Systems Thinking THE Managerial Competence of the Future

1. Systems Thinking � THE Managerial Competence of the Future? 1st Nordic Conference on Decision Support Technikzentrum L�beck Oct. 29th 2003 Download this presentation at www.guenther.ossimitz.at

2. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 2 Motto

3. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 3 Prologue: A Systems Tale New CEO of noodle-producer discovers: Too much spaghetti on stock! CEO calls Marketing Director: �Make your Job!� Marketing Director creates a big campaign: �Take two, pay one�. Campaign extremely successful � 3 months later store is almost empty. CEO to Marketing Director: �Well done!� At the same time: Production Accountant reports to Production Director: �Our sales increased dramatically! �The forecast says that in six months our sales will have doubled from 200 tons to 400 tons per month! We have to increase production dramatically to fulfill the increased demand!� After seeing the figures the Production Director is shocked: �We are already running two shifts. Now we have to introduce a night-shift, too...�

4. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 4

5. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 5 How did the Production Director react? He recognized the considerable gap between sales and production. He concluded that due to the forecast this gap apparently will become even bigger. He decided to expand capacities dramatically by introducing a third (night) shift. All holidays had been cancelled and new personnel was recruited immediately. He was absolutely determined to increase production by one-third within six weeks.

6. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 6 What actually happened with Spaghetti Sales? Customers ate as much spaghetti as usual. The extra spaghetti packs bought at the �2 for 1� campaign were stored at home in their kitchens and pantries. Thus after the �Get 2 for 1� campaign spaghetti sales actually decreased dramatically below the 200 tons p.m. average. The non-systemic forecast led the production completely into the wrong direction. At the end of June the stock was even higher than before the �2 for 1� campaign.

7. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 7 The very Beginning of Systems Thinking God asked Adam: �Did you eat from the tree I forbid?� Adam: �Not I! That wife you gave me told me...� God asked Eve: �What did you do?� Eve: �Not me! The snake....�

8. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 8 �Shifting the Burden� Systems Archetype, coined by Peter Senge A �quick and dirty� solution is applied for a short-term benefit, avoiding a painful (but necessary) �fundamental solution� Aspirin against tooth-ache instead of consulting a dentist Debt: �Get the benefit now, pay later� �Spaghetti Production� story with several instances of SdB �Pyramid Games�: Pay me � 1.000,- and I give you the right to look for 3 people who pay you � 1,000,- each for the same right to look for 3 other people each ... So yours (and their) net gain will be � 2.000,- each � and all will be happy... ???

9. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 9 �Shifting the Burden� lethally: �Scylla and Charybdis� Episode from Homer�s �Odysse�: Scylla is a 6-headed Monster which required from each passing ship a man for each head. �Clever� captains who avoided Scylla little later inevitably run into Charybdis, a downward whirl swallowing the whole ship and all men. Systems Principle: Sometimes painful (but limited) sacrifices are necessary in time to avoid a total disaster later.

10. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 10 Systems Thinking Approaches - Overview

11. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 11 My Definition of �Systems Thinking� Dynamical Dimension - Thinking in dynamical processes over time: beyond snapshot-thinking; understanding stocks vs. flows, delays, oscillations... Model Dimension - Thinking in Models /Awareness of Systems: mental models, modeling assumptions, model-reality; qualitative vs. quantitative models Feedback Dimension - Thinking in loops and networks: interrelated structures, indirect effects, feedback loops, networks of interrelations Pragmatical Dimension - Steering of Systems: finding the "leverage point", counterintuitive behavior, proper intensity and timing of actions. Dealing with conflicts and �impossible� situations.

12. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 12 Mental Models: What does this Photo show? A Drug Flask with design of 1900�s The �Bayer�-Cross-Logo on top The Text: �25 Original Tabletten �BAYER� enthaltend jede 0.0025g Heroin. hydrochlor. Farbenfabriken vorm. Friedr. Bayer Co. Leverkusen.

13. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 13 The History of Heroin Invented on Aug 11th 1897 by Felix Hoffmann at Bayer in Leverkusen. Aim: a non-addictive substitute for Opiates (anti-pain-drugs). Heroin became one of the best selling products of Bayer Tons of Heroin were prescribed for an amazing variety of diagnoses. Taken orally: no side effects and no addictive potential Misuse started in the 1920ies in the USA by injecting high doses of Heroin intravascular. In the 1930ies Bayer silently withdrew from Heroin-production. Heroin is still used in GB as one of the best oral anti-pain-drugs. Today Bayer produces Methadon as a substitute for Heroin-addicts.

14. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 14 Dynamical Thinking: Discerning stocks and flows

15. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 15 Dynamical Thinking: �The Disappearing Multiplier�

16. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 16 Basic Keynesian Economy: Example Y = 1000; s=0,1 ? S = 100, C= 900 ? Equilibrium at I = 100 I will be increased by 10 up to 110: New Equilibrium at: Y=1100, S=110, C=990 Multiplier effect: an Increase of I by 10 increases Yeq by 10*10=100!

17. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 17 The Multiplier Effect in practical Politics Key question: Must the higher (additional) investment be made only once or permanently every period (month)? Background: in a statical model this question does not even appear, because the model contains no dynamics over time. A Dynamical Model can easily made with Excel! The result of the dynamical modelling is shocking: The higher investment must be done permanently each month in order to approach the higher level of Equilibrium after about 3 years!

18. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 18 Systemic Escalations: A Couple in Trouble (Paul Watzlawick)

19. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 19 The Couple in Trouble: Behind the Scenes The systemic view reveals the escalation feedback loop. �More of the same � or �When the �solution� is the problem� The systemic solutions are exactly the opposite of the non-systemic solutions: he stays home (ignoring her quarreling) or she stops quarrelling although he is going to the pub. The �Couple in Trouble� is a prototype of an Aporetic Conflict two contradicting positions BOTH are true or legitimate Both depend on each other: one cannot exist wo. the other Aporetic Conflicts contradict the laws of Logic! Apories cannot be solved by means of a Hierachy!

20. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 20 How can we learn Systems Thinking? The first step is Awareness of Systems Principles! Systems Thinking needs systemic denotations, models and tools! (CLD�s, Stock-Flow-Diagrams, simulation models...) Quantitative Systems Modelling expands Systems Thinking capabilities drastically! Practical Systems Management very often has to deal with aporetic situations, which are logically impossible and cannot be solved by delegation in a Hierarchy!

21. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 21 Further Reading and Information Peter Senge: The Fifth Discipline (dt. �Die f�nfte Disziplin) Dietrich D�rner: Die Logik des Misslingens (The Logic of Failure) Michael De Ridder: Heroin. Vom Medikament zur illegalen Droge. Gerhard Schwarz: Konfliktmanagement. For more Systems Papers and Materials: visit my website at www.guenther.ossimitz.at or mail me at guenther@ossimitz.at

22. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 22 Thank you very much! Any comments and questions are welcome!

23. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 23 Thinking in Models: Heroin Market 1

24. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 24 Price Elasticity of Heroin

25. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 25 Thinking in Models: Heroin Market 2

26. G�nther Ossimitz: Systems Thinking � THE Managerial Competence? 26 Lessons from the Heroin Models: Causal Loop Diagrams (CLD`s) are useful tools! CLD�s help to discuss a situation. Different viewpoints can be clarified and checked more easily. The �same� situation can be modeled in different ways. CLD�s allow a reflection of model assumptions. Small differences in a model might have dramatical consequences. What appears to be the solution at first sight, might (via feedback) make the problem even more severe!