A Systems Approach to Business - Part 2

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This is the second in a series of three posts on the subject of systems thinking in business.  To read the first post, please click [here]

Why We Fragment

I could cite many more examples in addition to those listed in the previous post where goals set for individuals or teams resulted in fragmenting the company and compromising results.  Although fragmenting is destructive to organizations, it continues to be used for a variety of reasons:

• Simplicity:  It's much easier to manage an organization by breaking it into components than to comprehend and manage the whole.  For example, holding a supply chain manager accountable for reducing material costs is easier than setting a total cost objective (which includes accounting for factors like incoming inspection, customer returns related to supplier quality, inventory carrying costs related to increased leadtimes and late deliveries, etc.).  From a systems perspective, however, total cost much more accurately measures the supply chain's contribution to the company than does material costs. 
   
• Lack of Trust:  Micromanagement - which is unfortunately very common in organizations today - results from a lack of trust in people, and cannot coexist with systems thinking.  Leading from a holistic perspective requires relying on vision, clear expectations, delegation of responsibilities, and encouraging people to support other areas, rather than setting easily measurable goals and dictating how work is to be done.  People must be given the authority (as well as a method, training, and the responsibility) to improve processes - including the hand-offs between processes - without detailed input from supervisors.
  
  Another factor that leads to fragmentation is a lack of trust and patience that the organization will achieve targets without knowing that the components are meeting targets.  Even if there is no proven relationship between the targets set for individuals or departments and the targets for the organization, people feel like they're being proactive when they can measure something.  And, as mentioned above, implementing an indicator that accurately measures a person's real contribution to the system is difficult and expensive to maintain;
   
• Functionally-Focused Leaders:  Leaders who lack experience outside of their own function have trouble clearly understanding how their areas support others in the organization.  As an example, a CFO who implements a system that improves productivity within the finance team but causes additional work for other parts of the company does not understand the role of finance within the organization.
   
• Layoffs:  Nothing can make people worry less about the company and more about their own jobs than a round of layoffs.  When layoffs occur, people turn their focus to pleasing the boss instead of pleasing internal and/or external customers, and will do whatever it takes to survive, even if their actions do not support the organization's performance.  Unfortunately, layoffs have become commonplace in U.S. organizations and the practice continues to fragment companies.

Many people know of no other way to manage a company than to break it into "manageable" pieces, but experience continues to show that the practice leads to suboptimal results.  Continual efforts throughout the organization to understand (see figure 1) and continually improve the system will yield much higher returns than worrying about measuring people and individual teams.