Systems Thinking: Managing Chaos and Complexity, Second Edition

Systems Thinking: Managing Chaos and Complexity, Second Edition

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A Platform for Designing Business Architecture

Jamshid Gharajedaghi

1. System analysis. 2. Chaotic behavior in systems. 3. Industrial management. 4. Technological complexity.

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Book Details
 357 p
 File Size 
 4,186 KB
 File Type
 PDF format
 2006, Elsevier Inc

Foreword to Second Edition
Professor Thomas Lee of MIT was a dear friend. I met him in the early 1980s
when he was the Secretary General of the International Institute for Applied
Systems Analysis (IIASA). Tom was obsessed with the notion that two distinct
traditions of systems thinking—Ackoff’s interactive design and
Forrester’s systems dynamics—are complementary. For years he insisted that
we should work together to merge the two prominent systems methodologies
into a single unified one. But at the time I was preoccupied with two other
exciting conceptions. The first one was consideration of culture as an operating
system that guides social organizations toward a predefined order. The
second was a hunch that iteration is the key for understanding complexity.

Sadly, Tom passed away, but managed to get a promise from me to work on
his favorite project. To fulfill my promise I tried several different approaches, all
in vain, before realizing that I had the solution all along. In fact I had used it in
the first edition of the present work to combine my version of holistic thinking—
iteration of structure, function, and process—with Interactive design. Suddenly
it became clear that Interactive Design is not just a simple methodology. It is also
a platform that could be used to integrate the iterative approach, systems dynamics,
and the challenge of self-organization of sociocultural systems (neg-entropic
process) into a comprehensive systems methodology.

I prepared a draft of my thinking and showed it to my mentor Russ
Ackoff. He liked it very much and insisted that I should publish it in a new book.

Coincidentally, at that time, Dean Thomas Manahan of Villanova
University and Niel Sicherman, Associate Dean of Executive Education, asked
me to help them design a distinctive Executive MBA program that would use
systems thinking as a platform to integrate the relevant subjects into a unified
whole. I was ready for this assignment. The systems methodology I had developed
was uniquely qualified to deal with the challenge that most MBA programs
have not been able to deliver. Four successful classes of Villanova
Executive MBA graduates are testimony for the effectiveness of this approach.
When Dennis McGonagle, my editor from Elsevier, called to see whether
I was ready for a new edition, I welcomed the opportunity to revise chapters
4, 5, 6, and 7 of the present work to incorporate this exciting concept.
But, in the end, it was the remarkable support of my valued partner
Susan Leddick that got the job done. Susan not only edited the revised chapters
with utmost attention but also had many invaluable suggestions that improved
the outcome significantly.

Here it is, my new version of a comprehensive systems methodology.
I sincerely believe that the beauty of interactive design and the magic of
the iteration of structure, function, and process—when combined with the
power of operational thinking, and genuine understanding of neg-entropic
processes—create a competent and exciting systems methodology that goes a
long way in dealing with emerging challenges of seemingly complex and
chaotic sociocultural systems.
Jamshid Gharajedaghi

This is an unconventional book for an unconventional reader. It is intended
for those professionals who, in addition to their specialized knowledge, would
like to get a handle on life so they may put their special text into its proper
context. It speaks to those thinkers and practitioners who have come to realize
that learning to be is as much a necessary part of a successful professional life
as is the learning to do; and that to remain unidimensional is to become boringly predictable.
This book is about a new mode of seeing, doing, and being in the world;
a way of thinking through chaos and complexity. It is not another “how to”
book, nor an alternative to what is already available. It is not a variation on
the tired theme of offering the latest version of the common characteristics of the winners.

It also violates the golden rule of best sellers. I am told the experience of
dealing with too many ideas in a single book is way out of the comfort zone of
most readers, but given the choice between breaking the message or breaking
the norm, it was obvious which one had to go. If that meant being a minority
of one, so be it. The ideas in this book, although many, converge and create a
whole that is profoundly more beautiful than any one concept in isolation. The
real beauty, therefore, lies in experiencing the whole, seeing the concepts all fuse into one.
The book, nevertheless, speaks to everyone for whom the joy of thinking
is still alive and kicking and whose enthusiasm to entertain exciting but unfamiliar
conceptions is not yet exhausted.

In a nutshell, the book is about systems. The imperatives of interdependency,
the necessity of reducing endless complexities, and the need to produce
manageable simplicities require a workable systems methodology and a holistic
frame of reference that will allow us to focus on the relevant issues and
avoid the endless search for more details while drowning in proliferating useless information.
Contrary to widely held belief, the popular notion of a multidisciplinary
approach is not a systems approach. The ability to synthesize separate findings
into a coherent whole seems far more critical than the ability to generate
information from different perspectives. This book, with a practical orientation
and yet a profound theoretical depth, goes beyond the simple declaration of
the desirability of systems thinking. It deals with the challenges of interdependency,
chaos, and choice using an elaborate scheme called iterative design.

The iterative design explicitly recognizes that choice is at the heart of
human development. Development is the capacity to choose; design is a vehicle
for enhancement of choice and holistic thinking. Designers, in this book, seek to
choose rather than predict the future. They try to understand rational, emotional,
and cultural dimensions of choice and to produce a design that satisfies a
multitude of functions. They learn how to use what they already know, how to
realize what they do not know, and how to learn what they need to know.

The book is divided into four parts. Part I identifies where systems thinking
fits into the overall scheme of things. It provides an overview, a total picture
of major theoretical traditions in management and systems thinking and their relationship.

Parts II and III are the guts of the book. Part II discusses the five systems
principles as the building blocks of the mental model used to generate the initial
set of assumptions about the system. It also identifies the comprehensive
set of variables that collectively describe the organization in its totality. Part III
deals extensively with the development of iterative design and its practical
implications in defining problems and designing solutions.

Part IV reviews five actual cases of designing a business architecture.
The Oneida Nation, Butterworth Health Systems, the Marriott Corporation,
Commonwealth Energy Systems, and Carrier Corporation represent a diverse
group of challenging social organizations. I call them “the gutsy few” because
they were willing to experiment with unconventional solutions without worrying
about who had done it first. I am grateful for their trust and permission
to share synopses of their designs with others.

Table of Contents
Foreword to Second Edition xv
Preface xvii
Acknowledgments xix
PART I Systems Philosophy:
The Name of the Devil 1
Chapter 1 How the Game Is Evolving 3
Imitation 4
Inertia 5
Suboptimization 6
Change of the Game 6
Shift of Paradigm 8
Interdependency and Choice 9
On the Nature of Organization: The First
Paradigm Shift 10
Mindless Systems: A Mechanistic View 10
Uniminded Systems: A Biological View 11
Multiminded Systems: A Sociocultural View 12
On the Nature of Inquiry: The Second
Paradigm Shift 13
The Competitive Games 16
Mass Production: Interchangeability
of Parts and Labor 17
Divisional Structure: Managing Growth
and Diversity 18
Participative Management: Self-Organizing
Systems 20
Operations Research: Joint Optimization 21
Lean Production Systems: Flexibility
and Control 22
Interactive Management: The Design
Approach 22

PART II Systems Theories:
The Nature of the Beast 25
Chapter 2 Systems Principles 29
Openness 30
Purposefulness 33
Multidimensionality 38
Plurality of Function, Structure,
and Process 43
Emergent Property 45
Counterintuitiveness 49
Chapter 3 Systems Dimensions 56
Throughput 59
Model of the Process 60
Critical Properties 63
Measurement and Diagnostic 64
Read-Only Memory 65
Target Costing 65
Membership 66
Conflict Management 67
From Lose/Lose to Win/Win
Environments 70
Changing Conflict to Competition 70
Decision Systems 71
Duplication of Power 71
Decision Criteria 73
Learning and Control Systems 75
Social Calculus 77
Chapter 4 The Sociocultural Model:
Information-Bonded Systems 83
Culture 84
Social Learning 87
Development 88
Schematic View of Theoretical
Traditions 89
Systems View of Development 92
Obstruction to Development 96
Recap 103

PART III Systems Methodology:
The Logic of the Madness 105
Chapter 5 Systems Methodology 107
Foundation 1: Holistic Thinking 108
Structure, Function, Process, and Context 108
Foundation 2: Operational Thinking 114
Understanding Chaos and Complexity 114
Understanding the Multi-loop Nonlinear
Feedback System 117
Mapping the Dynamic Behavior 118
Foundation 3: Self-Organization 121
Socio-Cultural Model 121
Foundation 4: Interactive Design 125
Defining Problems (Formulation of the Mess) 126
Designing a Solution (Idealization and
Realization) 128
Conclusion 130
Chapter 6 Defining the Problem 131
Formulating the Mess 131
Searching 132
Mapping the Mess 135
Telling the Story 140
Mapping the Mess of XYZ Corporation, a Sample
Formulation 140
Chapter 7 Designing Business Architecture 152
Multidimensional Modular Design 152
The System’s Boundary and Business
Environment 153
Purpose 156
Functions 161
Structure 163
Outputs Dimension 165
Inputs Dimension 167
Markets Dimension 169
Internal Market Economy 170
Processes 174
Planning, Learning and Control System 175
Measurement System 176
Realization: Successive Approximation 181
Type I Constraints 181
Type II Constraints 183
Type III Constraints 183
Dissolving the Second-Order Machine 183
Recap 184

PART IV Systems Practice: The Gutsy Few 185
Chapter 8 The Oneida Nation 187
Desired Specifications 187
Systems Architecture 189
Governance 190
Governing Body 192
Chief of Staff 192
Planning, Learning, and Control System 192
Planning, Learning, and Control Board 194
Membership Systems 195
Empowerment 195
The Tie that Bonds 196
Membership Network 196
Consensus-Building Process 198
Back to the Future 201
Performance Criteria and Measures 202
Learning Systems 203
Learning to Learn (Formal Education) 205
Learning to Be (Cultural Education) 205
Learning to Do (Professional Education) 206
Support Functions 206
Advocacy Functions 207
Oneida Multiversity 207
Performance Criteria and Measures 210
Business Systems 211
Services Sector 212
Industry Sector 213
Leisure Sector 213
Land and Agriculture Sector 213
Marketing Sector 213
Governance and Intersystems Relationships 214
Core Services 215
Government Services Division 215
Infrastructure Development Division 215
Ordinance Division 216
Performance Criteria and Measures 216
Governance and Oversight 216
External Environment 217
Judicial System 218
Contextual Analysis 218
Contextual Challenge 219
Democratic Challenge 220
Chapter 9 Butterworth Health Systems 222
Issues, Concerns, and Expectations 223
Design Specifications 225
The Architecture 226
Market Dimension 227
Market Access 227
Care System 229
Contextual Background 229
Desired Specifications 229
Common Features 231
Preventive Care 233
Interventional Care 234
Viability Care 234
Terminal Care 235
Output Dimension 237
Health Delivery System Design: The Makeup 240
Community-Based Health Delivery System 240
Specialized Health Delivery System 242
Shared Services 243
Core Knowledge 245
Shared Services 249
Need for Centralization 250
Control versus Service 251
Customer Orientation 251
Health Delivery System, Core Knowledge, and Care Systems
Interactions 253
The Executive Office 257
Recap 258
Chapter 10 The Marriott Corporation 260
The Environment: How the Game Is Evolving 261
Bases for Competition 261
Purpose 262
Principles and Desired Characteristics 262
The Architecture 263
Product/Market Mix 264
Region/Market Operation 264
Brand Management 266
Core Components 266
Core Knowledge 267
Critical Processes 268
Recap 269
Chapter 11 Commonwealth Energy Systems 270
Stakeholders’ Expectations 271
Shareholders’ Expectations 271
Regulators’ Expectations 272
Employees’ Expectations 272
Customers’ Expectations 272
Suppliers’ Expectations 273
Public’s Expectations 273
Business Environment 273
The Changing Game: The Energy Industry 273
The Changing Game: COM/Energy 275
Design 276
Purpose and Strategic Intent 276
Core Values and Desired Specifications 278
General Architecture 279
Core Business Units: Gas and Electricity Distribution 282
Customer-Oriented Business Units: Energy Supply
Systems and Management Services 283
Cogeneration and Packages of Energy Supply (Industrial
and Commercial) 283
Energy Efficiency and Electrotechnologies (Residential
and Commercial) 285
Technology/Supply-Oriented Business Units: Energy
Generation and Supply 286
Energy Generation (Canal) 286
Gas Storage (LNG) 287
Steam Services 288
Energy Brokerage and International Operations 288
Energy Brokerage 288
International Operations 289
Shared Services (Performance Centers) 290
Service Company 291
Financial Systems 292
Executive Office 292
Core Knowledge Pool 293
Learning and Control System 294
Chapter 12 Carrier Corporation 297
Expectations, Assumptions, and Specifications 298
The Changing Game: In General 298
The Changing Game: The HVAC Industry 299
Drivers for Change 299
Bases for Competition 299
Core Values 300
Products and Services 300
Core Technology and Know-How 301
Sales and Distribution System 302
Systems Architecture 303
Desired Characteristics 303
A Multidimensional Framework 304
Markets 304
Regional Units 305
Area Units 307
Output Units 307
Components 309
Inputs 310
The Technology 310
Operational Support (Process Design) 310
Management Support Services 311
Business Processes 312
Decision System 312
Performance Measurement and Reward System 312
Target Costing and Variable Budgeting System 312
Conclusion 315
Bibliography 319
Index 325

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