SEARCHINSlDti

U+THuuiruFTnlupiiH"-

Ti"'V'V".....fp""""":;;"'FtFTH

ThtAltfitPcoAvjc-oiThfE-n-dneOriITin.:.Ttiim

FftfrM;5j.Tr

IM

17.zan2004

1ze412

Inthelongrun,theonlysustainablesourceofcompetitiveadvantageisyourorganization'sabilitytolearnfasterthanitscompetition.FounderandDirectoroftheCenterforOrganizationalLearningatMIT'sSloanSchoolofManagement,whichboastssuchmembersasIntel,Ford,HermanMiller,andHarleyDavidson,authorPeterM.Sengehasfoundameansofcreatinga"learningorganization."InTHEFIFTHDISCIPLINE,hedrawstheblueprintsforanorganizationwherepeopleexpandtheircapacitytocreatetheresultstheytrulydesire,wherenewandexpansivepatternsofthinkingarenurtured,wherecollectiveaspirationissetfree,andwherepeoplearecontinuallylearninghowtolearntogether.THEFIFTHDISCIPLINEfusesthesefeaturesintoacoherentbodyoftheoryandpractice,makingthewholeofanorganizationmoreeffectivethanthesumofitsparts.Companyaftercompany,fromInteltoAT&TtoProcter&GambletoCoopersandLybrand,haveadoptedthedisciplinesofthelearningorganizationtoridthemselvesofthelearning"disabilities"

C0NTINUEDONBACKFLAP

17.zafi2004

2ze412

THE

FIFTHDISCIPLINE

THEARTAND

PRACTICEOF

THELEARNING

ORGANIZATION

PeterM.Senge

DOUBIEDAYNewYorkLondonTorontoSydneyAuckland

17.zan2004

3ze412

TODIANE

FormoreinformationonCurrencyDoubleday'snewideasonbusiness,pleasewrite:CurrencyDoubleday1540BroadwayEighteenthFloorNewYork,NewYork10036

ACurrencyPaperback

PUBLISHEDBYDOUBLEDAYadivisionofBantamDoubledayDellPublishingGroup,Inc.1540Broadway,NewYork,NewYork10036CURRENCYandDOUBLEDAYaretrademarksofDoubleday,adivisionofBantamDoubledayDellPublishingGroup,Inc.TheFifthDisciplinewasoriginallypublishedinhardcoverbyCurrencyDoubleday,adivisionofBantamDoubledayDellPublishingGroup,Inc.,in1990.BOOKDESIGNBYRICHARDORIOLO

PermissiontoreprintNavajosandpaintinggivenbytheWheelwrightMuseumoftheAmericanIndian,SantaFe,NewMexico,PhotographybyKayV.Weist.TheLibraryofCongresshascatalogedtheCurrencyhardcovereditionasfollows:Senge,PeterM.Thefifthdiscipline:theartandpracticeofthelearningorganization/PeterM.Senge.1sted.p.cm."ACurrencybook"T.p.verso.1.Organizationaleffectiveness.2.Workgroups.I.Title.II.Title:Learningorganization.HD58.9.S461994658.4-dc2090-2991CIP

ISBN0-385-26095-4Copyright1990byPeterM.SengeIntroductiontothePaperbackEditionandSomeTipsforFirst-TimeReaderscopyright1994byPeterM.SengeAllRightsReservedPrintedintheUnitedStatesofAmerica

17.zan2004

4ze412

CONTENTS

IntroductiontothePaperbackEditionSomeTipsforFirst-TimeReaders

PARTIHOWOURACTIONSCREATEOURREALITY...ANDHOWWECANCHANGEIT

1"GiveMeaLeverLongEnough...andSingle-HandedICanMovetheWorld"32DoesYourOrganizationHaveaLearningDisability?173PrisonersoftheSystem,orPrisonersofOurOwnThinking?27

PARTIITHEFIFTHDISCIPLINE:THECORNERSTONEOFTHELEARNINGORGANIZATION4TheLawsoftheFifthDiscipline575AShiftofMind

6Nature'sTemplates:IdentifyingthePatternsThatControlEvents7ThePrincipleofLeverage8TheArtofSeeingtheForestandtheTrees

93114127

17.2an20045Ze412

13Openness273

14Localness287

15AManager'sTime302

16EndingtheWarBetweenWorkandFamily306

17Microworlds:TheTechnologyoftheLearningOrganization313

18TheLeader'sNewWork339

PARTV

CODA

19ASixthDiscipline?363

20RewritingtheCodem

21TheIndivisibleWhole368

Appendix1.TheLearningDisciplines373

Appendix2.SystemsArchetypes378

Notes391

Acknowledgments411

Index414

PARTIIITHECOREDISCIPLINES:BUILDINGTHELEARNINGORGANIZATION

9PersonalMastery13910MentalModels17411SharedVision20512TeamLearning233

PARTIVPROTOTYPES

17.2an2004

6ze412

PARTI

HowOurActions

CreateOurReality..andHowWeCanChangeIt

17.zan2004

7ze412

1

"GIVEMEALEVERLONGENOUGH...ANDSINGLE-HANDEDICANMOVETHEWORLD"

Fromaveryearlyage,wearetaughttobreakapartproblems,tofragmenttheworld.Thisapparentlymakescomplextasksandsubjectsmoremanageable,butwepayahidden,enormousprice.Wecannolongerseetheconsequencesofouractions;weloseourintrinsicsenseofconnectiontoalargerwhole.Whenwethentryto"seethebigpicture,"wetrytoreassemblethefragmentsinourminds,tolistandorganizeallthepieces.But,asphysicistDavidBohmsays,thetaskisfutilesimilartotryingtoreassemblethefragmentsofabrokenmirrortoseeatruereflection.Thus,afterawhilewegiveuptryingtoseethewholealtogether.Thetoolsandideaspresentedinthisbookarefordestroyingtheillusionthattheworldiscreatedofseparate,unrelatedforces.Whenwegiveupthisillusionwecanthenbuild"learningorganizations,"organizationswherepeoplecontinuallyexpandtheircapacitytocreatetheresultstheytrulydesire,wherenewandexpansivepatternsofthinkingarenurtured,wherecollectiveaspirationissetfree,andwherepeoplearecontinuallylearninghowtolearntogether.AsFortunemagazinerecentlysaid,"Forgetyourtiredoldideasaboutleadership.Themostsuccessfulcorporationofthe1990swillbesomethingcalledalearningorganization.""Theabilitytolearnfasterthanyourcompetitors,"saidArieDeGeus,headofplanningforRoyalDutch/Shell,"maybetheonlysustainablecompetitiveadvantage."Astheworldbecomesmoreinterconnectedandbusinessbecomesmorecomplexanddynamic,workmustbecomemore"learningful."Itisnolongersufficienttohaveonepersonlearningfortheorganization,aFordoraSloanoraWatson.It'sjustnotpossibleanylongerto"figureitout"fromthetop,andhaveeveryoneelsefollowingtheordersofthe"grandstrategist."Theorganizationsthatwilltrulyexcelinthefuturewillbetheorganizationsthatdiscoverhowtotappeople'scommitmentandcapacitytolearnatalllevelsinanorganization.Learningorganizationsarepossiblebecause,deepdown,wearealllearners.Noonehastoteachaninfanttolearn.Infact,noonehastoteachinfantsanything.Theyareintrinsicallyinquisitive,masterfullearnerswholearntowalk,speak,andprettymuchruntheirhouseholdsallontheirown.Learningorganizationsarepossiblebecausenotonlyisitournaturetolearnbutwelovetolearn.Mostofusatonetimeoranotherhavebeenpartofagreat"team,"agroupofpeoplewhofunctionedtogetherinanextraordinarywaywhotrustedoneanother,whocomplementedeachothers'strengthsandcompensatedforeachothers'limitations,whohadcommongoalsthatwerelargerthanindividualgoals,andwhoproducedextraordinaryresults.Ihavemetmanypeoplewhohaveexperiencedthissortofprofoundteamworkinsports,orintheperformingarts,orinbusiness.Manysaythattheyhavespentmuchoftheirlifelookingforthatexperienceagain.Whattheyexperiencedwasalearningorganization.

17.zafi2004

8ze412

Theteamthatbecamegreatdidn'tstartoffgreatitlearnedhowtoproduceextraordinaryresults.Onecouldarguethattheentireglobalbusinesscommunityislearningtolearntogether,becomingalearningcommunity.Whereasoncemanyindustriesweredominatedbyasingle,undisputedleaderoneIBM,oneKodak,oneProcter&Gamble,oneXeroxtodayindustries,especiallyinmanufacturing,havedozensofexcellentcompanies.AmericanandEuropeancorporationsarepulledforwardbytheexampleoftheJapanese;theJapanese,inturn,arepulledbytheKoreansandEuropeans.DramaticimprovementstakeplaceincorporationsinItaly,Australia,Singaporeandquicklybecomeinfluentialaroundtheworld.Thereisalsoanother,insomewaysdeeper,movementtowardlearningorganizations,partoftheevolutionofindustrialsociety.Materialaffluenceforthemajorityhasgraduallyshiftedpeople'sorientationtowardworkfromwhatDanielYankelovichcalledan"instrumental"viewofwork,whereworkwasameanstoanend,toamore"sacred"view,wherepeopleseekthe"intrinsic"benefitsofwork.l"OurgrandfathersworkedsixdaysaweektoearnwhatmostofusnowearnbyTuesdayafternoon,"saysBillO'Brien,CEOofHanoverInsurance."Thefermentinmanagementwillcontinueuntilwebuildorganizationsthataremoreconsistentwithman'shigheraspirationsbeyondfood,shelterandbelonging."Moreover,manywhosharethesevaluesarenowinleadershippositions.Ifindagrowingnumberoforganizationalleaderswho,whilestillaminority,feeltheyarepartofaprofoundevolutioninthenatureofworkasasocialinstitution."Whycan'twedogoodworksatwork?"askedEdwardSimon,presidentofHermanMiller,recently."Businessistheonlyinstitutionthathasachance,asfarasIcansee,tofundamentallyimprovetheinjusticethatexistsintheworld.Butfirst,wewillhavetomovethroughthebarriersthatarekeepingusfrombeingtrulyvision-ledandcapableoflearning."Perhapsthemostsalientreasonforbuildinglearningorganizationsisthatweareonlynowstartingtounderstandthecapabilitiessuchorganizationsmustpossess.Foralongtime,effortstobuildlearningorganizationswerelikegropinginthedarkuntiltheskills,areasofknowledge,andpathsfordevelopmentofsuchorganizationsbecameknown.Whatfundamentallywilldistinguishlearningorganizationsfromtraditionalauthoritarian"controllingorganizations"willbethemasteryofcertainbasicdisciplines.Thatiswhythe"disciplinesofthelearningorganization"arevital.DISCIPLINESOFTHELEARNINGORGANIZATIONOnacold,clearmorninginDecember1903,atKittyHawk,NorthCarolina,thefragileaircraftofWilburandOrvilleWrightprovedthatpoweredflightwaspossible.Thuswastheairplaneinvented;butitwouldtakemorethanthirtyyearsbeforecommercialaviationcouldservethegeneralpublic.Engineerssaythatanewideahasbeen"invented"whenitisproventoworkinthelaboratory.Theideabecomesan"innovation"onlywhenitcanbereplicatedreliablyonameaningfulscaleatpracticalcosts.Iftheideaissufficientlyimportant,suchasthetelephone,thedigitalcomputer,orcommercialaircraft,itiscalleda"basicinnovation,"anditcreatesanewindustryortransformsanexistingindustry.Intheseterms,learningorganizationshavebeeninvented,buttheyhavenotyetbeeninnovated.Inengineering,whenanideamovesfromaninventiontoaninnovation,diverse"componenttechnologies"cometogether.Emergingfromisolateddevelopmentsinseparatefieldsofresearch,thesecomponentsgraduallyforman"ensembleoftechnologiesthatarecriticaltoeachothers'success.Untilthisensembleforms,theidea,thoughpossibleinthelaboratory,doesnotachieveitspotentialinpractice.2TheWrightBrothersprovedthatpoweredflightwaspossible,buttheMcDonnellDouglasDC-3,introducedin1935,usheredintheeraofcommercialairtravel.TheDC-3wasthefirstplanethatsupporteditselfeconomicallyaswellasaerodynamically.Duringthoseinterveningthirtyyears(atypicaltimeperiodforincubatingbasic

17.zafi2004

9ze412

innovations),myriadexperimentswithcommercialflighthadfailed.Likeearlyexperimentswithlearningorganizations,theearlyplaneswerenotreliableandcosteffectiveonanappropriatescale.TheDC-3,forthefirsttime,broughttogetherfivecriticalcomponenttechnologiesthatformedasuccessfulensemble.Theywere:thevariable-pitchpropeller,retractablelandinggear,atypeoflightweightmoldedbodyconstructioncalled"monocque,"radialair-cooledengine,andwingflaps.Tosucceed,theDC-3neededallfive;fourwerenotenough.Oneyearearlier,theBoeing247wasintroducedwithallofthemexceptwingflaps.Lackingwingflaps,Boeing'sengineersfoundthattheplanewasunstableontakeoffandlandingandhadtodownsizetheengine.Today,Ibelieve,fivenew"componenttechnologies"aregraduallyconvergingtoinnovatelearningorganizations.Thoughdevelopedseparately,eachwill,Ibelieve,provecriticaltotheothers'success,justasoccurswithanyensemble.Eachprovidesavitaldimensioninbuildingorganizationsthatcantruly"learn,"thatcancontinuallyenhancetheircapacitytorealizetheirhighestaspirations:SystemsThinking.Acloudmasses,theskydarkens,leavestwistupward,andweknowthatitwillrain.Wealsoknowthatafterthestorm,therunoffwillfeedintogroundwatermilesaway,andtheskywillgrowclearbytomorrow.Alltheseeventsaredistantintimeandspace,andyettheyareallconnectedwithinthesamepattern.Eachhasaninfluenceontherest,aninfluencethatisusuallyhiddenfromview.Youcanonlyunderstandthesystemofarainstormbycontemplatingthewhole,notanyindividualpartofthepattern.Businessandotherhumanendeavorsarealsosystems.They,too,areboundbyinvisiblefabricsofinterrelatedactions,whichoftentakeyearstofullyplayouttheireffectsoneachother.Sincewearepartofthatlaceworkourselves,it'sdoublyhardtoseethewholepatternofchange.Instead,wetendtofocusonsnapshotsofisolatedpartsofthesystem,andwonderwhyourdeepestproblemsneverseemtogetsolved.Systemsthinkingisaconceptualframework,abodyofknowledgeandtoolsthathasbeendevelopedoverthepastfiftyyears,tomakethefullpatternsclearer,andtohelpusseehowtochangethemeffectively.Thoughthetoolsarenew,theunderlyingworldviewisextremelyintuitive;experimentswithyoungchildrenshowthattheylearnsystemsthinkingveryquickly.PersonalMastery.Masterymightsuggestgainingdominanceoverpeopleorthings.Butmasterycanalsomeanaspeciallevelofproficiency.Amastercraftsmandoesn'tdominatepotteryorweaving.Peoplewithahighlevelofpersonalmasteryareabletoconsistentlyrealizetheresultsthatmattermostdeeplytothemineffect,theyapproachtheirlifeasanartistwouldapproachaworkofart.Theydothatbybecomingcommittedtotheirownlifelonglearning.Personalmasteryisthedisciplineofcontinuallyclarifyinganddeepeningourpersonalvision,offocusingourenergies,ofdevelopingpatience,andofseeingrealityobjectively.Assuch,itisanessentialcornerstoneofthelearningorganizationthelearningorganization'sspiritualfoundation.Anorganization'scommitmenttoandcapacityforlearningcanbenogreaterthanthatofitsmembers.TherootsofthisdisciplinelieinbothEasternandWesternspiritualtraditions,andinseculartraditionsaswell.Butsurprisinglyfeworganizationsencouragethegrowthoftheirpeopleinthismanner.Thisresultsinvastuntappedresources:"Peopleenterbusinessasbright,well-educated,high-energypeople,fullofenergyanddesiretomakeadifference,"saysHanover'sO'Brien."Bythetimetheyare30,afewareonthe"fasttrack"andtherest'putintheirtime'todowhatmatterstothemontheweekend.Theylosethecommitment,thesenseofmission,andtheexcitementwithwhichtheystartedtheircareers.Wegetdamnlittleoftheirenergyandalmostnoneoftheirspirit."Andsurprisinglyfewadultsworktorigorouslydeveloptheirownpersonalmastery.Whenyouaskmostadultswhattheywantfromtheirlives,theyoftentalkfirstabout

17.zafi2004

10ze412

whatthey'dliketogetridof:"I'dlikemymother-in-lawtomoveout,"theysay,or"I'dlikemybackproblemstoclearup."Thedisciplineofpersonalmastery,bycontrast,startswithclarifyingthethingsthatreallymattertous,oflivingourlivesintheserviceofourhighestaspirations.Here,Iammostinterestedintheconnectionsbetweenpersonallearningandorganizationallearning,inthereciprocalcommitmentsbetweenindividualandorganization,andinthespecialspiritofanenterprisemadeupoflearners.MentalModels."Mentalmodels"aredeeplyingrainedassumptions,generalizations,orevenpicturesorimagesthatinfluencehowweunderstandtheworldandhowwetakeaction.Veryoften,wearenotconsciouslyawareofourmentalmodelsortheeffectstheyhaveonourbehavior.Forexample,wemaynoticethataco-workerdresseselegantly,andsaytoourselves,"She'sacountryclubperson."Aboutsomeonewhodressesshabbily,wemayfeel,"Hedoesn'tcareaboutwhatothersthink."Mentalmodelsofwhatcanorcannotbedoneindifferentmanagementsettingsarenolessdeeplyentrenched.Manyinsightsintonewmarketsoroutmodedorganizationalpracticesfailtogetputintopracticebecausetheyconflictwithpowerful,tacitmentalmodels.RoyalDutch/Shell,oneofthefirstlargeorganizationstounderstandtheadvantagesofacceleratingorganizationallearningcametothisrealizationwhentheydiscoveredhowpervasivewastheinfluenceofhiddenmentalmodels,especiallythosethatbecomewidelyshared.Shell'sextraordinarysuccessinmanagingthroughthedramaticchangesandunpredictabilityoftheworldoilbusinessinthe1970sand1980scameinlargemeasurefromlearninghowtosurfaceandchallengemanager'smentalmodels.(Intheearly1970sShellwastheweakestofthebigsevenoilcompanies;bythelate1980sitwasthestrongest.)AriedeGeus,Shell'srecentlyretiredCoordinatorofGroupPlanning,saysthatcontinuousadaptationandgrowthinachangingbusinessenvironmentdependson"institutionallearning,whichistheprocesswherebymanagementteamschangetheirsharedmentalmodelsofthecompany,theirmarkets,andtheircompetitors.Forthisreason,wethinkofplanningaslearningandofcorporateplanningasinstitutionallearning."3Thedisciplineofworkingwithmentalmodelsstartswithturningthemirrorinward;learningtounearthourinternalpicturesoftheworld,tobringthemtothesurfaceandholdthemrigorouslytoscrutiny.Italsoincludestheabilitytocarryon"learningful"conversationsthatbalanceinquiryandadvocacy,wherepeopleexposetheirownthinkingeffectivelyandmakethatthinkingopentotheinfluenceofothers.BuildingSharedVision.Ifanyoneideaaboutleadershiphasinspiredorganizationsforthousandsofyears,it'sthecapacitytoholdasharedpictureofthefutureweseektocreate.Oneishardpressedtothinkofanyorganizationthathassustainedsomemeasureofgreatnessintheabsenceofgoals,values,andmissionsthatbecomedeeplysharedthroughouttheorganization.IBMhad"service";Polaroidhadinstantphotography;FordhadpublictransportationforthemassesandApplehadcomputingpowerforthemasses.Thoughradicallydifferentincontentandkind,alltheseorganizationsmanagedtobindpeopletogetheraroundacommonidentityandsenseofdestiny.Whenthereisagenuinevision(asopposedtotheall-too-familiar"visionstatement"),peopleexcelandlearn,notbecausetheyaretoldto,butbecausetheywantto.Butmanyleadershavepersonalvisionsthatnevergettranslatedintosharedvisionsthatgalvanizeanorganization.Alltoooften,acompany'ssharedvisionhasrevolvedaroundthecharismaofaleader,oraroundacrisisthatgalvanizeseveryonetemporarily.But,givenachoice,mostpeopleoptforpursuingaloftygoal,notonlyintimesofcrisisbutatalltimes.Whathasbeenlackingisadisciplinefortranslatingindividualvisionintosharedvisionnota"cookbook"butasetofprinciplesandguidingpractices.

17.zafi2004

11ze412

Thepracticeofsharedvisioninvolvestheskillsofunearthingshared"picturesofthefuture"thatfostergenuinecommitmentandenrollmentratherthancompliance.Inmasteringthisdiscipline,leaderslearnthecounterproductivenessoftryingtodictateavision,nomatterhowheartfelt.TeamLearning.HowcanateamofcommittedmanagerswithindividualIQsabove120haveacollectiveIQof63?Thedisciplineofteamlearningconfrontsthisparadox.Weknowthatteamscanlearn;insports,intheperformingarts,inscience,andeven,occasionally,inbusiness,therearestrikingexampleswheretheintelligenceoftheteamexceedstheintelligenceoftheindividualsintheteam,andwhereteamsdevelopextraordinarycapacitiesforcoordinatedaction.Whenteamsaretrulylearning,notonlyaretheyproducingextraordinaryresultsbuttheindividualmembersaregrowingmorerapidlythancouldhaveoccurredotherwise.Thedisciplineofteamlearningstartswith"dialogue,"thecapacityofmembersofateamtosuspendassumptionsandenterintoagenuine"thinkingtogether."TotheGreeksdia-logosmeantafree-flowingofmeaningthroughagroup,allowingthegrouptodiscoverinsightsnotattainableindividually.Interestingly,thepracticeofdialoguehasbeenpreservedinmany"primitive"cultures,suchasthatoftheAmericanIndian,butithasbeenalmostcompletelylosttomodernsociety.Today,theprinciplesandpracticesofdialoguearebeingrediscoveredandputintoacontemporarycontext.(Dialoguediffersfromthemorecommon"discussion,"whichhasitsrootswith"percussion"and"concussion,"literallyaheavingofideasbackandforthinawinner-takes-allcompetition.)Thedisciplineofdialoguealsoinvolveslearninghowtorecognizethepatternsofinteractioninteamsthatunderminelearning.Thepatternsofdefensivenessareoftendeeplyengrainedinhowateamoperates.Ifunrecognized,theyunderminelearning.Ifrecognizedandsurfacedcreatively,theycanactuallyacceleratelearning.Teamlearningisvitalbecauseteams,notindividuals,arethefundamentallearningunitinmodernorganizations.Thiswhere"therubbermeetstheroad";unlessteamscanlearn,theorganizationcannotlearn.Ifalearningorganizationwereanengineeringinnovation,suchastheairplaneorthepersonalcomputer,thecomponentswouldbecalled"technologies."Foraninnovationinhumanbehavior,thecomponentsneedtobeseenasdisciplines.By"discipline,"Idonotmeanan"enforcedorder"or"meansofpunishment,"butabodyoftheoryandtechniquethatmustbestudiedandmasteredtobeputintopractice.Adisciplineisadevelopmentalpathforacquiringcertainskillsorcompetencies.Aswithanydiscipline,fromplayingthepianotoelectricalengineering,somepeoplehaveaninnate"gift,"butanyonecandevelopproficiencythroughpractice.Topracticeadisciplineistobealifelonglearner.You"neverarrive";youspendyourlifemasteringdisciplines.Youcanneversay,"Wearealearningorganization,"anymorethanyoucansay,"Iamanenlightenedperson."Themoreyoulearn,themoreacutelyawareyoubecomeofyourignorance.Thus,acorporationcannotbe"excellent"inthesenseofhavingarrivedatapermanentexcellence;itisalwaysinthestateofpracticingthedisciplinesoflearning,ofbecomingbetterorworse.Thatorganizationscanbenefitfromdisciplinesisnotatotallynewidea.Afterall,managementdisciplinessuchasaccountinghavebeenaroundforalongtime.Butthefivelearningdisciplinesdifferfrommorefamiliarmanagementdisciplinesinthattheyare"personal"disciplines.Eachhastodowithhowwethink,whatwetrulywant,andhowweinteractandlearnwithoneanother.Inthissense,theyaremorelikeartisticdisciplinesthantraditionalmanagementdisciplines.Moreover,whileaccountingisgoodfor"keepingscore,"wehaveneverapproachedthesubtlertasksofbuildingorganizations,ofenhancingtheircapabilitiesforinnovationandcreativity,ofcraftingstrategyanddesigningpolicyandstructurethroughassimilatingnewdisciplines.Perhapsthisiswhy,alltoooften,greatorganizationsarefleeting,enjoyingtheirmomentinthesun,thenpassingquietlybacktotheranksofthemediocre.

17.zafi2004

12ze412

Practicingadisciplineisdifferentfromemulating"amodel."AHtoooften,newmanagementinnovationsaredescribedintermsofthe"bestpractices"ofso-calledleadingfirms.Whileinteresting,Ibelievesuchdescriptionscanoftendomoreharmthangood,leadingtopiecemealcopyingandplayingcatch-up.Idonotbelievegreatorganizationshaveeverbeenbuiltbytryingtoemulateanother,anymorethanindividualgreatnessisachievedbytryingtocopyanother"greatperson."WhenthefivecomponenttechnologiesconvergedtocreatetheDC-3thecommercialairlineindustrybegan.ButtheDC-3wasnottheendoftheprocess.Rather,itwastheprecursorofanewindustry.Similarly,asthefivecomponentlearningdisciplinesconvergetheywillnotcreatethelearningorganizationbutratheranewwaveofexperimentationandadvancement.THEFIFTHDISCIPLINEItisvitalthatthefivedisciplinesdevelopasanensemble.Thisischallengingbecauseitismuchhardertointegratenewtoolsthansimplyapplythemseparately.Butthepayoffsareimmense.Thisiswhysystemsthinkingisthefifthdiscipline.Itisthedisciplinethatintegratesthedisciplines,fusingthemintoacoherentbodyoftheoryandpractice.Itkeepsthemfrombeingseparategimmicksorthelatestorganizationchangefads.Withoutasystemicorientation,thereisnomotivationtolookathowthedisciplinesinterrelate.Byenhancingeachoftheotherdisciplines,itcontinuallyremindsusthatthewholecanexceedthesumofitsparts.Forexample,visionwithoutsystemsthinkingendsuppaintinglovelypicturesofthefuturewithnodeepunderstandingoftheforcesthatmustbemasteredtomovefromheretothere.Thisisoneofthereasonswhymanyfirmsthathavejumpedonthe"visionbandwagon"inrecentyearshavefoundthatloftyvisionalonefailstoturnaroundafirm'sfortunes.Withoutsystemsthinking,theseedofvisionfallsonharshsoil.Ifnonsystemicthinkingpredominates,thefirstconditionfornurturingvisionisnotmet:agenuinebeliefthatwecanmakeourvisionrealinthefuture.Wemaysay"Wecanachieveourvision"(mostAmericanmanagersareconditionedtothisbelief),butourtacitviewofcurrentrealityasasetofconditionscreatedbysomebodyelsebetraysus.Butsystemsthinkingalsoneedsthedisciplinesofbuildingsharedvision,mentalmodels,teamlearning,andpersonalmasterytorealizeitspotential.Buildingsharedvisionfostersacommitmenttothelongterm.Mentalmodelsfocusontheopennessneededtounearthshortcomingsinourpresentwaysofseeingtheworld.Teamlearningdevelopstheskillsofgroupsofpeopletolookforthelargerpicturethatliesbeyondindividualperspectives.Andpersonalmasteryfostersthepersonalmotivationtocontinuallylearnhowouractionsaffectourworld.Withoutpersonalmastery,peoplearesosteepedinthereactivemindset("someone/somethingelseiscreatingmyproblems")thattheyaredeeplythreatenedbythesystemsperspective.Lastly,systemsthinkingmakesunderstandablethesubtlestaspectofthelearningorganizationthenewwayindividualsperceivethemselvesandtheirworld.Attheheartofalearningorganizationisashiftofmindfromseeingourselvesasseparatefromtheworldtoconnectedtotheworld,fromseeingproblemsascausedbysomeoneorsomething"outthere"toseeinghowourownactionscreatetheproblemsweexperience.Alearningorganizationisaplacewherepeoplearecontinuallydiscoveringhowtheycreatetheirreality.Andhowtheycanchangeit.AsArchimedeshassaid,"Givemealeverlongenough...andsingle-handedIcanmovetheworld."METANOIAASHIFTOFMINDWhenyouaskpeopleaboutwhatitislikebeingpartofagreatteam,whatismoststrikingisthemeaningfulnessoftheexperience.Peopletalkaboutbeingpartofsomethinglargerthanthemselves,ofbeingconnected,ofbeinggenerative.Itbecomes

17.zafi2004

13ze412

quiteclearthat,formany,theirexperiencesaspartoftrulygreatteamsstandoutassingularperiodsoflifelivedtothefullest.Somespendtherestoftheirliveslookingforwaystorecapturethatspirit.ThemostaccuratewordinWesternculturetodescribewhathappensinalearningorganizationisonethathasn'thadmuchcurrencyforthepastseveralhundredyears.Itisawordwehaveusedinourworkwithorganizationsforsometenyears,butwealwayscautionthem,andourselves,touseitsparinglyinpublic.Thewordis"metanoia"anditmeansashiftofmind.Thewordhasarichhistory.FortheGreeks,itmeantafundamentalshiftorchange,ormoreliterallytranscendence('meta"aboveorbeyond,asin"metaphysics")ofmind("noia,"fromtheroot"nous,"ofmind).Intheearly(Gnostic)Christiantradition,ittookonaspecialmeaningofawakeningsharedintuitionanddirectknowingofthehighest,ofGod."Metanoia"wasprobablythekeytermofsuchearlyChristiansasJohntheBaptist.IntheCatholiccorpusthewordmetanoiawaseventuallytranslatedas"repent."Tograspthemeaningof"metanoia"istograspthedeepermeaningof"learning,"forlearningalsoinvolvesafundamentalshiftormovementofmind.Theproblemwithtalkingabout"learningorganizations"isthatthe"learning"haslostitscentralmeaningincontemporaryusage.Mostpeople'seyesglazeoverifyoutalktothemabout"learning"or"learningorganizations."Littlewonderfor,ineverydayuse,learninghascometobesynonymouswith"takingininformation.""Yes,Ilearnedallaboutthatatthecourseyesterday."Yet,takingininformationisonlydistantlyrelatedtoreallearning.Itwouldbenonsensicaltosay,"IjustreadagreatbookaboutbicycleridingI'venowlearnedthat."Reallearninggetstotheheartofwhatitmeanstobehuman.Throughlearningwere-createourselves.Throughlearningwebecomeabletodosomethingweneverwereabletodo.Throughlearningwereperceivetheworldandourrelationshiptoit.Throughlearningweextendourcapacitytocreate,tobepartofthegenerativeprocessoflife.Thereiswithineachofusadeephungerforthistypeoflearning.Itis,asBillO'BrienofHanoverInsurancesays,"asfundamentaltohumanbeingsasthesexdrive."This,then,isthebasicmeaningofa"learningorganization"anorganizationthatiscontinuallyexpandingitscapacitytocreateitsfuture.Forsuchanorganization,itisnotenoughmerelytosurvive."Survivallearning"orwhatismoreoftentermed"adaptivelearning"isimportantindeeditisnecessary.Butforalearningorganization,"adaptivelearning"mustbejoinedby"generativelearning,"learningthatenhancesourcapacitytocreate.Afewbraveorganizationalpioneersarepointingtheway,buttheterritoryofbuildinglearningorganizationsisstilllargelyunexplored.Itismyfondesthopethatthisbookcanacceleratethatexploration.PUTTINGTHEIDEASINTOPRACTICEItakenocreditforinventingthefivemajordisciplinesofthisbook.Thefivedisciplinesdescribedbelowrepresenttheexperimentation,research,writing,andinventionofhundredsofpeople.ButIhaveworkedwithallofthedisciplinesforyears,refiningideasaboutthem,collaboratingonresearch,andintroducingthemtoorganizationsthroughouttheworld.WhenIenteredgraduateschoolattheMassachusettsInstituteofTechnologyin1970,Iwasalreadyconvincedthatmostoftheproblemsfacedbyhumankindconcernedourinabilitytograspandmanagetheincreasinglycomplexsystemsofourworld.Littlehashappenedsincetochangemyview.Today,thearmsrace,theenvironmentalcrisis,theinternationaldrugtrade,thestagnationintheThirdWorld,andthepersistingU.S.budgetandtradedeficitsallattesttoaworldwhereproblemsarebecomingincreasinglycomplexandinterconnected.FromthestartatMITIwasdrawntotheworkofJayForrester,acomputerpioneerwhohadshiftedfieldstodevelopwhathecalled"systemdynamics."Jaymaintainedthatthecausesofmanypressingpublicissues,fromurbandecaytoglobalecologicalthreat,layintheverywell-intentionedpoliciesdesignedtoalleviatethem.Theseproblemswere"actuallysystems"

17.zafi2004

14ze412

thatluredpolicymakersintointerventionsthatfocusedonobvioussymptomsnotunderlyingcauses,whichproducedshort-termbenefitbutlong-termmalaise,andfosteredtheneedforstillmoresymptomaticinterventions.AsIbeganmydoctoralwork,Ihadlittleinterestinbusinessmanagement.IfeltthatthesolutionstotheBigIssueslayinthepublicsector.ButIbegantomeetbusinessleaderswhocametovisitourMITgrouptolearnaboutsystemsthinking.Thesewerethoughtfulpeople,deeplyawareoftheinadequaciesofprevailingwaysofmanaging.Theywereengagedinbuildingnewtypesoforganizationsdecentralized,nonhierarchicalorganizationsdedicatedtothewell-beingandgrowthofemployeesaswellastosuccess.Somehadcraftedradicalcorporatephilosophiesbasedoncorevaluesoffreedomandresponsibility.Othershaddevelopedinnovativeorganizationdesigns.Allsharedacommitmentandacapacitytoinnovatethatwaslackinginthepublicsector.Gradually,Icametorealizewhybusinessisthelocusofinnovationinanopensociety.Despitewhateverholdpastthinkingmayhaveonthebusinessmind,businesshasafreedomtoexperimentmissinginthepublicsectorand,often,innonprofitorganizations.Italsohasaclear"bottomline,"sothatexperimentscanbeevaluated,atleastinprinciple,byobjectivecriteria.Bywhyweretheyinterestedinsystemsthinking?Toooften,themostdaringorganizationalexperimentswerefoundering.Localautonomyproducedbusinessdecisionsthatweredisastrousfortheorganizationasawhole."Teambuilding"exercisessentcolleagueswhite-waterraftingtogether,butwhentheyreturnedhometheystilldisagreedfundamentallyaboutbusinessproblems.Companiespulledtogetherduringcrises,andthenlostalltheirinspirationwhenbusinessimproved.Organizationswhichstartedoutasboomingsuccesses,withthebestpossibleintentionstowardcustomersandemployees,foundthemselvestrappedindownwardspiralsthatgotworsethehardertheytriedtofixthem.Then,weallbelievedthatthetoolsofsystemsthinkingcouldmakeadifferenceinthesecompanies.AsIworkedwithdifferentcompanies,Icametoseewhysystemsthinkingwasnotenoughbyitself.Itneededanewtypeofmanagementpractitionertoreallymakethemostofit.Atthattime,inthemid-1970s,therewasanascentsenseofwhatsuchamanagementpractitionercouldbe.Butithadnotyetcrystallized.ItiscrystallizingnowwithleadersofourMITgroup:WilliamO'BrienofHanoverInsurance;EdwardSimonfromHermanMiller,andRayStata,CEOofAnalogDevices.Allthreeofthesemenareinvolvedininnovative,influentialcompanies.Allthreehavebeeninvolvedinourresearchprogramforseveralyears,alongwithleadersfromApple,Ford,Polaroid,RoyalDutch/Shell,andTrammellCrow.ForelevenyearsIhavealsobeeninvolvedindevelopingandconductingInnovationAssociates'LeadershipandMasteryworkshops,whichhaveintroducedpeoplefromallwalksoflifetothefifthdisciplineideasthathavegrownoutofourworkatMIT,combinedwithlA'spath-breakingworkonbuildingsharedvisionandpersonalmastery.Overfourthousandmanagershaveattended.Westartedoutwithaparticularfocusoncorporateseniorexecutives,butsoonfoundthatthebasicdisciplinessuchassystemsthinking,personalmastery,andsharedvisionwererelevantforteachers,publicadministratorsandelectedofficials,students,andparents.Allwereinleadershippositionsofimportance.Allwerein"organizations"thathadstilluntappedpotentialforcreatingtheirfuture.Allfeltthattotapthatpotentialrequireddevelopingtheirowncapacities,thatis,learning.So,thisbookisforthelearners,especiallythoseofusinterestedintheartandpracticeofcollectivelearning.Formanagers,thisbookshouldhelpinidentifyingthespecificpractices,skills,anddisciplinesthatcanmakebuildinglearningorganizationslessofanoccultart(thoughanartnonetheless).Forparents,thisbookshouldhelpinlettingourchildrenbeourteachers,aswellaswetheirsfortheyhavemuchtoteachusaboutlearningasawayoflife.

17.zafi2004

15ze412

Forcitizens,thedialogueaboutwhycontemporaryorganizationsarenotespeciallygoodlearnersandaboutwhatisrequiredtobuildlearningorganizationsrevealssomeofthetoolsneededbycommunitiesandsocietiesiftheyaretobecomemoreadeptlearners.

17.zafi2004

16ze412

2

DOBSYOURORGANIZATIONHAVEALEARNINGDISABILITY?

Fewlargecorporationsliveevenhalfaslongasaperson.In1983,aRoyalDutch/ShellsurveyfoundthatonethirdofthefirmsintheFortune"500"in1970hadvanished.1Shellestimatedthattheaveragelifetimeofthelargestindustrialenterprisesislessthanfortyyears,roughlyhalfthelifetimeofahumanbeing!Thechancesarefifty-fiftythatreadersofthisbookwillseetheirpresentfirmdisappearduringtheirworkingcareer.Inmostcompaniesthatfail,thereisabundantevidenceinadvancethatthefirmisintrouble.Thisevidencegoesunheeded,however,evenwhenindividualmanagersareawareofit.Theorganizationasawholecannotrecognizeimpendingthreats,understandtheimplicationsofthosethreats,orcomeupwithalternatives.Perhapsunderthelawsof"survivalofthefittest,"thiscontinualdeathoffirmsisfineforsociety.Painfulthoughitmaybefortheemployeesandowners,itissimplyaturnoveroftheeconomicsoil,redistributingtheresourcesofproductiontonewcompaniesandnewcultures.Butwhatifthehighcorporatemortalityrateisonlyasymptomofdeeperproblemsthatafflictallcompanies,notjusttheonesthatdie?Whatifeventhemostsuccessfulcompaniesarepoorlearnerstheysurvivebutneverliveuptotheirpotential?Whatif,inlightofwhatorganizationscouldbe,"excellence"isactually"mediocrity"?Itisnoaccidentthatmostorganizationslearnpoorly.Thewaytheyaredesignedandmanaged,thewaypeople'sjobsaredefined,and,mostimportantly,thewaywehaveallbeentaughttothinkandinteract(notonlyinorganizationsbutmorebroadly)createfundamentallearningdisabilities.Thesedisabilitiesoperatedespitethebesteffortsofbright,committedpeople.Oftenthehardertheytrytosolveproblems,theworsetheresults.Whatlearningdoesoccurtakesplacedespitetheselearningdisabilitiesfortheypervadeallorganizationstosomedegree.Learningdisabilitiesaretragicinchildren,especiallywhentheygoundetected.Theyarenolesstragicinorganizations,wheretheyalsogolargelyundetected.Thefirststepincuringthemistobegintoidentifythesevenlearningdisabilities:1."IAMMYPOSITION"Wearetrainedtobeloyaltoourjobssomuchsothatweconfusethemwithourownidentities.WhenalargeAmericansteelcompanybeganclosingplantsintheearly1980s,itofferedtotrainthedisplacedsteelworkersfornewjobs.Butthetrainingnever"took";theworkersdriftedintounemploymentandoddjobsinstead.Psychologists

17.zafi2004

17ze412

cameintofindoutwhy,andfoundthesteelworkerssufferingfromacuteidentitycrises."HowcouldIdoanythingelse?"askedtheworkers."Iamalatheoperator."Whenaskedwhattheydoforaliving,mostpeopledescribethetaskstheyperformeveryday,notthepurposeofthegreaterenterpriseinwhichtheytakepart.Mostseethemselveswithina"system"overwhichtheyhavelittleornoinfluence.They"dotheirjob,"putintheirtime,andtrytocopewiththeforcesoutsideoftheircontrol.Consequently,theytendtoseetheirresponsibilitiesaslimitedtotheboundariesoftheirposition.Recently,managersfromaDetroitautomakertoldmeofstrippingdownaJapaneseimporttounderstandwhytheJapanesewereabletoachieveextraordinaryprecisionandreliabilityatlowercostonaparticularassemblyprocess.Theyfoundthesamestandardtypeofboltusedthreetimesontheengineblock.Eachtimeitmountedadifferenttypeofcomponent.OntheAmericancar,thesameassemblyrequiredthreedifferentbolts,whichrequiredthreedifferentwrenchesandthreedifferentinventoriesofboltsmakingthecarmuchslowerandmorecostlytoassemble.WhydidtheAmericansusethreeseparatebolts?BecausethedesignorganizationinDetroithadthreegroupsofengineers,eachresponsiblefor"theircomponentonly."TheJapanesehadonedesignerresponsiblefortheentireenginemounting,andprobablymuchmore.TheironyisthateachofthethreegroupsofAmericanengineersconsideredtheirworksuccessfulbecausetheirboltandassemblyworkedjustfine.Whenpeopleinorganizationsfocusonlyontheirposition,theyhavelittlesenseofresponsibilityfortheresultsproducedwhenallpositionsinteract.Moreover,whenresultsaredisappointing,itcanbeverydifficulttoknowwhy.Allyoucandoisassumethat"someonescrewedup."2."THEENEMYISOUTTHERE"AfriendoncetoldthestoryofaboyhecoachedinLittleLeague,whoafterdroppingthreeflyballsinrightfield,threwdownhisgloveandmarchedintothedugout."Noonecancatchaballinthatdarnfield,"hesaid.Thereisineachofusapropensitytofindsomeoneorsomethingoutsideourselvestoblamewhenthingsgowrong.Someorganizationselevatethispropensitytoacommandment:"Thoushallalwaysfindanexternalagenttoblame."Marketingblamesmanufacturing:"Thereasonwekeepmissingsalestargetsisthatourqualityisnotcompetitive."Manufacturingblamesengineering.Engineeringblamesmarketing:"Ifthey'donlyquitscrewingupourdesignsandletusdesigntheproductswearecapableof,we'dbeanindustryleader."The"enemyisoutthere"syndromeisactuallyaby-productof"Iammyposition,"andthenonsystemicwaysoflookingattheworldthatitfosters.Whenwefocusonlyonourposition,wedonotseehowourownactionsextendbeyondtheboundaryofthatposition.Whenthoseactionshaveconsequencesthatcomebacktohurtus,wemisperceivethesenewproblemsasexternallycaused.Likethepersonbeingchasedbyhisownshadow,wecannotseemtoshakethem.The"EnemyIsOutThere"syndromeisnotlimitedtoassigningblamewithintheorganization.Duringitslastyearsofoperation,theoncehighlysuccessfulPeopleExpressAirlinesslashedprices,boostedmarketing,andboughtFrontierAirlinesallinafranticattempttofightbackagainsttheperceivedcauseofitsdemise:increasinglyaggressivecompetitors.Yet,noneofthesemovesarrestedthecompany'smountinglossesorcorrecteditscoreproblem,servicequalitythathaddeclinedsofarthatlowfareswereitsonlyremainingpulloncustomers.FormanyAmericancompanies,"theenemy"hasbecomeJapanesecompetition,laborunions,governmentregulators,orcustomerswho"betrayedus"bybuyingproductsfromsomeoneelse."Theenemyisoutthere,"however,isalmostalwaysanincompletestory."Outthere"and"inhere"areusuallypartofasinglesystem.Thislearning

17.zafi2004

18ze412

disabilitymakesitalmostimpossibletodetecttheleveragewhichwecanuse"inhere"onproblemsthatstraddletheboundarybetweenusand"outthere."3.THEILLUSIONOFTAKINGCHARGEBeing"proactive"isinvogue.Managersfrequentlyproclaimtheneedfortakingchargeinfacingdifficultproblems.Whatistypicallymeantbythisisthatweshouldfaceuptodifficultissues,stopwaitingforsomeoneelsetodosomething,andsolveproblemsbeforetheygrowintocrises.Inparticular,beingproactiveisfrequentlyseenasanantidotetobeing"reactive"waitinguntilasituationgetsoutofhandbeforetakingastep.Butistakingaggressiveactionagainstanexternalenemyreallysynonymouswithbeingproactive?Nottoolongago,amanagementteaminaleadingpropertyandliabilityinsurancecompanywithwhomwewereworkinggotbittenbytheproactivenessbug.Theheadoftheteam,atalentedvicepresidentforclaims,wasabouttogiveaspeechproclaimingthatthecompanywasn'tgoingtogetpushedaroundanymorebylawyerslitigatingmoreandmoreclaimssettlements.Thefirmwouldbeefupitsownlegalstaffsothatitcouldtakemorecasesthroughtotrialbyverdict,insteadofsettlingthemoutofcourt.Thenweandsomemembersoftheteambegantolookmoresys-temicallyattheprobableeffectsoftheidea:thelikelyfractionofcasesthatmightbewonincourt,thelikelysizeofcaseslost,themonthlydirectandoverheadcostsregardlessofwhowonorlost,andhowlongcaseswouldprobablystayinlitigation.(ThetoolweusedisdiscussedinChapter17,"Microworlds.")Interestingly,theteam'sscenariospointedtoincreasingtotalcostsbecause,giventhequalityofinvestigationdoneinitiallyonmostclaims,thefirmsimplycouldnotwinenoughofitscasestooffsetthecostsofincreasedlitigation.Thevicepresidenttoreuphisspeech.Alltoooften,"proactiveness"isreactivenessindisguise.Ifwesimplybecomemoreaggressivefightingthe"enemyoutthere,"wearereactingregardlessofwhatwecallit.Trueproactivenesscomesfromseeinghowwecontributetoourownproblems.Itisaproductofourwayofthinking,notouremotionalstate.4.THEFIXATIONONEVENTSTwochildrengetintoascrapontheplaygroundandyoucomeovertountanglethem.Lucysays,"Ihithimbecausehetookmyball."Tommysays,"Itookherballbecauseshewon'tletmeplaywithherairplane."Lucysays,"Hecan'tplaywithmyairplanebecausehebrokethepropeller."Wiseadultsthatweare,wesay,"Now,now,childrenjustgetalongwitheachother."Butarewereallyanydifferentinthewayweexplaintheentanglementswefindourselvescaughtin?Weareconditionedtoseelifeasaseriesofevents,andforeveryevent,wethinkthereisoneobviouscause.Conversationsinorganizationsaredominatedbyconcernwithevents:lastmonth'ssales,thenewbudgetcuts,lastquarter'searnings,whojustgotpromotedorfired,thenewproductourcompetitorsjustannounced,thedelaythatjustwasannouncedinournewproduct,andsoon.Themediareinforcesanemphasisonshort-termeventsafterall,ifit'smorethantwodays'oldit'snolonger"news."Focusingoneventsleadsto"event"explanations:"TheDowJonesaveragedroppedsixteenpointstoday,"announcesthenewspaper,"becauselowfourth-quarterprofitswereannouncedyesterday."Suchexplanationsmaybetrueasfarastheygo,buttheydistractusfromseeingthelonger-termpatternsofchangethatliebehindtheeventsandfromunderstandingthecausesofthosepatterns.Ourfixationoneventsisactuallypartofourevolutionaryprogramming.Ifyouwantedtodesignacavepersonforsurvival,abilitytocontemplatethecosmoswouldnotbeahigh-rankingdesigncriterion.Whatisimportantistheabilitytoseethesaber-toothedtigeroveryourleftshoulderandreactquickly.Theironyisthat,today,theprimarythreatstooursurvival,bothofourorganizationsandofoursocieties,comenotfromsuddeneventsbutfromslow,gradualprocesses;thearmsrace,environmental

17.zafi2004

19ze412

decay,theerosionofasociety'spubliceducationsystem,increasinglyobsoletephysicalcapital,anddeclineindesignorproductquality(atleastrelativetocompetitors'quality)areallslow,gradualprocesses.Generativelearningcannotbesustainedinanorganizationifpeople'sthinkingisdominatedbyshort-termevents.Ifwefocusonevents,thebestwecaneverdoispredictaneventbeforeithappenssothatwecanreactoptimally.Butwecannotlearntocreate.

5.THEPARABLEOFTHEBOILEDFROGMaladaptationtograduallybuildingthreatstosurvivalissopervasiveinsystemsstudiesofcorporatefailurethatithasgivenrisetotheparableofthe"boiledfrog."Ifyouplaceafroginapotofboilingwater,itwillimmediatelytrytoscrambleout.Butifyouplacethefroginroomtemperaturewater,anddon'tscarehim,he'llstayput.Now,ifthepotsitsonaheatsource,andifyougraduallyturnupthetemperature,somethingveryinterestinghappens.Asthetemperaturerisesfrom70to80degreesF.,thefrogwilldonothing.Infact,hewillshoweverysignofenjoyinghimself.Asthetemperaturegraduallyincreases,thefrogwillbecomegroggierandgroggier,untilheisunabletoclimboutofthepot.Thoughthereisnothingrestraininghim,thefrogwillsitthereandboil.Why?Becausethefrog'sinternalapparatusforsensingthreatstosurvivalisgearedtosuddenchangesinhisenvironment,nottoslow,gradualchanges.SomethingsimilarhappenedtotheAmericanautomobileindustry.Inthe1960s,itdominatedNorthAmericanproduction.Thatbegantochangeverygradually.Certainly,Detroit'sBigThreedidnotseeJapanasathreattotheirsurvivalin1962,whentheJapaneseshareoftheU.S.marketwasbelow4percent.Norin1967,whenitwaslessthan10percent.Norin1974,whenitwasunder15percent.BythetimetheBigThreebegantolookcriticallyatitsownpracticesandcoreassumptions,itwastheearly1980s,andtheJapaneseshareoftheAmericanmarkethadrisento21.3percent.By1989,theJapanesesharewasapproaching30percent,andtheAmericanautoindustrycouldaccountforonlyabout60percentofthecarssoldintheU.S.2Itisstillnotclearwhetherthisparticularfrogwillhavethestrengthtopullitselfoutofthehotwater.Learningtoseeslow,gradualprocessesrequiresslowingdownourfreneticpaceandpayingattentiontothesubtleaswellasthedramatic.Ifyousitandlookintoatidepool,initiallyyouwon'tseemuchofanythinggoingon.However,ifyouwatchlongenough,afterabouttenminutesthetidepoolwillsuddenlycometolife.Theworldofbeautifulcreaturesisalwaysthere,butmovingabittooslowlytobeseenatfirst.Theproblemisourmindsaresolockedinonefrequency,it'sasifwecanonlyseeat78rpm;wecan'tseeanythingat331/3.Wewillnotavoidthefateofthefroguntilwelearntoslowdownandseethegradualprocessesthatoftenposethegreatestthreats.6.THEDELUSIONOFLEARNINGFROMEXPERIENCEThemostpowerfullearningcomesfromdirectexperience.Indeed,welearneating,crawling,walking,andcommunicatingthroughdirecttrialanderrorthroughtakinganactionandseeingtheconsequencesofthataction;thentakinganewanddifferentaction.Butwhathappenswhenwecannolongerobservetheconsequencesofouractions?Whathappensiftheprimaryconsequencesofouractionsareinthedistantfutureorinadistantpartofthelargersystemwithinwhichweoperate?Weeachhavea"learninghorizon,"abreadthofvisionintimeandspacewithinwhichweassessoureffectiveness.Whenouractionshaveconsequencesbeyondourlearninghorizon,itbecomesimpossibletolearnfromdirectexperience.Hereinliesthecorelearningdilemmathatconfrontsorganizations:welearnbestfromexperiencebutweneverdirectlyexperiencetheconsequencesofmanyofourmostimportantdecisions.Themostcriticaldecisionsmadeinorganizationshavesystemwideconsequencesthatstretchoveryearsordecades.DecisionsinR&Dhavefirst-orderconsequencesinmarketingandmanufacturing.Investinginnew

17.zafi2004

20ze412

manufacturingfacilitiesandprocessesinfluencesqualityanddeliveryreliabilityforadecadeormore.Promotingtherightpeopleintoleadershippositionsshapesstrategyandorganizationalclimateforyears.Theseareexactlythetypesofdecisionswherethereistheleastopportunityfortrialanderrorlearning.Cyclesareparticularlyhardtosee,andthuslearnfrom,iftheylastlongerthanayearortwo.Assystems-thinkingwriterDraperKauffman,Jr.,pointsout,mostpeoplehaveshortmemories."Whenatemporaryoversupplyofworkersdevelopsinaparticularfield,"hewrote,"everyonetalksaboutthebigsurplusandyoungpeoplearesteeredawayfromthefield.Withinafewyears,thiscreatesashortage,jobsgobegging,andyoungpeoplearefranticallyurgedintothefieldwhichcreatesasurplus.Obviously,thebesttimetostarttrainingforajobiswhenpeoplehavebeentalkingaboutasurplusforseveralyearsandfewothersareenteringit.Thatway,youfinishyourtrainingjustastheshortagedevelops."3Traditionally,organizationsattempttosurmountthedifficultyofcopingwiththebreadthofimpactfromdecisionsbybreakingthemselvesupintocomponents.Theyinstitutefunctionalhierarchiesthatareeasierforpeopleto"gettheirhandsaround."But,functionaldivisionsgrowintofiefdoms,andwhatwasonceaconvenientdivisionoflabormutatesintothe"stovepipes"thatallbutcutoffcontactbetweenfunctions.Theresult:analysisofthemostimportantproblemsinacompany,thecomplexissuesthatcrossfunctionallines,becomesaperilousornonexistentexercise.7.THEMYTHOFTHEMANAGEMENTTEAMStandingforwardtodobattlewiththesedilemmasanddisabilitiesis"themanagementteam,"thecollectionofsavvy,experiencedmanagerswhorepresenttheorganization'sdifferentfunctionsandareasofexpertise.Together,theyaresupposedtosortoutthecomplexcross-functionalissuesthatarecriticaltotheorganization.Whatconfidencedowehave,really,thattypicalmanagementteamscansurmounttheselearningdisabilities?Alltoooften,teamsinbusinesstendtospendtheirtimefightingforturf,avoidinganythingthatwillmakethemlookbadpersonally,andpretendingthateveryoneisbehindtheteam'scollectivestrategymaintainingtheappearanceofacohesiveteam.Tokeepuptheimage,theyseektosquelchdisagreement;peoplewithseriousreservationsavoidstatingthempublicly,andjointdecisionsarewatered-downcompromisesreflectingwhateveryonecanlivewith,orelsereflectingoneperson'sviewfoistedonthegroup.Ifthereisdisagreement,it'susuallyexpressedinamannerthatlaysblame,polarizesopinion,andfailstorevealtheunderlyingdifferencesinassumptionsandexperienceinawaythattheteamasawholecouldlearn."Mostmanagementteamsbreakdownunderpressure,"writesHarvard'sChrisArgyrisalongtimestudentoflearninginmanagementteams."Theteammayfunctionquitewellwithroutineissues.Butwhentheyconfrontcomplexissuesthatmaybeembarrassingorthreatening,the'teamness'seemstogotopot."4Argyrisarguesthatmostmanagersfindcollectiveinquiryinherentiythreatening.Schooltrainsusnevertoadmitthatwedonotknowtheanswer,andmostcorporationsreinforcethatlessonbyrewardingthepeoplewhoexcelinadvocatingtheirviews,notinquiringintocomplexissues.(Whenwasthelasttimesomeonewasrewardedinyourorganizationforraisingdifficultquestionsaboutthecompany'scurrentpoliciesratherthansolvingurgentproblems?)Evenifwefeeluncertainorignorant,welearntoprotectourselvesfromthepainofappearinguncertainorignorant.Thatveryprocessblocksoutanynewunderstandingswhichmightthreatenus.TheconsequenceiswhatArgyriscalls"skilledincompetence"teamsfullofpeoplewhoareincrediblyproficientatkeepingthemselvesfromlearning.

17.zafi2004

21ze412

DISABILITIESANDDISCIPLINESTheselearningdisabilitieshavebeenwithusforalongtime.InTheMarchofFolly,BarbaraTuchmantracesthehistoryofdevastatinglarge-scalepolicies"pursuedcontrarytoultimateself-interest,"5fromthefalloftheTrojansthroughtheU.S.involvementinVietnam.Instoryafterstory,leaderscouldnotseetheconsequencesoftheirownpolicies,evenwhentheywerewarnedinadvancethattheirownsurvivalwasatstake.ReadingbetweenthelinesofTuchman'swriting,youcanseethatthefourteenth-centuryValoismon-archsofFrancesufferedfrom"Iammyposition"disabilitieswhentheydevaluedcurrency,theyliterallydidn'trealizetheyweredrivingthenewFrenchmiddleclasstowardinsurrection.Inthemid-1700sBritainhadabadcaseofboiledfrog.TheBritishwentthrough"afulldecade,"wroteTuchman,"ofmountingconflictwiththe[American]colonieswithoutany[Britishofficial]sendingarepresentative,muchlessaminister,acrosstheAtlantic...tofindoutwhatwasendangeringtherelationship..By1776,thestartoftheAmericanRevolution,therelationshipwasirrevocablyendangered.Elsewhere,TuchmandescribestheRomanCatholiccardinalsofthefifteenthandsixteenthcenturies,atragicmanagement"team"inwhichpietydemandedthattheypresentanappearanceofagreement.However,behind-the-scenesbackstabbing(insomecases,literalbackstabbing)broughtinopportunisticpopeswhoseabusesofofficeprovokedtheProtestantReformation.Weliveinnolessperiloustimestoday,andthesamelearningdisabilitiespersist,alongwiththeirconsequences.Thefivedisciplinesofthelearningorganizationcan,Ibelieve,actasantidotestotheselearningdisabilities.Butfirst,wemustseethedisabilitiesmoreclearlyfortheyareoftenlostamidtheblusterofday-to-dayevents.

17.zafi2004

22ze412

3

PRISONERSOFTHESYSTEM,ORPRISONERSOFOUROWNTHINKING?

Inordertoseethelearningdisabilitiesinaction,ithelpstostartwithalaboratoryexperimentamicrocosmofhowrealorganizationsfunction,whereyoucanseetheconsequencesofyourdecisionsplayoutmoreclearlythanispossibleinrealorganizations.Forthisreason,weofteninvitepeopletotakepartinasimulationcalledthe"beergame,"firstdevelopedinthe1960sattheMassachusettsInstituteofTechnology'sSloanSchoolofManagement.Becauseitisa"laboratoryreplica"ofarealsetting,ratherthanrealityitself,wecanisolatethedisabilitiesandtheircausesmoresharplythanispossibleinrealorganizations.Thisrevealsthattheproblemsoriginateinbasicwaysofthinkingandinteracting,morethaninpeculiaritiesoforganizationstructureandpolicy.Thebeergamedoesthisbyimmersingusinatypeoforganizationwhichisrarelynoticedbutwidelyprevalent:aproduction/distributionsystem,thekindresponsibleforproducingandshippingconsumerandcommercialgoodsinallindustrialcountries.Inthiscase,it'sasystemforproducinganddistributingasinglebrandofbeer.Theplayersateachpositionarecompletelyfreetomakeanydecisionthatseemsprudent.Theironlygoalistomanagetheirpositionasbesttheycantomaximizetheirprofits.'Aswithmanygames,the"playing"ofasinglesessionofthebeergamecanbetoldasastory.Therearethreemaincharactersinthestoryaretailer,awholesaler,andthemarketingdirectorofabrewery.Thisstoryistold,inturn,througheachoftheplayers'eyes.THERETAILER

Imaginethatyou'rearetailmerchant.Perhapsyou'rethefranchisemanagerofabrightlylittwenty-four-hourchainstoreatasuburbanintersection.Ormaybeyouownamom-and-popgroceryonastreetofVictorian-erabrownstones.Oradiscountbeverageoutletonaremotehighway.Nomatterwhatyourstorelookslike,orwhateverelseyousell,beerisacornerstoneofyourbusiness.Notonlydoyoumakeaprofitonit,butitdrawscustomersintobuy,perhaps,popcornandpotatochips.Youstockatleastadozendifferentbrandsofbeer,andkeeparoughtallyofhowmanycasesofeachareinyourbackroom,whichiswhereyoukeepyourinventory.Onceeachweek,atruckerarrivesattherearentranceofyourstore.Youhandhimaformonwhichyou'vefilledinthatweek'sorder.Howmanycasesofeachbranddoyouwantdelivered?Thetrucker,afterhemakeshisotherrounds,returnsyourordertoyourbeerwholesaler,whothenprocessesit,arrangesoutgoingordersinapropersequence,andshipstheresultingordertoyourstore.Becauseofallthatprocessing,you'reusedtoafour-weekdelayonaverageonyourorders;inotherwords,adeliveryofbeergenerallyarrivesinyourstoreaboutfourweeksafteryouorderit.

17.zan2004

23ze412

12lifcs

Retailer'sInventory

Youandyourbeerwholesalerneverspeaktoeachotherdirectly.Youcommunicateonlythroughthosecheckmarksonapieceofpaper.Youprobablyhaveneverevenmethim;youknowonlythetruckdriver.Andthat'sforgoodreason:youhavehundredsofproductsinyourstore.Dozensofwholesalersdolethemouttoyou.Meanwhile,yourbeerwholesalerhandlesdeliveriestoseveralhundredstores,inadozendifferentcities.Betweenyoursteadydelugeofcustomersandhisorder-shuffling,whohastimeforchitchat?Thatsinglenumberistheonlythingyouneedtosaytoeachother.OneofyoursteadiestbeerbrandsiscalledLover'sBeer.Youaredimlyawarethatit'smadebyasmallbutefficientbrewerylocatedaboutthreehundredmilesawayfromyou.It'snotasuper-popularbrand;infact,thebrewerydoesn'tadvertiseatall.Buteveryweek,asregularlyasyourmorningnewspaperdeliveries,fourcasesofLover'sBeersellfromtheshelves.Sure,thecustomersareyoungmostareintheirtwentiesandfickle;butsomehow,foreveryonewhograduatestoMillerorBud,there'sayoungersisterorbrothertoreplacehim.TomakesureyoualwayshaveenoughLover'sBeer,youtrytokeeptwelvecasesinthestoreatanytime.ThatmeansorderingfourcaseseachMonday,whenthebeertruckcomes.Weekafterweekafterweek.Bynow,youtakethatfour-caseturnoverforgranted;it'sinextricablyweddedtotheimageinyourmindofthebeer'sperformance.Youdon'tevenarticulateittoyourselfwhenplacingtheorder:"Oh,yeah,"runstheautomaticlitany."Lover'sBeer.Fourcases."

Week2:Withoutwarning,oneweekinOctober(let'scallitWeek2),salesofthebeerWeek2double.Theyjumpfromfourcasestoeight.That'sallright,youfigure;youhaveaneight-casesurplusinyourstore.Youdon'tknowwhythey'vesoldsomuchmoresuddenly.Maybesomeoneishavingaparty.Buttoreplacethoseextracases,youraiseyourordertoeight.Thatwillbringyourinventorybacktonormal.Week3:Strangelyenough,youalsoselleightcasesofLover'sBeerthenextweek.Andit'snotevenspringbreak.Everyonceinawhile,inthoseraremomentsbetweensales,youbrieflyponderthereasonwhy.There'snoadvertisingcampaignforthebeer;youwouldhavereceivedamailingaboutit.Unlessthemailinggotlost,oryouaccidentallythrewitout.Ormaybethere'sanotherreason...butacustomercomesin,andyouloseyourtrainofthought.Atthemomentthedeliverymancomes,you'restillnotthinkingmuchaboutLover'sBeer,butyoulookdownatyoursheetandseethathe'sbroughtonlyfourcasesthistime.(It'sfromtheorderyouplacedfourweeksago.)Youonlyhavefourcasesleftinstock,whichmeansunlessthere'sadrop-backinsalesyou'regoingtoselloutallyourLover'sBeerthisweek.Prudencedictatesanorderofatleasteightcasestokeepupwithsales.Justtobeonthesafeside,youordertwelvesoyoucanrebuildyourinventory.Week4:YoufindtimeonTuesdaytoquizoneortwoofyouryoungercustomers.Itturnsoutthatanewmusicvideoappearedamonthorsobackonthepopularcabletelevisionchannels.Thevideo'srecordinggroup,theIconoclasts,closestheirsongwiththeUne,"ItakeonelastsipofLover'sBeerandrunintothesun."Youdon'tknowwhytheyusedthatHne,but

17.zan2004

24ze412

12-

0.

-12-Peltier's

Inventory

yourwholesalerwouldhavetoldyouiftherewasanynewmerchandisingdeal.Youthinkofcallingthewholesaler,butadeliveryofpotatochipsarrivesandthesubjectofLover'sBeerslipsyourmind.Whenyournextdeliveryofbeercomesin,onlyfivecasesofbeerarrive.You'rechagrinednowbecauseyouhaveonlyonecaseinstock.You'realmostsoldout.Andthankstothisvideo,

Week4demandmightgoupevenfurther.Still,youknowthatyouhavesomeextracasesonorder,butyou'renotsureexactlyhowmany.Betterorderatleastsixteenmore.Week5:YouronecasesellsoutMondaymorning.Fortunately,youreceiveashipmentforsevenmorecasesofLover's(apparentiyyourwholesalerisstartingtorespondtoyourhigherorders).Butallaresoldbytheendoftheweek,leavingyouwithabsolutelyzeroinventory.Glumly,youstareattheemptyshelfBetterorderanothersixteen.Youdon'twanttogetareputationforbeingoutofstockofpopularbeers.Week6:Sureenough,customersstartcominginatthebeginningoftheweek,lookingforLover's.Twoareloyalenoughtowaitforyourbacklog."Letusknowassoonasitcomesin,"theysay,"andwe'llbebacktobuyit."Younotetheirnamesandphonenumbers:they'vepromisedtobuyonecaseeach.Onlysixcasesarriveinthenextshipment.Youcallyourtwo"backlogged"customers.Theystopinandbuytheirshares;andtherestofthebeersellsoutbeforetheendoftheweek.Again,twocustomersgiveyoutheirnamestocallassoonasyournextshipmentarrives.Youwonderhowmanymoreyoucouldhavesoldhadyourshelvesnotbeenemptyattheendoftheweek.Seemsthere'sbeenarunonthebeer:noneofthestoresintheareahaveit.Thisbeerishot,andit'sapparentlygettingmorepopularallthetime.Aftertwodaysofstaringattheparched,emptyshelf,itdoesn'tfeelrighttoorderanylessthananothersixteencases.You'retemptedtoordermore,butyourestrainyourselfbecauseyouknowthebigordersyou'vebeenplacingwillstarttoarrivesoon.Butwhen...?Week7:Thedeliverytruckbringsonlyfivecasesthisweek,whichmeansthatyou'refacinganotherweekofemptyshelves.Assoonasyoufillyourbackorders.Lover'sBeerissoldoutagain,thistimewithintwodays.Thisweek,amazingly,fivecustomersgiveyoutheirnames.Youorderanothersixteenandsilentlypraythatyourbigorderswillstartarriving.Youthinkofallthelostpotatochipsales.

17.zan2004

25ze412

120-8-12-.Retailer's-24.Inventory(Baddog)

Week8

Week8:Bynow,you'rewatchingLover'sBeermorecloselythananyotherproductyousell.Thesuspenseispalpable:everytimeacustomerbuysasix-packofthatquietbeer,younoticeit.Peopleseemtobetalkingaboutthebeer.Eagerly,youwaitforthetruckertorollinthesixteencasesyouexpect.Buthebringsonlyfive."Whatdoyoumean,five?"yousay."Gee,Idon'tknowanythingaboutit,"thedeliverymantellsyou."Iguessthey'rebacklogged.You'llgettheminacoupleofweeks."Acoupleofweeks!?!Bythetimeyoucallyourbackloggedcustomers,you'llbesoldoutbeforeyoucansellasinglenewcase.You'llbewithoutabottleofLover'sonyourshelfallweek.Whatwillthisdotoyourreputation?Youplaceanorderfortwenty-fourmorecasestwiceasmuchasyouhadplannedtoorder.Whatisthatwholesalerdoinf_tome,youwonder?Doesn'theknowwhataravenousmarketwehavedownhere?What'sgoingthroughhismind,anyway?THEWHOLESALER

Asthemanagerofawholesaledistributingfirm,beerisyourlife.Youspendyourdaysatasteeldeskinasmallwarehousestackedhighwithbeerofeveryconceivablebrand:Miller,Bud,Coors,RollingRock,apasselofimportedbeersand,ofcourse,regionalbeerssuchasLover'sBeer.Theregionyouserveincludesonelargecity,severalsmallersatellitecities,awebofsuburbs,andsomeoutlyingruralareas.You'renottheonlybeerwholesalerhere,butyou'reverywellestablished.Forseveralsmallbrands,includingLover'sBeer,youaretheonlydistributorinthisarea.Mostly,youcommunicatewiththebrewerythroughthesamemethodwhichretailersusetoreachyou.Youscribblenumbersontoaformwhichyouhandyourdrivereachweek.Fourweekslater,onaverage,thebeerarrivestofillthatorder.Insteadoforderingbythecase,however,youorderbythegross.Eachgrossisaboutenoughtofillasmalltruck,soyouthinkofthemastruckloads.JustasyourtypicalretailerordersaboutfourcasesofLover'sBeerfromyou,weekafterweekafterweek,soyouorderfourtruckloadsfromthebrewery,weekafterweekafterweek.That'senoughtogiveyouatypicalaccumulationoftwelvetruckloads'worthininventoryatanygiventime.ByWeek8,youhadbecomealmostasfrustratedandangryasyourretailers.Lover'sBeerhadalwaysbeenareliablysteadybrand.ButafewweeksagoinWeek4,actuallythoseordershadabruptlystartedrisingsharply.Thenextweek,ordersfromretailershadrisenstillfurther.ByWeek8,moststoreswereorderingthreeorfourtimestheirregularamountofbeer.Atfirst,youhadeasilyfilledtheextraordersfromyourinventoryinthewarehouse.Andyouhadbeenprescient;notingthattherewasatrend,youhadimmediatelyraisedtheamountofLover'sBeeryouorderedfromthebrewery.InWeek6,afterseeinganarticleinBeerDistributionNewsabouttherockvideo,youhadraisedyourbreweryorderstillfurther,toadramatictwentytruckloadsperweek.Thatwasfivetimesasmuch

17.zan2004

26ze412

beerasyourregularorder.Butyouhadneededthatmuch;thebeer'spopularitywasdoubling,tripling,andevenquadrupling,tojudgefromthestores'demand.ByWeek6,youhadshippedoutallthebeeryouhadininventoryandenteredthehellishnessofbacklog.Eachweekyousentoutwhatyoucould,andsentthestorespaperworkequivalentsofI.O.U.stocovertherest.Afewofthelargerchainstorescalledyouandgotwhatpreferentialtreatmentyoucouldoffer,buttheLover'sBeerinyourinventorywasgone.Atleastyouknewitwouldbeonlyacoupleofweeksmorebeforetheextrabeeryouorderedwouldbegintoarrive.InWeek8,whenyouhadcalledthebrewerytoaskiftherewasanywaytospeeduptheirdeliveries(andtoletthemknowthatyouwereuppingyourordertothirtytruckloads),youweredismayedtofindoutthattheyhadonlyjuststeppedupproductiontwoweeksbefore.Theywerejustlearningoftheincreaseindemand.Howcouldtheybesoslow?Nowit'sWeek9.You'regettingordersfortwentytruckloads'

Week9worthofLover'sBeerperweek,andyoustilldon'thaveit.Bytheendoflastweek,youhadbackloggedordersofanothertwenty-ninetruckloads.Yourstaffissousedtofieldingcallsthatthey'veaskedyoutoinstallanansweringmachinedevotedtoanexplanationaboutLover'sBeer.Butyou'reconfidentthat,thisweek,thetwentytruck-loadsyouorderedamonthagowillfinallyarrive.However,onlysixtruckloadsarrive.Apparentlythebreweryisstillbacklogged,andthelargerproductionrunsareonlynowstartingtogetshippedout.Youcallsomeofyourlargerchainsandassurethemthatthebeertheyorderedwillbecomingshortly.Week10isinfuriating.Theextrabeeryouwereexpectingatleasttwentytruckloads'worthdoesn'tshow.Thebrewerysimplycouldn'trampupproductionthatfast.Orsoyouguess.Theyonlysendyoueighttruckloads.It'simpossibletoreachanybodyonthephonedowntherethey'reapparentlyallonthefactoryfloor,manningthebreweryapparatus.Thestores,meanwhile,areapparentlysellingthebeerwildly.You'regettingunprecedentedordersfortwenty-sixtruckloadsthisweek.Ormaybethey'reorderingsomuchbecausetheycan'tgetanyofthebeerfromyou.Eitherway,you'havetokeepup.Whatifyoucan'tgetanyofthebeerandtheygotooneofyourcompetitors?Youorderfortytruckloadsfromthebrewery.InWeek11,youfindyourselftemptedtotakeextra-longlunchesatthebararoundthecornerfromyourwarehouse.OnlytwelvetruckloadsofLover'sBeerarrive.Youstillcan'treachanybodyatthebrewery.Andyouhaveoverahundredtruckloads'worthoforderstofill:seventy-seventruckloadsinbacklog,andanothertwenty-eighttruckloads'worthofordersfromthestoreswhichyoureceivethisweek.Someofthosebacklogcostscomedue,andyou'reafraidtoteUyouraccountantwhatyouexpect.

17.zan2004

27ze412

You'vegottogetthatbeer:youorderanotherfortytruckloadsfromthebrewery.

Week14ByWeek12,it'sclear.ThisnewdemandforLover'sBeerisafarmoremajorchangethanyouexpected.Yousighwithresignationwhenyouthinkofhowmuchmoneyyoucouldmakeifyouonlyhadenoughinstock.Howcouldthebreweryhavedonethistoyou?Whydiddemandhavetorisesoquickly'?Howareyoueverexpectedtokeepup?AHyouknowisthatyou'renevergoingtogetcaughtinthissituationagain.Youordersixtymoretruckloads.Forthenextfourweeks,thedemandcontinuestooutstripyoursupply.Infact,youcan'treduceyourbacklogatallinWeek13.YoufinallystartreceivinglargershipmentsfromthebreweryinWeeks14and15.Atthesametime,ordersfromyourstoresdropoffabit.Maybeinthepreviousweeks,youfigure,theyoverorderedabit.Atthispoint,anjthingthathelpsworkoffyourbacklogisawelcomereprieve.Andnow,inWeek16,youfinallygetalmostallthebeeryouaskedforweeksago:fifty-fivetruckloads.Itarrivesearlyintheweek,andyoustrollbacktothatsectionofthewarehousetotakealookatit,stackedonpallets.It'sasmuchbeerasyoukeepforanymajorbrand.Anditwillbemovingoutsoon.Throughouttheweek,youwaitexpectantlyforthestores'orderstorollin.Youevenstopbytheintakedesktoseetheindividualforms.Butonformafterform,youseethesamenumberwritten:zero.Zero.Zero.Zero.Zero.What'swrongwiththesepeople?Fourweeksago,theywerescreamingatyouforthebeer,now,theydon'tevenwantany.Suddenly,youfeelachill.Justasyourtruckerleavesfortherunthatincludesthebrewery,youcatchupwithhim.Youinitialtheform,andcrossoutthetwenty-fourtruckloadsyouhadordered,replacingitwithazeroofyourown.Week17:Thenextweek,sixtymoretruckloadsofLover'sBeerarrive.Thestoresstillaskforzero.Youstillaskforzero.Onehundredandninetruckloadsofthestuffsitinyourwarehouse.Youcouldbatheinthestuffeveryday,anditwouldn'tmakeadent.

17.zan2004

28ze412

eo

09

48..se-.24..12.,aiz-.-24-36Week17

Surelythestoreswillwantmorethisweek.Afterall,thatvideoisstillrunning.Inyourbroodingthoughts,youconsigneveryretailertothedeepestcornerofhell;thecornerreservedforpeoplewhodon'tkeeptheirpromises.And,infact,theretailersonceagainorderzerocasesofLover'sBeerfromyou.You,inturn,orderzerotruckloadsfromthebrewery.Andyet,thebrewerycontinuestodeliverbeer.Sixtymoretruckloadsappearonyourdockthisweek.Whydoesthatbreweryhaveitinforyou?Whenwilliteverend?THEBREWERY

Imaginethatyouwerehiredfourmonthsagotomanagedistributionandmarketingatthebrewery,whereLover'sBeerisonlyoneofseveralprimaryproducts.Yoursisasmallbrewery,knownforitsquality,notitsmarketingsavvy.That'swhyyouwerehired.Now,clearly,youhavebeendoingsomethingright.Becauseinonlyyoursecondmonth(WeekSixofthisgame),newordershadbeguntorisedramatically.Bytheendofyourthirdmonthonthejob,youfeltthesatisfactionofgettingordersforfortygrossworthofbeerperweek,updramaticallyfromthefourwhenyoustarted.Andyoushippedout...well,youshippedoutthirty.Becausebreweriesgetbacklogstoo.Ittakes(inyourbrewery,atleast)twoweeksfromthetimeyoudecidetobrewabottleofbeeruntilthemomentwhenthatbeerisreadyforshipment.Admittedly,youkeptafewweeks'worthofbeerinyourwarehouse,butthosestockswereexhaustedbyWeek7,onlytwoweeksafterthe.risingorderscamein.Thenextweek,whileyouhadbackordersforninegrossandanothertwenty-fourgrossinneworders,youcouldsendoutonlytwenty-twogross.Bythattimeyouwereaherowithinyourcompany.Theplantmanagerhadgiveneveryoneincentivestoworkdouble-time,andwasfeverishlyinterviewingfornewfactoryhelp.YouhadluckedoutwiththatIconoclasts'videomentioningthebeer.YouhadlearnedaboutthevideoinWeek3fromletterswrittenbyteenagerstothebrewery.ButithadtakenuntilWeek6toseethatvideotranslateintohigherorders.EvenbyWeek14,thefactoryhadstillnotcaughtupwithitsbackloggedorders.Youhadregularlyrequestedbrewbatchesofseventygrossormore.Youhadwonderedhowlargeyourbonuswouldbethatyear.Maybeyoucouldaskforapercentageoftheprofits,atleastonceyoucaughtupwithbackorders.YouhadevenidlypicturedyourselfonthecoverofMarketingWeek.Finally,youhadcaughtupwiththebackloginWeek16.Butthenextweek,yourdistributorshadaskedforonlynineteengross.Andlastweek.Week18,theyhadnot

17.zin200429ze412

askedforanymorebeeratall.Someoftheorderslipsactuallyhadorderscrossedoutonthem.Now,it'sWeek19.Youhaveahundredgrossofbeerininventory.Andtheorders,onceagain,askforvirtuallynonewdeliveries.Zerobeer.Meanwhilethebeeryou'vebeenbrewingkeepsrollingin.Youplacethephonecallyou'vedreadedmakingtoyourboss."Betterholdoffonproductionforaweekortwo,"yousay."We'vegot"

WMk21andyouuseawordyou'vepickedupinbusinessschool"adiscontinuity."Thereissilenceontheotherendofthephone."ButI'msureit'sonlytemporary,"yousay.Thesamepatterncontinuesforfourmoreweeks:Weeks20,21,22,and23.Graduallyyourhopesofaresurgenceslide,andyourexcusescometosoundflimsierandflimsier.Thosedistributorsscrewedus,yousay.Theretailersdidn'tbuyenoughbeer.Thepressandthatrockvideohypedupthebeerandgoteverybodysickofit.Atroot,it'stheficklekidstheyhavenoloyaltywhatsoever.Howcouldtheybuyhundredsofcasesonemonth,andnothingatallthenext?

Week24NobodymissesyouwhenyouborrowthecompanycaratthebeginningofWeek24.Yourfirststopisthewholesaler'soffice.Notonlyisitthefirsttimeyouhaveevermetfacetoface,butitisonlythesecondtimeyouhaveeverspoken.Therehasneverbeenanythingtosayuntilthiscrisis.Yougreeteachotherglumly,andthenthewholesalertakesyououttothebackwarehouse."Wehaven'tgottenanorderforyourbrandintwomonths,"saysthewholesaler."Ifeelcompletelyjerkedaround.Look!Westillhave220truckloadshere."

17.zan2004

30ze412

Whatmusthavehappened,youdecidetogether,isthatdemandroserapidly,andthenfelldramatically.Anotherexampleoftheficklenessofthepublic.Iftheretailershadstayedontopofitandwarnedyou,thiswouldneverhavehappened.Youareworkingoverthephrasingofamarketingstrategyreportinyourmindonthewayhomewhen,onawhim,youdecidetostopatthestoreofaretaileryoupassalongtheway.Fortuitously,theownerofthestoreisin.Youintroduceyourselfandtheretailer'sfacebreaksintoasardonicgrin.Leavinganassistantinchargeoftheshop,thetwoofyouwalknextdoortoaluncheonetteforacupofcoffee.Theretailerhasbroughtalongtheshop'sinventorytallynotebooks,andspreadsthemopenacrossthetable."Youdon'tknowhowmuchIwantedtostrangleyouafewmonthsago.""Why?"youask."Lookwe'restuckwithninety-threecasesinourbackroom.Atthisrate,it'sgoingtobeanothersixweeksbeforeweorderanymore."Sixweeks,youthinktoyourself.Andthenyoupulloutapocketcalculator.Ifeveryretailerinthisareawaitssixweeksbeforeorderinganymorebeer,andthenonlyordersafewcasesaweek,it'sgoingtobeayearormorebeforetheyputadentinthose220truckloadssittingatthewholesaler's."Thisisatragedy,"yousay."WholetithappenImean,howcanwekeepitfromhappeningagain?""Well,it'snotourfault,"saystheretailer,aftersippingsomecoffee."Weweresellingfourcasesofbeerwhenthatmusicvideocameout.Then,inWeek2,wesoldeightcases.""Andthenitmushroomed,"yousay."Butthenwhydiditdiedown?""No,youdon'tunderstand,"saystheretailer."Thedemandnevermushroomed.Anditneverdiedout.Westillselleightcasesofbeerweekafterweekafterweek.Butdidn'tsendusthebeerwewanted.Sowehadtokeepordering,justtomakesurewehadenoughtokeepupwithourcustomers.""Butwegotthebeeroutassoonasitwasnecessary.""Thenmaybethewholesalerscrewedupsomehow,"saystheretailer."I'vebeenwonderingifIshouldswitchsuppliers.Anyway,Iwishyou'ddoacouponpromotionorsomething,soIcouldmakebacksomeofmycosts.I'dliketounloadsomeofthoseninety-threecases."Youpickupthetabforcoffee.Then,onyourtripback,youplanthewordingofyourresignationnotice.Obviously,you'llbeblamedforanylayoffsorplantclosingsthatcomeoutofthiscrisisjustasthewholesalerblamedtheretailer,andtheretailerblamedthewholesaler,andbothofthemwantedtoblameyou.Atleastit'seadyenoughintheprocessthatyoucanquitwithsomedignity.Ifonlyyoucouldcomeupwithsomeexplanationtoshowthatitwasn'tyourfaulttoshowthatyouwerethevictim,insteadoftheculprit.

LESSONSOFTHEBEERGAME

1.StructureInfluencesBehaviorDifferentpeopleinthesamestructuretendtoproducequalitativelysimilarresults.Whenthereareproblems,orperformancefailstoliveuptowhatisintended,itiseasytofindsomeoneorsomethingtoblame.But,moreoftenthanwerealise,systemscausetheirowncrises,notexternalforcesorindividuals'mistakes.2.StructureinHumanSystemsisSubtleWetendtothinkof"structure"asexternalconstraintsontheindividual.But,structureincomplexlivingsystems,suchasthe"structure"ofthemultiple"systems"inahumanbody(forexample,thecardiovascularandneuromuscular)meansthebasicinterrelationshipsthatcontrolbehavior.Inhumansystems,structure

17.zan2004

31ze412

includeshowpeoplemakedecisionsthe"operatingpolicies"wherebywetranslateperceptions,goals,rules,andnormsintoactions.3.LeverageOftenComesftvmNewWaysofThinkingInhumansystems,peopleoftenhavepotentialleveragethattheydonotexercisebecausetheyfocusonlyontheirowndecisionsandignorehowtheirdecisionsaffectothers.Inthebeergame,playershaveitintheirpowertoeliminatetheextremeinstabilitiesthatinvariablyoccur,buttheyfailtodosobecausetheydonotunderstandhowtheyarecreatingtheinstabilityinthefirstplace.

Peopleinthebusinessworldloveheroes.Welavishpraiseandpromotiononthosewhoachievevisibleresults.Butifsomethinggoeswrong,wefeelintuitivelythatsomebodymusthavescrewedup.Inthebeergame,therearenosuchculprits.Thereisnoonetoblame.Eachofthethreeplayersinourstoryhadthebestpossibleintentions:toservehiscustomerswell,tokeeptheproductmovingsmoothlythroughthesystem,andtoavoidpenalties.Eachparticipantmadewell-motivated,clearlydefensiblejudgmentsbasedonreasonableguessesaboutwhatmighthappen.Therewerenovillains,buttherewasacrisisnonethelessbuiltintothestructureofthesystem.Inthelasttwentyyears,thebeergamehasbeenplayedthousandsoftimesinclassesandmanagementtrainingseminars.Ithasbeenplayedonfivecontinents,amongpeopleofaUages,nationalities,culturalorigins,andvastiyvariedbusinessbackgrounds.Someplayershadneverheardofaproduction/distributionsystembefore;othershadspentagoodportionoftheirlivesworkinginsuchbusinesses.Yeteverytimethegameisplayedthesamecrisesensue.First,thereisgrowingdemandthatcan'tbemet.Ordersbuildthroughoutthesystem.Inventoriesaredepleted.Backlogsgrow.Thenthebeerarrivesenmassewhileincomingorderssuddenlydecline.Bytheendoftheexperiment,almostallplayersaresittingwithlargeinventoriestheycannotunloadforexample,itisnotunusualtofindbreweryinventorylevelsinthehundredsoverhangingordersfromwholesalersforeight,ten,ortwelvecasesperweek.Ifliterallythousandsofplayers,fromenormouslydiversebackgrounds,allgeneratethesamequalitativebehaviorpatterns,thecausesofthebehaviormustliebeyondtheindividuals.Thecausesofthebehaviormustlieinthestructureofthegameitself.Moreover"beergame"-typestructurescreatesimilarcrisesinreal-lifeproduction-distributionsystems.Forinstance,in1985,personalcomputermemorychipswerecheapandreadilyavailable;saleswentdownby18percentandAmericanproducerssuffered25to60percentlosses."*Butinlate1986asuddenshortagedevelopedandwasthenexacerbatedbypanicandoverordering.Theresultwasa100to300percentincreaseinpricesforthesamechips.'Asimilarsurgeandcollapseindemandoccurredinthesemiconductorindustryin1973to1975.Afterahugeorderbuildupandincreasesindeliverydelaysthroughouttheindustry,demandcollapsedandyoucouldhavevirtuallyanyproductyouwantedoffanysupplier'sshelfovernight.Withinafewyears,Siemens,Signetics,NorthernTelecom,Honeywell,andSchlumbergerallenteredthebusinessbybuyingweakenedsemiconductormanufacturers.*"Inmid-1989.GeneralMotors,Ford,andChrysler,astheMay30WallStreetJournalputit,"weresimplyproducingfarmorecarsthantheywereselling,anddealerinventorieswerepilingup...Thecompaniesalreadyareidlingplantsandlayingoffworkersatratesnotseenforyears.Entirenationaleconomiesundergothesamesortsofsurgesindemandandinventoryoveradjustments,duetowhateconomistscallthe"inventoryaccelerator"theoryofbusinesscycles.Similarboomandbustcyclescontinuetorecurindiverseservicebusinesses.Forexample,realestateisnotoriouslycyclic,oftenfueledbyspeculatorswhodriveup17.zaa200432Ze412

pricestoattractinvestorstonewprojects."Thephonewouldring,"MassachusettscondominiumdeveloperPaulQuinntoldthe"MacNeil-LehrerNewshour"in1989,"inouroffices,andwesaid'Howarewegoingtohandlethis?We'lltelleverybodytosendina$5,000checkwiththeirnameandwe'llputthemonthelist.'Thenextthingweknew,wehadover150checkssittingonthedesk."Theglutfollowedquicklyontheboom:"Itwasaslow,sinkingfeeling,"Quinnsaid,interviewedinaseasidetownfullofunsolddevelopments."Now'sthetimetostartbuildingforthenextboom.Unfortunately,thepeopleintherealestateindustryaretoobusytryingtoaddresstheproblemstheyhaveleftoverfromthelastone."**Infact,realityinproduction-distributionsystemsisoftenworsethanthebeergame.Arealretailercanorderfromthreeorfourwholesalersatonce,waitforthefirstgroupofdeliveriestoarrive,andcanceltheotherorders.Realproducersoftenrunupagainstproductioncapacitylimitsnotpresentinthegame,therebyexacerbatingpanicthroughoutthedistributionsystem.Inturn,producersinvestinadditionalcapacitybecausetheybelievethatcurrentdemandlevelswillcontinueintothefuture,thenfindthemselvesstrappedwithexcesscapacityoncedemandcollapses.Thedynamicsofproduction-distributionsystemssuchasthebeergameillustratethefirstprincipleofsystemsthinking:STRUCTUREINFLUENCESBEHAVIOR

Whenplacedinthesamesystem,people,howeverdifferent,tendtoproducesimilarresults.Thesystemsperspectivetellsusthatwemustlookbeyondindividualmistakesorbadlucktounderstandimportantproblems.Wemustlookbeyondpersonalitiesandevents.Wemustlookintotheunderlyingstructureswhichshapeindividualactionsandcreatetheconditionswheretypesofeventsbecomelikely.AsDonellaMeadowsexpressesit:Atrulyprofoundanddifferentinsightisthewayyoubegintoseethatthesystemcausesitsownbehavior.'Thissamesentimentwasexpressedoverahundredyearsagobyasystemsthinkerofanearliervintage.TwothirdsofthewaythroughWarandPeace,LeoTolstoybreaksofffromhisnarrativeaboutthehistoryofNapoleonandczaristRussiatocontemplatewhyhistorians,ingeneral,areunabletoexplainverymuch:Thefirstfifteenyearsofthenineteenthcenturypresentthespectacleofanextraordinarymovementofmillionsofmen.Menleavetheirhabitualpursuits;rushfromonesideofEuropetotheother;plunder,slaughteroneanother,triumphanddespair;andthewholecurrentoflifeistransformedandpresentsaquickenedactivity,firstmovingatagrowingspeed,andthenslowlyslackeningagain.Whatwasthecauseofthatactivity,orfromwhatlawsdiditarise?askedthehumanintellect.Thehistorians,inreplytothatinquiry,laybeforeusthesayingsanddoingsofsomedozensofmeninoneofthebuildingsinthecityofParis,summingupthosedoingsandsayingsbyonewordrevolution.ThentheygiveusadetailedbiographyofNapoleon,andofcertainpersonsfavorablyorhostilelydisposedtohim;talkoftheinfluenceofsomeofthesepersonsuponothers;andthensaythatthisitistowhichtheactivityisdue;andtheseareitslaws.But,thehumanintellectnotonlyrefusestobelieveinthatexplanation,butflatlydeclaresthatthemethodofexplanationisnotacorrectone...Thesumofmen'sindividualwillsproducedboththerevolutionandNapoleon;andonlythesumofthosewillsenduredthemandthendestroyedthem."Butwhenevertherehavebeenwars,therehavebeengreatmilitaryleaders;whenevertherehavebeenrevolutionsinstates,therehavebeengreatmen,"sayshistory."Whenevertherehavebeengreatmilitaryleaderstherehave,indeed,beenwars,"repliesthehumanreason;"butthatdoesnotprovethatthegeneralswerethecauseofthewars,

17.zan2004

33ze412

andthatthefactorsleadingtowarfarecanbefoundinthepersonalactivityofoneman.'Tolstoyarguesthatonlyintryingtounderstandunderlying"lawsofhistory,"hisownsynonymforwhatwenowcallsystemicstructures,liesanyhopefordeeperunderstanding:Fortheinvestigationofthelawsofhistory,wemustcompletelychangethesubjectofobservations,mustletkingsandministersandgeneralsalone,andstudythehomogeneous,infinitesimalelementsbywhichthemassesareled.Noonecansayhowfarithasbeengiventomantoadvanceinthatdirectioninunderstandingthelawsofhistory.Butitisobviousthatonlyinthatdirectionliesanypossibilityofdiscoveringhistoricallaws;andthatthehumanintellecthashithertonotdevotedtothatmethodofresearchonemillionthpartoftheenergythathistorianshaveputintothedescriptionofthedoingsofvariouskings,ministers,andgenerals..."Theterm"structure,"asusedhere,doesnotmeanthe"logicalstructure"ofacarefullydevelopedargumentorthereporting"structure"asshownbyanorganizationchart.Rather,"systemicstructure"isconcernedwiththekeyinterrelationshipsthatinfluencebehaviorovertime.Thesearenotinterrelationshipsbetweenpeople,butamongkeyvariables,suchaspopulation,naturalresources,andfoodproductioninadevelopingcountry;orengineers'productideasandtechnicalandmanagerialknow-howinahigh-techcompany.Inthebeergame,thestructurethatcausedwildswingsinordersandinventoriesinvolvedthemultiple-stagesupplychainandthedelaysinterveningbetweendifferentstages,thelimitedinformationavailableateachstageinthesystem,andthegoals,costs,perceptions,andfearsthatinfluencedindividuals'ordersforbeer.Butitisveryimportanttounderstandthatwhenweusetheterm"systemicstructure"wedonotjustmeanstructureoutsidetheindividual.Thenatureofstructureinhumansystemsissubtlebecausewearepartofthestructure.Thismeansthatweoftenhavethepowertoalterstructureswithinwhichweareoperating.However,moreoftenthannot,wedonotperceivethatpower.Infact,weusuallydon'tseethestructuresatplaymuchatall.Rather,wejustfindourselvesfeelingcompelledtoactincertainways.In1973,psychologistPhilipZimbardoperformedanexperimentinwhichcollegestudentswereplacedintherolesofprisonersandguardsinamockprisonsetupinthebasementofthepsychologybuildingatStanford.Whatstartedasmildresistancebythe"prisoners"andassertivenessbythe"guards,"steadilyescalatedintoincreasingrebelliousnessandabusiveness,untilthe"guards"begantophysicallyabusethe"prisoners"andtheexperimentersfeltthesituationwasdangerouslyoutofcontrol.Theexperimentwasendedprematurely,aftersixdays,whenstudentsbegantosufferfromdepression,uncontrollablecrying,andpsychosomaticillnesses.'I'llneverforgetoneparticularlychillingillustrationofthepowerofstructureininternationalpolitics.Itoccurredinaprivatemeetingwithahigh-rankingmemberoftheSovietembassy,afewmonthsaftertheSovietshadsenttroopsintoAfghanistan.Theofficialtalked,eloquentlyandwithgreatsincerity,abouthowtheU.S.S.R.hadbeenthefirsttorecognizethecountryafteritsfounding.TheU.S.S.R.hadbeenthefirsttocometoitsaid,repeatedly,whentherewasinternalstrifeorinstability.Beginninginthelate1970s,asthreatsfromguerrillafactionsincreased,therulinggovernmentaskedforincreasingSovietassistance.Modestassistanceledtogreaterneedsforbroaderhelp.Itcametoapoint,theofficialexplained,where"Wereallyhadnochoicebuttointervenemilitarily."AsIlistenedtothistale,Icouldn'thelpbutthinkofhowretailersorwholesalersinthebeergamewillexplain,whenthegameisover,thattheyreallyhadnochoicebuttokeepincreasingtheirorders.ItalsobroughttomindsimilarstoriesofAmericanofficials,tenorfifteenyearsearlier,tryingtoexplainhowtheUnitedStatesbecameentangledinVietnam.

17.zan2004

34ze412

What,exactly,doesitmeantosaythatstructuresgenerateparticularpatternsofbehavior?Howcansuchcontrollingstructuresberecognized?Howwouldsuchknowledgehelpustobemoresuccessfulinacomplexsystem?Thebeergameprovidesalaboratoryforexploringhowstructureinfluencesbehavior.Eachplayerretailer,wholesaler,andbrewerymadeonlyonedecisionperweek:howmuchbeertoorder.Theretaileristhefirsttoboostorderssignificantly,withorderspeakingaroundWeek12.Atthatpoint,theexpectedbeerfailstoarriveontimebecauseofbacklogsatthewholesaleandbrewerylevels.Buttheretailer,notthinkingofthosebacklogs,dramaticallyincreasedorderstogetbeeratanycost.Thatsuddenjumpinordersisthenamplifiedthroughthewholesystemfirstbythewholesaler,andthenbythebrewery.Wholesalerorderspeakatabout40,andbreweryproductionpeaksatabout80.Theresultisacharacteristicpatternofbuildupanddeclineinordersateachposition,amplifiedinintensityasyoumove"up-stream,"fromretailerstobreweries.Inotherwords,thefurtherfromtheultimateconsumer,thehighertheorders,andthemoredramaticthecollapse.Infact,virtuallyallbreweryplayersgothroughmajorcrises,endingwithnear-zeroproductionratesonlyweeksafterhavingproduced40,60,100ormoregrossperweek."Theothercharacteristicpatternofbehaviorinthegamecanbeseenintheinventoriesandbacklogs.Theretailer'sinventorybeginstodropbelowzeroataroundWeek5.Theretailer'sbacklogcontinuestoincreaseforseveralweeksandtheretailerdoesn'tgetbacktoapositiveinventoryuntilaroundWeeks12to15.Similarly,thewholesalerisinbacklogfromaroundWeek7througharoundWeeks15to18,andthebreweryfromWeek9throughWeeks18to20.Onceinventoriesbegintoaccumulate,theyreachlargevalues(about40fortheretailer,80to120forthewholesaler,and60to80forthebrewerybyWeek30)muchlargerthanintended.Soeachpositiongoesthroughaninventory-backlogcycle:firstthereisinsufficientinventory,thenthereistoomuchinventory.Thesecharacterisicpatternsofovershootandcollapseinorderingandinventory-backlogcyclesoccurdespitestableconsumerdemand.Theactualconsumerordersexperiencedonlyonechange.InWeek2,consumerordersdoubledgoingfromfourcasesofbeerperweektoeight.Theyremainedateightcasesperweekfortherestofthegame.Inotherwords,afteraone-timeincrease,consumerdemand,fortherestofthesimulation,wasperfectlyflat!Ofcourse,noneoftheplayersotherthantheretailerknewconsumerdemand,andeventheretailerssawdemandonlyweekbyweek,withnoclueaboutwhatwouldcomenext.Afterthebeergame,weaskthepeoplewhoplayedwholesalersandbrewerstodrawwhattheythinktheconsumerorderswere.Mostdrawacurvewhichrisesandfalls,justastheirordersroseandfell.14Inotherwords,theplayersassumethatifordersinthegameroseandcollapsed,thismusthavebeenduetoasurgeandcollapseinconsumerorders.Suchassumptionsofan"externalcause"arecharacteristicofnonsystemicthinking.Players'guessesregardingconsumerdemandshedlightonourdeeplyfeltneedtofindsomeoneorsomethingtoblamewhenthereareproblems.Initially,afterthegameisover,manybelievethattheculpritsaretheplayersintheotherpositions.Thisbeliefisshatteredbyseeingthatthesameproblemsariseinallplaysofthegame,regardlessofwhoismanningthedifferentpositions.Manythendirecttheirsearchforascapegoattowardtheconsumer."Theremusthavebeenawildbuildupandcollapseinconsumerdemand,"theyreason.Butwhentheirguessesarecomparedwiththeflatcustomerorders,thistheorytooisshotdown.Thishasadevastatingimpactonsomeplayers.I'llneverforgetthepresidentofalargetruckingfirmsittingback,wide-eyed,staringatthebeergamecharts.Atthenextbreak,herantothetelephones."Whathappened?"Iaskedwhenhereturned.

17.zan2004

35ze412

"Justbeforewecamehere,"hesaid,"mytopmanagementteamhadconcludedathree-dayreviewofoperations.Oneofourdivisionshadtremendouslyunstablefluctuationsinfleetusage.Itseemedprettyobviousthatthedivisionpresidentdidn'thavewhatittooktogetthejobdone.Weautomaticallyblamedtheman,justaseachofusintheexperimentautomaticallyblamedthebrewery.Itjusthitmethattheproblemswereprobablystructural,notpersonal.Ijustdashedouttocallourcorporateheadquartersandcancelhisterminationprocess."Oncetheyseethattheycannolongerblameoneanother,orthecustomer,theplayershaveonelastrecourseblamethesystem."It'sanunmanageablesystem,"somesay."Theproblemisthatwecouldn'tcommunicatewitheachother."Yetthistooturnsouttobeanuntenableposition.Infact,giventhe"physicalsystem"ofinventories,shippingdelays,andlimitedinformation,thereissubstantialroomforimprovingmostteam'sscores.

REDEFININGYOURSCOPEOFINFLUENCE:HOWTOIMPROVEPERFORMANCEINTHEBEERGAMETobegintoseethepossibilitiesforimprovement,considertheoutcomesifeachplayerdidnothingtocorrecthisinventoryorbacklog.Followingthe"nostrategy"strategy,eachplayerwouldsimplyplacenewordersequaltoordershereceived.Thisisaboutthesimplestorderingpolicypossible.Ifyoureceivenewincomingordersforfourcasesofbeer,youplaceordersforfour.Ifyoureceiveincomingordersforeight,youplaceordersforeight.Giventhepatternofconsumerdemandinthisgame,thatmeansorderingfourcasesortruckloadseveryweekuntilyoureceiveyourfirstorderofeight.Thereafteryouordereight.Whenthisstrategyisfollowedunswervinglybyallthreeplayers,allthreepositionssettleintoaformofstabilitybyWeek11.Theretailerandwholesalerneverquitecatchupwiththeirbacklogs.Backlogsdevelop,asinthebasicgame,duetothedelaysingettingordersfilled.Backlogspersistbecausetheplayersmakenoefforttocorrectthembecausethe"nostrategy"strategyprecludesplacingtheordersinexcessofordersreceivedneededtocorrectbacklogs.Isthe"nostrategy"strategysuccessful?Probably,mostplayerswouldsayno.Afterall,thestrategygeneratespersistentbacklogs.Thismeansthateveryonethroughoutthesystemiskeptwaitinglongerthannecessaryforhisorderstobefilled.Inreallife,suchasituationwould,undoubtedly,invitecompetitorstoenteramarketandprovidebetterdeliveryservice.Onlyproducers/distributorswithmonopoliesonmarketswouldbelikelytosticktosuchastrategy.'Butthestrategyeliminatesthebuildupandcollapseinordering,andtheassociatedwildswingsininventories.Moreover,totalcostgeneratedbyallpositionsinthe"nostrategy"strategyislowerthanwhatisachievedby75percentoftheteamsthatplaythegame!""Inotherwords,themajorityofplayersinthegame,manyofthemexperiencedmanagers,domuchworsethaniftheysimplyplacedordersequaltotheorderstheyreceive.Intryingtocorrecttheimbalancesthatresultfrom"doingnothing,"mostplayersmakemattersworse,inmanycasesdramaticallyworse.Ontheotherhand,about25percentoftheplayersscorebetterthanthe"nostrategy"strategy,andabout10percentscoreverymuchbetter.Inotherwords,successispossible.Butitrequiresashiftofviewformostplayers.Itmeansgettingtotheheartoffundamentalmismatchesbetweencommonwaysofthinkingaboutthegamewhatwewilllatercallour"mentalmodel"ofitandtheactualrealityofhowthegameworks.Mostplayersseetheirjobas"managingtheirposition"inisolationfromtherestofthesystem.Whatisrequiredistoseehowtheirpositioninteractswiththelargersystem.Considerhowyoufeelifyouareatypicalplayeratanyposition.Youpaycloseattentiontoyourowninventory,costs,backlog,orders,andshipments.Incomingorderscomefrom"outside"mostwholesalersandbrewers,forinstance,areshockedbythe

17.zan2004

36ze412

implacablemysteryofthoselatter-halforders,whichshouldbehighnumbers,butinsteadappearweekafterweekas"zero,zero,zero,zero."Yourespondtonewordersbyshippingoutbeer,butyouhavelittlesenseofhowthoseshipmentswillinfluencethenextroundoforders.Likewise,youhaveonlyafuzzyconceptofwhathappenstotheordersyouplace;yousimplyexpectthemtoshowupasnewshipmentsafterareasonabledelay.Yourperspectiveofthesystemlookssomethinglikethis:

Giventhispictureofthesituation,ifyouneedbeeritmakessensetoplacemoreorders.Ifyourbeerdoesn'tarrivewhenexpected,youplacestillmoreorders.Giventhispictureofthesituation,yourjobisto"manageyourposition,"reactingtochangesinthe"externalimputs"ofincomingorders,beerarrivals,andyoursupplier'sdeliverydelay.Whatthetypical"manageyourposition"viewmissesisthewaysthatyourordersinteractwithothers'orderstoinfluencethevariablesyouperceiveas"external."Theplayersarepartofalargersystemthatmostperceiveonlydimly.Forexample,iftheyplacealargenumberoforders,theycanwipeouttheirsupplier'sinventory,therebycausingtheirsupplier'sdeliverydelaytoincrease.Ifthey,then,respond(asmanydo)byplacingstillmoreorders,theycreatea"viciouscycle"thatincreasesproblemsthroughoutthesystem.Thisviciouscyclecanbesetoffbyanyplayerwhopanics,anywherewithinthesystembeheretailer,orwholesaler.Evenfactoriescancreatethesameeffect,simplybyfailingtoproduceenoughbeer.Eventually,asoneviciouscircleinfluencesotherviciouscircles,theresultingpanicspreadsupanddowntheentireproduction-distributionsystem.Oncethepanicbuildsmomentum,Ihaveseenplayersgenerateordersthataretwentytofiftytimeswhatisactuallyneededtocorrectrealinventoryimbalances.Toimproveperformanceinthebeergameplayersmustredefinetheirscopeofinfluence.Asaplayerinanyposition,yourinfluenceisbroaderthansimplythelimitsofyourownposition.Youdon'tsimplyplaceorderswhichgooffintotheetherandreturnasbeersupplies;thoseordersinfluenceyoursupplier'sbehavior.Whichinturnmightinfluenceyetanothersupplier'sbehavior.Inturn,yoursuccessisnotjustinfiuencedbyyourorders;itisinfluencedbytheactionsofeveryoneelseinthesystem.Forexample,ifthebreweryrunsoutofbeer,thenprettysoon,everyoneelsewillrunoutofbeer.Eitherthelargersystemworks,oryourpositionwillnotwork.Interestingly,inthebeergameandinmanyothersystems,inorderforyoutosucceedothersmustsucceedaswell.Moreover,eachplayermustsharethissystemsviewpointfor,ifanysingleplayerpanicsandplacesalargeorder,panicstendtoreinforcethroughoutthesystem.

17.zin200437ze412

Therearetwokeyguidelinesforplayersinthegame.First,keepinmindthebeerthatyouhaveorderedbutwhich,becauseofthedelay,hasnotyetarrived.Icallthisthe"Taketwoaspirinandwait"rule.I