterize it as social learning. The more salient distinction, I find, is differentiating between what I refer to as passive social learning and active social learning. Passive social learning rests on the prior learning of others. It does not require inputs in the form of communication or interaction — direct feedback — from other living beings. Passive social learning includes learning that results from reading a newspaper, watching a blacksmith forge a tool, viewing a movie, listening to a radio program, attending a lecture or poetry reading, searching the internet, or following a recipe. It also includes observing the practices of, and interactions among, others.

Passive Social Learning. Passive social learning has many advantages for cultural evolution over trial-and-error learning because it can lead to the same results at much lower cost in terms of time, effort, and danger. A drawback is that most results must be accepted uncritically — i.e., on trust. Another potential drawback is that it generally requires tacitly embracing the values and assumptions that are encoded in the transferred knowledge. While the passive social learning process may yield important new insights for the individuals involved, it generally has limited applicability for directly spawning substantively new social innovations.

Most learning in our contemporary world is passive social learning. Because it relies on the received wisdom of others (frequently experts), passive social learning can be used to readily propagate behaviors that favor narrow interests over the common good. Such maladaptation is ubiquitous today. An example is the orthodox notion of progress, which supports a general belief that environmental problems do not need to be addressed today because new technologies can always be created to cost-effectively address any problems that might subsequently arise. Vested interests and those unwilling to share power generally have a significant interest in perpetuating such behaviors.

Employing Bandura’s framework, ecoculturally sustainable behaviors are commonly seen as less appealing, so they fail to grab our attention. The behaviors are frequently unfamiliar so they are less likely to be retained. They are also often more involved or more complex, so they are less likely to be reproduced. Finally, the behaviors are routinely perceived as inconvenient, more expensive, more time consuming, not fun or “cool,” unsafe (as with smaller, more fuel efficient vehicles or bicycles), or as activities of the counterculture, so there is little motivation to try them out.

The motivation for employing more ecoculturally sustainable behaviors is further diminished for two key reasons. First, a behemoth advertising industry bombards us with models of people enjoying unsustainable behaviors, without experiencing any negative side effects or tradeoffs. Second, the negative side effects that do exist are often not readily visible or they are distributed in space and time far away from those causing the impacts.

Maladaptive behaviors are widely modeled in the media and in society. It is should be no surprise, as Bandura suggests, that such behaviors are likely to be perpetuated despite widespread information documenting the negative overall consequences of maintaining them. Simply put, our societal emphasis on passive social learning and our proclivity for modeling unsustainable, as opposed to sustainable, behaviors severely hamper the possibility of facilitating a transition to ecocultural sustainability.

Active Social Learning. Active social learning, on the other hand, is built on conscious interaction and communication between at least two living beings. It is inherently dialogical. Active social learning can be broken into three rough categories that are a function of the skills and values of the individuals in the collective and the power relationships that define them:

1. Hierarchical — based on predetermined, inflexible relationships between established teachers and learners;
2. Non-hierarchical — based on two-way learning, where each participant, as an “expert” in their own right, shares their knowledge and experience; and
3. Co-learning — based on nonhierarchical relationships, collaboration, trust, full participation, and shared exploration.

Hierarchical and non-hierarchical active social learning are widely applied and used with great benefit to expand the penetration of existing knowledge. Co-learning, because of its requirements for team building, complete engagement, “learning-by-doing,” and accountability, supports the generation of new knowledge and novel strategies for addressing real-world problems. Co-learning supports positive change by building capacity in three fundamental areas: critical evaluation of existing knowledge and problems, knowledge generation and penetration, and application of this new knowledge to policy, practice, and everyday life.

Active social learning can take place in the context of a conversation, a course employing the Socratic method, dancing with a partner, symphony practice, a community meeting, an open, participatory public review process, and video conferencing over the internet. Opportunities for cross-fertilization and emergence make it much more effective than passive social learning at creating innovations and widely diffusing novel behaviors. Active social learning, because of the opportunity to directly engage both a broad range of perspectives and the whole human, also has the potential to promote more open, equitable, and competent learning processes. Furthermore, the potential to receive direct feedback from other living beings and gain a palpable “taste” for the effects of our own unsustainable behaviors offers a powerful motivation for challenging the desirability of the underlying, taken for granted assumptions, values, and principles that guide our theories in use, routinized policies, practices, and individual behaviors. As such, the highest, most diverse and participatory forms of active social learning appear to offer a viable prospect for combating maladaptation.

I believe these forms of active social learning can be used with great advantage in our learning environments and decision-making processes to promote a societal shift toward ecocultural sustainability — if they also model those principles. Active social learning can support widely different levels of engagement and inquiry. It supports multiple-loop learning, which can be used to question both existing practices and the values that undergird them. Because active social learning can involve diverse players with competing or even conflicting values and interests, I posit that the most successful forms will result from non-coercive relationships that rest on building a common language, transparency, tolerance, mutual trust, collaboration, shared interests, and concern for the common good. Such forms of active social learning can employ conflict in a positive way by challenging complacency and encouraging “out-of-the-box” thinking.

The more active forms of social learning can also facilitate anticipatory responses by examining routinized practices, such as the creeping escalation of standards for comfort, cleanliness, and convenience. Examples of activities that benefit from these forms include playing in an improvisational jazz band and participating in collaborative, integrated systems design projects — such as a green building, an organic farm, an ecological design project applying biomimicry, or a green planning initiative. A further benefit of the more active forms of social learning is that their requirement for elevated levels of engagement — especially when diverse constituencies are involved — aids in building critical thinking skills, supports a richer form of rationality that integrates reason and emotion, and promotes contextualization and accountability that are crucial for helping to close gaps between peoples’ values and actions.

Two significant potential weaknesses of active social learning come to mind. First, benefits do not accrue automatically from employing the process — active social learning, particularly in its hierarchical forms, can be used with equal ease and effectiveness to support maladaptation (consider efforts to stimulate ethnic conflict by Hitler and the Belgians in Rwanda). I believe realizing the potential of active social learning rests on the collective’s choosing what level process it will employ, with full awareness of the requirements and demands.

A second significant weakness of active social learning is that its success depends on effective capacity building. Success rests at least as much on the preparedness, competence, openness, and maturity of the individuals engaging in it as on the rules that guide particular organizational learning, public participation, or decision-making processes. Furthermore, as wise as the decisions that a group arrives at may be, they are only as good as the potential of the new policies and actions to be successfully modeled and embraced by the society at large. Thus, if a society fails to make the educational infrastructure investments to prepare all of its citizens to fully participate in the highest forms of active social learning, it will fail to reap its benefits, and ecocultural unsustainability will likely persist.

A Social Learning Research Agenda

To paraphrase John Gardner, the great proponent of individual and societal self-renewal, we have before us some breathtaking opportunities disguised as insoluble problems. In an effort to advance the process of turning these ostensibly insoluble problems into breathtaking opportunities, I offer this tentative list of eight challenges for review, discussion, and testing in real-world settings:

1. Develop consistent and coherent working definitions of “social learning.”
2. Initiate a comprehensive, systematic review of existing applications and case studies of “social learning.”
3. Explore the possibility of creating a consistent and coherent working definition of “social learning for sustainability.”
4. Identify well-documented, testable social learning “levers” that have significant potential to help individuals and collectives respond more effectively to situations where they have a general familiarity with a problem but, nevertheless, choose not to respond or respond ineffectively.
5. Create well-documented, testable strategies for applying social learning to “minding the gap.”
6. Develop and evaluate educational strategies to support capacity building for individual learning, so that people are poised to participate in the highest forms of active social learning.
7. Apply social learning to model strategies for recognizing, understanding, publicizing, and responding to maladaption — and evaluate their efficacy.
8. Apply social learning to model ecoculturally sustainable behaviors — and evaluate their efficacy.

As noted earlier, there is as yet no widely accepted, clear, and coherent interpretation of social learning. This, however, is no reason to abandon the term — quite the contrary. A modest degree of vagueness and ambiguity can provide an entry point for all and stimulate a process of clarification, questioning, and conversation that, in the end, may prove far more important than any definitional consensus.

The paradox of social learning is that it can result in our ruination or our renaissance. Our goal is not simply to evade collapse. Steady improvement in quality of life for all rests on developing and continually renewing our capacity to bridge the gap between our values and our actions. The secret to making this ostensibly insoluble problem soluble hinges on recognizing that information is not knowledge and knowledge is not understanding. The promise and power of learning for sustainability involves internalizing this distinction and learning to appreciate that understanding results from access to information, the capacity to make sense of it, the opportunity to openly debate its significance, the sophistication to draw meaning from it, and the wisdom to both put it into context and act on it. This is how we build the capacity and conviction — individual and collective — to bring consonance between our highest values and our actions.

While many of the ideas and concepts embraced by advocates of social learning have tremendous potential to facilitate a transition to ecocultural sustainability, the term currently runs the risk of being perceived as a silver bullet or panacea. At its best, active social learning may very well encourage a deeper, more robust understanding of cause and effect, ongoing moral development, and creative, anticipatory problem solving. I have attempted to add some modest clarity and coherence to our understanding of the meanings and potential of social learning and outline some of the challenges before us — but many questions remain unanswered and considerable work and collaboration remains before us.

Harold Glasser (harold.glasser@wmich.edu) is an associate professor in the Environmental Studies Program and Environmental Institute at Western Michigan University. This article is adapted with permission from a longer piece that appears in Social Learning Toward a Sustainable World: Principles, Perspectives, and Praxis, edited by Arjen E. J. Wals (Wagingingen University Press, 2007, pp. 35-61): http://www.wageningenacademic.com/sociallearning.

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The plant manager said they had discovered that this particular inspector knew which production workers consistently produced shoes with fewer defects, and the inspector had been getting shoes made by only those workers to inspect. This was the reason the inspector was being punished with a week without pay. Dr. Deming told the plant manager that he — the plant manager — should have been the one sent home. He said the plant manager was the one who had created the system that led to the bad behavior and so was responsible for it. In this case, an incentive was put into place that had an unintended effect, and the plant manager did not see that he had created the circumstances that led to that effect. The title of this article might be expanded to say incentives work, but often they work in unintended ways — hence, the trouble with them.

When managers talk about motivating people, they are probably not referring to creating conditions in which intrinsic motivation can flourish, but rather they are talking about ways to manipulate behavior.

The use of incentives, particularly in the arena of executive pay, is of particular interest given the current economic situation. A December 30, 2009 article in the Wall Street Journal described the Christmas letter to investors by Guy Hands, founder of Terra Firma Capital Partners, a buyout firm (James Mawson, “Terra’s Guy Hands Sees Power Shift to East”). Hands’s letter said, “It cannot be right to continue with a system which allows risk to be taken in the knowledge that, if things go right, bankers will take on average 60% to 80% of the profits generated through compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs.” This is just one example of the kind of outrage currently being expressed about executive compensation.

Motivation or Manipulation?

In his landmark paper, “One More Time: How Do You Motivate Employees,” Frederick Herzberg made a distinction between motivation and movement (Harvard Business Review, 65(5), September-October 1987). In a retrospective commentary, Herzberg wrote:

“The first part of the article distinguishes between motivation and movement, a distinction that most writing on motivation misses. Movement is a function of fear of punishment or failure to get extrinsic rewards. It is the typical procedure used in animal training and its counterpart, behavioral modification techniques for humans. Motivation is a function of growth from getting intrinsic rewards out of interesting and challenging work.”

It appears to me that when managers talk about motivating people, they are probably not referring to creating conditions in which intrinsic motivation can flourish, but rather they are talking about ways to manipulate behavior. Of course, this is obvious when one considers the subject and the object of the verb “motivate” in Herzberg’s title. One commonly used type of behavior manipulation is incentives.

An important source of arguments in favor of incentives for executives is Principal–Agent Theory in economics. Ray Rees describes the type of problems the theory is intended to address as follows:

“A large and interesting class of problems in economics involves delegated choice: one individual has the responsibility for taking decisions supposedly in the interests of one or more others, in return for some kind of payment. Examples are a manager running a firm on behalf of its shareholders, an employee working for an employer, an accountant handling the tax affairs of a client, an estate agent selling someone’s house, an investment advisor administering a trust fund or share portfolio, a public policy maker, and so on” (“The Theory of Principal and Agent Part I,” Bulletin of Economic Research, 37(1), 1985).

Rees goes on to describe examples of principal–agent problems and their solutions (part II of his summary of Principal–Agent Theory appears in volume 37, issue 2 of the Bulletin of Economic Research). The theory and the solutions are mathematical. Several of the examples involve the use of incentives to obtain the “optimal” solution (optimal mathematically). A basic assumption in the examples is that the agent is “economic man” — he acts in his own best interests. (I note that this refers to “best interests” as he sees them economically; I wonder whether economic man appreciates the structure and dynamics of systems or the importance of long-term as well as short-term considerations.)

Two things about this theory cause me to question its direct application. First, I know that the papers that get published in the mathematical sciences deal with problems that can be solved, not necessarily problems that actually exist. Generally, it may be that the actual problems in context are simply too complex to solve or include numerous non-quantifiable factors. In some situations, we can still use the solved problems for guidance in the real world, provided we are aware of the potential differences between the real situation and the solved problem as described, and we understand clearly the assumptions made to address the problem.

Second, I am reminded of Deming’s masterful discussion of different “worlds” of purchasing (see the Appendix to the Second Edition of The New Economics, MIT Press, 1994). In that discussion, Deming said, “Any theorem is true in its own world. But which world are we in? Which of the several worlds makes contact with ours? That is the question.” The mathematical treatment of agency relationships is correct, given the assumptions and the mathematical formulation, but the question is whether the assumptions apply to the world we’re in. I seriously question the applicability of the “economic man” model in the real world if often involve consideration of the effects of the decision on affected parties now and in the future. I believe this concern has led to the frequent publication of papers on the “stakeholder” view of the firm in contrast to the purely economic/financial view.

My friend, Ian Bradbury, quoted to me the following paragraph from a microeconomics textbook:

“If monitoring the productivity of workers were costless, the owners of a business could ensure that their managers and workers were working effectively. In most firms, however, owners can’t monitor everything that employees do —  employees are better informed than owners. This information asymmetry creates a principal–agent problem” (Pindyck, R. S. and Rubinfeld, D. L., Microeconomics, 5th Ed., Prentice Hall, 2001).

Ian commented as follows: “As I think about this introductory paragraph, it certainly has imbedded the assumption of (Skinnerian) Rational Economic man. It also makes you wonder how they think it might be if you could, in fact, monitor employee effectiveness for free. Are they thinking there’s some one-dimensional measure of effectiveness and that it would be known whether an employee was operating at their peak? If (as would really be the case) effectiveness were to be viewed across many interdependent dimensions, what would peak effectiveness mean then? Supposing one could actually measure the deviation of effectiveness from the optimum, then what? It seems as though the belief may also be that the cause of the deviation could be nothing other than (lack of) employee motivation/effort and that knowledge of the lack of optimal performance would be sufficient for knowing how to ‘fix’ the problem” (personal communication, January, 2010).

Anyone who has studied organizations as systems would agree with what Ian has said. I tend to believe that what the economists have done is to solve a solvable problem rather than one that actually exists in our world. In our world, meaningful and reliable measurement of performance, definition of optimal performance, and diagnosis of causes for lack of “optimal” performance are typically difficult, if not impossible or nonsensical.

A telling sentence from the same book says, “When it is impossible to measure effort directly, an incentive structure that rewards the outcome of high levels of effort can induce agents to aim for the goals that the owners set.” How do we know the relationship between this “outcome” and the level of effort, independent of the system in which the organization operates? How do we know the relationship between the “outcome” and the complexities of the organization itself? I believe this is a task for deities, rather than all too human designers of incentive plans.

Extrinsic Incentives Bias

An interesting paper published by Chip Heath deals with what he calls “lay theories of motivation” (“On the Social Psychology of Agency Relationships: Lay Theories of Motivation Overemphasize Extrinsic Incentives,” Organizational Behavior and Human Decision Processes, 78(1), 1999). He contends that these theories, rather than the work of theorists of individual motivation, are used to develop the content of the “deal” between the individual (the agent) and the organization (the principal). He proposes that lay theories of motivation are biased toward believing others are more extrinsically motivated. He calls this the “extrinsic incentives bias.” With this bias, systems of reward would likely be weighted toward incentives.

Heath conducted several studies that supported his view. However, they were all done with MBA students, so the question of whether his position applies to the rest of our society is still open. It appears to me that some of the writings about the principal–agent problem in the finance discipline contain the extrinsic incentives bias, particularly with regard to the CEO as agent for the stockholders. I have wondered whether the escalation of pay, perks, and parachutes for CEOs actually tends to attract individuals who are primarily extrinsically motivated, rather than individuals who are seriously interested in creating value.

Several recent examples appear to be consistent with this view. A paper done by behavioral economist Dan Ariely and his colleagues describes a set of experiments with some very interesting results (Ariely, Gneezy, Loewenstein, and Mazar, “Large Stakes and Big Mistakes,” Working Paper No. 05-11, Federal Reserve Bank of Boston Research Center for Behavioral Economics and Decision-Making, July 23, 2005). The experiments were done with villagers in India and American students, so the same question of how far the results can be extended arises. Nevertheless, the experiments provide counter-examples to prevailing thought about incentives or, more generally, pay for “performance.” (I put the word “performance” in quotation marks to note that Deming contended that performance of an individual cannot be measured independent of the system in which they work. In the rest of the article, I will use the word without quotation marks.)

To introduce the experiments, Ariely states, “Workers in a wide variety of jobs are rewarded for their effort based on observed measures of performance.” He goes on to say, “The expectation that people will improve their performance when given high performance-contingent incentives rests on two subsidiary assumptions: (1) that increasing performance contingent incentives will increase motivation and effort, and (2) that this increase in motivation and effort will result in improved performance. The first assumption, that transitory performance-based increase in pay is increasing motivation and effort, is generally accepted … although there are some notable exceptions. … Although there appear to be reasons to question the generality of the first assumption regarding the positive relationship between effort and pay, our focus in this paper is on the second assumption.” (At the risk of being annoying, I note again that the “motivation” here is extrinsic.)

Creating performance-based incentive programs to improve performance may produce effects that were never intended.

Ariely notes, “Unlike the relationship between motivation/effort and pay, the relationship between motivation/ effort and performance has not attracted much attention from economists, perhaps because the belief that motivation improves performance is so deeply held.” To support the notion that this belief may not always be correct, Ariely cites some findings from the research literature. One finding has been, “When performance on a task relies on highly practiced, automatic skills, increasing awareness, competition, introducing a cash incentive or audience or egorelevant threats (the belief that a task is diagnostic of something one cares about, such as intelligence) can cause people, involuntarily, to consciously think about the task, shifting control from ‘automatic’ to ‘controlled’ processes that are less effective.” He cites examples from sports where this “choking under pressure” phenomenon occurs. He also reports that “increased motivation tends to narrow individuals’ focus of attention, and creativity and insight require drawing unusual connections …In addition to the narrowing of attention, large incentives can simply occupy the mind and attention of the laborer, distracting the individual from the task at hand.” Is it possible that large incentives can occupy the minds of executives, leading to a focus on making the numbers that govern their incentives and consequently reduce their creativity and insight?

In their first experiments, Ariely and his colleagues included tasks, some of which “drew primarily on motor skills, some that drew primarily on concentration, and some that drew primarily on creativity.” However, all required “at least some strategy and cognitive effort.” In their first experiment, the experimenters compared performance for three payment conditions: low, medium, and high (three levels of incentive pay). They observed that “performance of participants was always lowest in the high-payment condition when compared with the low- and mid-payment conditions …” In their second experiment, the researchers compared two types of tasks — one that required “cognitive resources and effort” and another that required “only pure physical effort, without any need for cognitive resources.” They concluded that “Tasks that involve only effort are likely to benefit from increased incentives, while for tasks that include a cognitive component, there seems to be a level of incentive beyond which further increases can have detrimental effects on performance.” Think about the implications of these conclusions. How many purely physical tasks do workers (and managers) perform? It appears that as we raise the stakes higher, the effects on knowledge workers could be just the opposite of what economists and armchair psychologists might think.

The authors conclude that their results “challenge the assumption that increases in motivation [extrinsic] necessarily lead to improvement in performance.” They go on to say, “Do administrators who are in charge of setting compensation have greater insight into such effects? The prevalence of very high incentives contingent on performance in many economic settings raises questions about whether administrators base their decisions on empirically derived knowledge of the impact of incentives or whether they are assuming that incentives enhance performance.”

Unintended Consequences

These conclusions cause one to question even further whether the mathematical formulations of Principal-Agent Theory can be applied without reservation to the world we’re actually in. Creating performance-based incentive programs to improve performance may produce effects that were never intended.

In his paper “On the folly of rewarding A, while hoping for B,” Steven Kerr writes, “Numerous examples exist of reward systems that are fouled up in that the types of behavior rewarded are those which the rewarder is trying to discourage, while the behavior desired is not being rewarded at all” (, “On the folly of rewarding A, while hoping for B,” Academy of Management Executive, 9(1), 1995, originally published in Academy of Management Journal, 18, 1975). He cites examples of “fouled-up” reward systems in politics, war, medicine, universities, consulting, sports, government, and business. Two of the reasons for these fouled-up systems are “fascination with an ‘objective’ criterion” and “overemphasis on highly visible behaviors.” In discussing the first of these, Kerr says, “Many managers seek to establish simple, quantifiable standards against which to measure and reward performance. Such efforts may be successful in highly predictable areas within an organization, but are likely to cause goal displacement when applied anywhere else.” Given the work of Ariely and his colleagues, I would be inclined to extend the statement to all parts of the organization.

A destructive myth that is alive and well today in organizations is the notion that if you can’t measure it, you can’t manage it. I have even seen that statement attributed to Deming in spite of this statement in The New Economics, Second Edition: “It is wrong to suppose that if you can’t measure it, you can’t manage it — a costly myth.” In discussing overemphasis on highly visible behaviors, Kerr observes that “Difficulties often stem from the fact that some parts of the task are highly visible while other parts are not. … Team-building and creativity are … examples of behaviors which may not be rewarded simply because they are hard to observe.” To address the problems of reward systems, Kerr recommends that managers “explore what types of behavior are currently being rewarded . . . undesirable behavior by organizational members . . . may be explained largely by the reward systems in use.”

In connection with the republication of Kerr’s paper, the editorial staff of Academy of Management Executive conducted a poll of executives to find out whether Kerr’s folly was still at work. They reported, “Ninety percent of our respondents told us that Kerr’s folly is still prevalent in corporate America today” (, “More on the folly,” Academy of Management Executive, 9(1), 1995). (Although the poll was conducted in 1995, I can think of no reason why things would have changed in the interim.) The editors identified three themes in the responses given about formidable obstacles to dealing with the folly:

1. The inability to break out of the old ways of thinking about reward and recognition practices. In particular, there appears to be a need for new goal and target behavior definition, including non-quantifiable behavior and that which is system focused rather than job or functionally dependent. [I note that the executives appear to have gotten some of the message about inappropriate goals and targets, but not all of it. Goals and targets can go awry as well.]
2. Lack of a holistic or overall system view of performance factors and results. To a great extent, this is still caused by organizational structures that promote optimization of subunit results at the expense of the total organization.
3. Continuing focus on short-term results by management and shareholders. [I note here that the managers and shareholders should probably be joined by market analysts and mutual fund managers.]

An important issue with regard to incentives is possible effects on teamwork and cooperation. If the incentive system is set up as a zero-sum game, then for me to win, you have to lose. This is a very effective way to ensure that there is little or no teamwork or cooperation. Interactions between individuals and groups are likely to become negative, to the detriment of the organization as a whole. When incentives are based on narrow functional objectives, achieving those objectives may guarantee that the system as a whole will be suboptimized.

One of my favorite examples is the food company that had numerous products that had been on the market a long time and were generally successful, but the existing market was fairly well saturated. To meet sales objectives, the sales group would stage promotions in grocery stores. Since the products had a fairly long shelf life, customers quickly learned to wait for a promotion and then stock up. The result was to introduce more variation into sales volumes. The manufacturing group had to cope with this increased variation, as did purchasing, human resources, the financial function, and others. Manufacturing’s reaction to increased variation was to build warehouses to buffer the manufacturing activity from the variation. Management and storage of the additional inventory increased costs. The net outcome for the whole organization was increased costs, while selling the products for less, a sure way to reduce profits. It seemed to me that the use of narrow functional objectives and a reward system that enforced them was an important source of the problem.

Other potential effects of incentives are lowered risk-taking, increased conformance, and less exploration and creativity. At a time in the life of our world when we are in serious need of creativity and innovation, can we afford to have incentive systems that will get in the way?

Some Examples

We probably all know that stacking up examples is not a way to prove the correctness of a theory, but I hope you will bear with a few as illustrations. Robert Rodin described the effects of reward systems in his company, Marshall Industries, an electronics distributor, in his book, Free, Perfect, and Now (Simon & Schuster, 1999). His list of behaviors inside his company with the existing systems of rewards included the following:

• Our salespeople would ship ahead of the schedule to make a number or win a prize.
• We held customer returns. We had to make sure that the returns coming in did not get counted against sales in the period for which we were trying to hit the numbers. So, if a customer returned items, sometimes our salespeople would put them in the trunks of their cars and keep them there for a few weeks until they could be counted as returns for next period. In the meantime, if we needed that inventory for another customer, we’d have to buy unnecessary stock.
• We opened bad credit accounts. Any order was a good order as far as a sales person paid on gross profit was concerned. Just book it.
• We found extraordinarily creative ways to charge expenses to one another’s profit and loss statements.
• Our divisions hid inventory from one another …our managers devised creative ways to hide the inventory they wanted to hold on to for their own customers, sometimes even sending it out of state in UPS trucks so that they could honestly tell other divisions they were out of stock. When their own customers needed the inventory, though, it would magically reappear.

It is clear that the reward systems in Marshall — commissions, incentives, prizes, contests — were driving those kinds of behaviors. The important statement, “People act rational to the systems we create,” is often attributed to Rodin. The shoe inspector at the beginning of this discussion was acting rational to the system. At Marshall, Rodin took action as CEO to change the reward systems, including putting the sales force on salary. I am reminded of an interchange I had with a young salesman at an electronics retailer. I asked him a question that indicated I doubted what he had just said. He drew himself up to his full height and said, “I’m on salary here, not on commission. What possible reason would I have to lie to you?”

In an article published in The New Yorker last June, Atul Gawande describes his search to discover why McAllen, Texas is “one of the most expensive health-care markets in the country” (, “The Cost Conundrum,” June 1, 2009). Medicare spends nearly double the national average per enrollee in McAllen and also double what is spent in El Paso County, Texas, even though the two Texas communities have nearly the same demographics. Gawande reports that the difference in costs between McAllen and El Paso was the “across-the-board overuse of medicine” in McAllen. For example, Medicare data revealed that in 2005 and 2006, when compared with El Paso, patients in McAllen received “twenty percent more abdominal ultrasounds, thirty percent more bone-density studies, sixty percent more stress tests with echocardiography, two hundred percent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty percent more urine flow studies to diagnose prostate troubles … one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes …two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents …five times as many home-nurse visits.

, “People act rational to the systems we create.”

There is troubling information in the paper, indicating that more care is generally not better quality care, and patients in high-cost areas tend to get more costly tests and procedures and fewer preventive services. The healthcare outcomes were no better in McAllen than in El Paso. One of the possible explanations that Gawande pursued was that doctors were simply practicing defensive medicine — ordering more tests and procedures to avoid the risks and costs of malpractice suits. However, Texas has a law that caps the awards for pain and suffering in malpractice at $250,000. A physician in McAllen confirmed that the number of malpractice suits had dropped significantly since the law went into effect.

Gawande identifies three types of physicians. First, there are those who are “remarkably oblivious to the financial implications of their decisions.” Second, there are those who “think of the money as a means of improving what they do.” Then there are those “who see their practice primarily as a revenue stream. They instruct their secretary to have patients who call with follow-up questions schedule an appointment, because insurers don’t pay for phone calls, only office visits. …They figure out ways to increase their high-margin work and decrease their low-margin work. This is a business, after all.” Gawande even learned of some physicians in McAllen who asked for six-figure payments from hospitals to admit patients. Finally, Gawande focuses on the fee-for-service system of payment. He observes that as long as that system is in place, no amount of tinkering with the insurance system will be effective in lowering the cost of care.

Gawande gives some compelling examples of healthcare systems in communities that have managed to raise the quality of care while lowering its costs. One example is the Mayo Clinic, “which is among the highest-quality, lowest-cost healthcare systems in the country.” He reports that “decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focused first on what was best for patients, and then on how to make this financially possible.” He goes on to say, “The core tenet of the Mayo Clinic is ‘The needs of the patient come first’ — not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients.”

Could it be that physicians, insurers, drug companies, and patients are simply acting rational to the system? The players are incentivized to behave as they do. The system delivers what it is designed to deliver.

A particularly sad story came to me from a friend who was an executive in a large company. He told me about a conversation he had with a higher-level executive. That executive had come from an equally high position in another company. My friend asked him why he had joined my friend’s company when he already had such a good job. The fellow responded that the CEO of my friend’s company, an old pal of his, had called him and said “This company is rolling in money — you should join us and get some of it.” The CEO later escaped with millions in parachute money and was later indicted for accounting fraud, but the company is bankrupt and apparently will cease to exist. The company’s investors, suppliers, retirees, and employees will suffer. I wonder if the CEO is now sailing near Somalia, looking for his next engagement.

There may be cases in which incentives work only as intended, but I suspect they are relatively rare. The trouble is that we are usually dealing with complex systems (people and organizations) that may behave not at all like our myths would predict. The best policy may be to avoid incentives altogether and focus instead on creating systems in which intrinsic motivation, cooperation, ethical behavior, trust, creativity, and joy in work can flourish.

Gipsie Ranney is an international consultant to organizations on management, quality improvement, and statistical methodology. She was a member of the faculty of the Department of Statistics at the University of Tennessee, Knoxville, for 15 years. Gipsie was a co-founder of the University of Tennessee’s Institute for Productivity through Quality and served as director of Statistical Methodology for General Motors’ Powertrain Group from 1988 to 1992. She co-authored Beyond Total Quality Management: Toward the Emerging Paradigm (McGraw-Hill, 1994) and contributed to Competing Globally Through Customer Value (Quorum, 1991). The American Society for Quality awarded her the Deming Medal for 1996, “for outstanding contribution in advancing the theory and practice of statistical thinking to the management of enterprises worldwide.” Gipsie originally wrote this article as an Ongoing Discussion Thought Piece for Pratt & Whitney Rocketdyne’s Enterprise Thinking Network.

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