2.1. Ways of Interpreting Situations in Business and Society
The idea that there is an enduring structure to business and social systems, which somehow predetermines achievable futures, is not necessarily obvious. Some people argue that personalities, ambition, chance, circumstance, fate and unforeseen events hold the keys to the future in an uncertain world. But an interpretation of what is happening around you depends on your perspective. What appears to be chance may, from a different perspective, have a systemic cause. For example, when driving on a busy highway you may experience sporadic stops and starts. Does that mean you are at the mercy of random events like breakdowns or accidents? Not necessarily. Trapped in a car at ground level you don't see the waves of traffic that arise from the collective actions of individual drivers as they try to maintain a steady speed while keeping a safe distance from the car in front. There is an invisible structure to the 'system' of driving on a crowded motorway that causes sporadic stops and starts, without the need for accidents (though, of course, they do happen too). You can sense such structure, or at least something systemic, in the pattern of traffic density (alternating bands of congestion and free flow) observable from a nearby hillside overlooking the motorway, where you have the benefit of an overview. The same benefit of perspective applies to all kinds of business and social problems. So, in a way, this chapter is quite philosophical. It is about challenging you to think differently, more broadly and systemically, about the social world, including the organisations people find themselves in, and the multiple intentions, goals and actions of those organisations. Perspectives matter. In particular there are two contrasting perspectives that people bring to bear on policy and strategy development: an event-oriented approach and a feedback (or joined-up) approach. In many ways, they are polar extremes.
2.1.1. Event-oriented Thinking
An event-oriented perspective is pragmatic, action oriented, alluringly simple and often myopic. Figure 2.1 depicts this mindset in the abstract. It reflects a belief that problems are sporadic, stemming from uncontrollable events in the outside world. Life is capricious. Events come out of the blue or at least there is no time to worry about their causes. What's important is to fix the problem as soon as possible.
Figure 2.1. Event-oriented world view
Figure 2.2. Examples of event-oriented thinking
The typical thinking style here is linear – from problem-as-event to solution-as-fix. The problem presents itself as a discrepancy between an important shared goal and a capricious current situation. Through decision and action those responsible for the shared goal arrive at a solution and then move on to the next problem. Event-oriented thinking is widespread and often compelling. It can lead to swift and decisive action, but there are limitations to this open-loop, fire-fighting mode of intervention.
Consider a few practical examples depicted in Figure 2.2. Binge drinking is often in the news. Among other things, it leads to unruly behaviour in towns and cities late at night. A local solution is to deploy more police to arrest the main troublemakers. Suchanapproach may reduce violence and accidentson a given night, butit does not get to grips with why people are binge drinking in the first place. Similarly, a quick-fix solution to drug-related crime is to deploy more police in order to seize drugs and arrest drug dealers, but that does not deter addicts. In a totally different area of public policy, traffic congestion is a chronic problem for motorists and transportation planners alike. One practical solution is to build new roads, an approach that does work, at least in the short run. However, experience suggests that in the long run congestion returns. This can be seen with the case of the M25 orbital motorway around Greater London, originally a six-lane highway with a circumference of 160 miles, completed in the mid-1980s. Twenty years later there are sections with 12 lanes and still it is overcrowded. An example from business is the strategic decision to launch a new product to prevent loss of market share. Even if the product is a success with consumers, the business ramifications can be far-reaching if the new product cannibalises a staple traditional product or invokes greater rivalry.
Event-oriented thinking is also common in fisheries management, as mentioned in Chapter 1, and further illustrated in the following example. In the late 1990s, the 370-year-old fishing community of Gloucester, Massachusetts found itself in economic decline due to the collapse of the white fishery from overfishing of groundfish stocks such as cod and haddock. Local unemployment was rising. An innovative solution proposed by community leaders was to build a new fish factory in empty wharf space to process abundant pelagic fish, such as herring and mackerel, and turn them into profitable 'Surimi' minced-fish products. In fact, this was a creative strategy that helped the Gloucester community in a difficult time. But the solution was a temporary fix in that the exploitation of herring and mackerel could easily undermine the revival of cod and haddock as these fish feed on pelagics, particularly if the opening of the factory inspired other fishing communities to tap into the lucrative Surimi business. A more sustainable solution, devised by two modellers (Otto & Struben, 2004) in consultation with town leaders, addressed the fish factory's growth in the wider context of the traditional white fishery, regulation, trawler use and community well-being.
2.1.2. Feedback Systems Thinking – An Illustration
The Gloucester case brings us to feedback systems thinking. Otto and Struben adopted a feedback view of the problem facing Gloucester's community leaders and supporters of the new fish factory. A feedback approach is different from event-oriented thinking because it strives for solutions that are 'sympathetic' with their organisational and social environment. Problems do not stem from events, and solutions are not implemented in a vacuum. Instead, problems and solutions coexist and are interdependent.
Consider, for example, Figure 2.3, which is a causal loop diagram of factors contributing to road use and traffic congestion (Sterman, 2000). The rules for constructing such a diagram are introduced later, but for now just focus on the cause and effect links that depict far-reaching interdependencies between highway capacity and traffic volume. Four feedback loops are shown. The top loop depicts road construction by the government agency responsible for transportation. As motorists experience an increase in travel time relative to desired travel time (the amount of time they are willing to spend on travel) there is growing pressure on planners to reduce congestion. This pressure leads to road construction which, after a time delay of several years, results in more highway capacity. More highway capacity reduces travel time as motorists are able to reach their destinations more quickly on less crowded roads. The four links described so far make a closed feedback loop labelled capacity expansion. Interestingly, this loop includes an event-oriented link from 'pressure to reduce congestion' to road construction, which is similar to the connection in Figure 2.2 from congestion to 'build new roads'. But this isolated connection is now placed in context of many other factors, side effects if you like, deemed relevant to the big picture.
One important side effect is shown in the middle loop labelled 'discretionary trips'. Here a reduction in travel time leads to an increase in the attractiveness of driving. Attractiveness itself depends on a variety of factors including desired travel time, adequacy of public transit and public transit fare. The greater the attractiveness of driving then (eventually) the more trips per day taken by motorists, the more traffic volume and the higher the travel time, thereby closing the loop. Here already is a vital side effect that can, in the medium to long term, defeat the objective of new road building programmes aimed at reducing congestion. Bigger and better roads make it more attractive to drive. So people make extra journeys. This particular side effect is largely responsible for the failure of London's M25 orbital motorway to relieve traffic congestion in and around the Greater London area, as drivers took to commuting regularly between places they would otherwise seldom visit.
Figure 2.3. A causal loop diagram about road congestion
Source: Adapted from Sterman, J.D., Business Dynamic: Sytems Thinking and Modeling for a Complex World, © 2000, Irwin McGraw-Hill, Boston, MA. Reproduced with permission of the McGraw-Hill Companies.
The lower middle loop shows a related side effect labelled 'extra miles'. For the same attractiveness reasons drivers not only make extra journeys, they also take much longer journeys. The aggregate traffic effect is similar. Traffic volume increases, leading to longer journey times. I can report this phenomenon from personal experience. In 2003–2004, I was on sabbatical and spent part of my time at Warwick Business School, which is located in the English Midlands, on the edge of the city of Coventry, close to the medieval town of Warwick and nearby William Shakespeare's home town of Stratford-upon-Avon. Warwick University is 80 miles from my home. I would never have considered driving there were it not for the existence of the M40 motorway that links London to Birmingham. On this relatively new highway, sweeping west through the rolling Chiltern Hills, across the Oxford plain and then north toward Coventry, the journey takes only 90 minutes. It's a swift yet pleasant drive. The attractiveness of driving is high even though there is an excellent train-then-bus service from my home town to the university. However, the combination of train and bus takes two hours on a good day. So sometimes the car is better, despite my green intentions.
The bottom loop labelled 'take the bus' shows another side effect, a potential long-term impact from public transit. Here, as the attractiveness of driving increases, public transit ridership decreases, causing cars per person to increase. (The direction of these causal effects can be read accurately from the diagram, but first you have to be familiar with the meaning of the '+' and '−' signs near the arrow heads, which is explained later in the chapter). With more cars per person there are more cars in the region and traffic volume increases, thereby closing the bottom loop.
If you reflect for a moment on the picture as a whole, you realise it is a sophisticated view of the congestion problem. There are 15 concepts connected by 19 links. A lot of complexity is condensed into a small space. Compare the picture with the single stark arrow in Figure 2.2 from an event-oriented perspective. Obviously there is much more to think about and discuss in the causal loop diagram. Such richness is typical of good feedback systems thinking. The approach gives pause for thought by showing that often there is more going on (in public policy or in business strategy) than people first recognise. In fact, it is not difficult to extend the road congestion diagram. Sterman 2000 presents a bigger diagram containing in total 11 feedback loops, 20 concepts and 33 connections. In this more elaborate representation, all the effects, except desired travel time, are endogenous. In other words, the status of the road transportation system depends almost entirely on conditions within the system itself, which is broadly defined to include loops for road capacity expansion, discretionary trips, extra miles, take the bus (all as before) and in addition new loops for public transit capacity expansion, fare increase, public transit cost cutting, route expansion, as well as long-term side effects from opening the hinterlands and migration to the suburbs. Ultimately, road congestion depends on the interplay of all these factors.
Where exactly to draw the boundary on the factors to include is a matter of judgement and experience. Usually there is no one right answer and therefore the process of constructing diagrams, and tying them to a dynamic phenomenon, is important too. People responsible for strategy development and facing problematic situations often have in mind partial and conflicting views of these situations. It is therefore well worth spending time to capture their individual perspectives, develop an overview, share the big picture and thereby try to anticipate the ramifications, knock-on consequences, and side effects of strategic change. These are the advantages of feedback systems thinking.
2.1.3. A Shift of Mind
In his influential book The Fifth Discipline, Senge (1990) makes the point that feedback systems thinking is a 'shift of mind', a new way of interpreting the business and social world, and a kind of antidote to silo mentalities and narrow functional perspectives often fostered (inadvertently) by organisations and by our tendency to carve-up problems for analysis. Figure 2.4 summarises this shift of mind. Essentially problems and solutions are viewed as intertwined. The typical thinking style here is circular – starting from a problem, moving to a solution and then back to the problem. The important point, as shown on the right of the figure, is that problems do not just spring from nowhere, demanding a fix. They are a consequence of the cumulative effect of previous decisions and actions, sometimes intentional, but often with hidden side effects. As before, a problem presents itself as a discrepancy between an important goal and the current situation. Those responsible for achieving the goal arrive at a solution in the form of a decision leading to action and results that change the current situation. If all goes to plan then the current situation moves closer to the goal, the size of discrepancy is reduced and the problem is alleviated. But this feedback response is not viewed as a once-and-for-all fix. It is part of a continual process of 'managing' the situation in order to achieve an agreed goal (or goals). Moreover, there is a recognition that other influences come to bear on the current situation. There are other stakeholders, with other goals, facing other situations and taking their own corrective action as shown on the left of Figure 2.4. The performance of the enterprise as a whole arises from the interplay of these interlocking feedback processes, just as we saw in the transport example where the stakeholders included motorists, transportation planners, bus companies and bus passengers.
Figure 2.4. A feedback perspective
2.1.4. The Invisibility of Feedback
There is more to feedback systems thinking than feedback loops alone. Equally important is to appreciate that many feedback processes are almost invisible in practice. They make themselves felt through unanticipated side effects, unexpected resistance to change and surprising outcomes. One way to grasp this abstract idea is to think about the unfortunate fate of the man in the stone circle shown in Figure 2.5. There are two entirely different ways to interpret this situation depending on the perspective you adopt. The picture on the right shows the perspective of the systems thinker. Here the seated man in the stone circle is evidently setting in motion a catastrophic sequence of events that will surely lead to his own destruction. He pushes over the stone to his left (the reader's right). It is clear, with the advantage of an overview, that this standing stone is in fact part of a stone circle. Inevitably the other stones will fall like giant dominoes, one after the other. Eventually the last stone will fall, with a crushing blow, landing on top of the seated man. Yet he is evidently oblivious to this fate. Why? Because where he is seated he doesn't see the stone circle. Instead, he sees just two standing stones, one on either side, as shown in the pictures on the left. From this limited perspective he (in his last conscious moments) interprets the catastrophe differently. The sudden toppling of the last standing stone is a complete surprise. It comes out of the blue, unconnected with his pushing over the first stone. Ironically he seals his own fate but he doesn't even know it. And that's the trouble with hidden feedback.
The message from the stone circle is widely applicable. We live and work in systems of circular causality – but like the stone circle (viewed from within), feedback paths and consequences are not obvious. Often they are hidden. And so, in everyday situations, we experience a variety of perplexing phenomena that only begin to make sense as the network of cause and effect that lies behind them is revealed. Examples from common experience include the bull-whip effect in supply chains (where factories face huge changes in demand even though customers order at a steady rate), boom and bust in new product sales, volatile oil and gas prices, disappearing cod in fisheries (even though fish regenerate), mystery hold-ups on motorways, and the elusive comfort of hotel showers (too hot or too cold). These phenomena are often attributed to uncontrollable events or are blamed on others, but there is usually an alternative and better feedback explanation.
Figure 2.5. The trouble with 'hidden' feedback
Source: The New Yorker Collection 1976 Arnie Levin from cartoonbank.com. All Rights Reserved. The two smaller panels are edited extracts from the original cartoon.