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A Feedback Systems Approach to
Business Transformation
Dr. Michael von Kutzschenbach Global Business Transformation Manager-Training (Heidelberg, 2015)
Workshop Outline A Feedback Systems Approach to Business Transformation
9:00 - 10:00 A Shift of Mind
10:00 - 10:30 Coffee Break
10:30 - 11:30 Building Blocks and Grammar
11:30 - 12:00 Applying Systems Thinking
12:00 - 13:00 Lunch
13:00 - 16:30 Applying Systems Thinking (cont’d)
14:30 - 15:00 Coffee Break
16:30 – 17:00 Lessons Learned
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 2
Be a Master in Business Transformation Management Why a Feedback Systems Approach
However, most organizations approach change as if it were a simple thing.
The world is complex. Change within any organization is also complex.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 3
You Want to … Why a Feedback Systems Approach
understand the “Feedback Systems Approach” so that you can …
be more effective in action
be able to deal with uncertainty
find better ways to achieve your aspirations
… master business transformation initiatives more effectively
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 4
Introduction to Feedback Systems Thinking Feedback Systems Approach: Why and What?
A Shift of Mind – Introduction to
Systems Thinking
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 5
The Systems Perspective Collection versus Systems
Kauffman, D.L. (1980). Systems One: An Introduction to Systems Thinking. Minneapolis: Systems Education, Inc.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 6
The Systems Perspective Definition - What is a System?
“A system is an interconnected set of elements that is coherently organized in a way that
achieves something.” Meadows, H.D. (2008). Thinking in Systems: A Primer.
Vermont: Chelsea Green Publishing.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 7
The Systems Perspective Putting Systems into Context: “The Iceberg”
Multiple levels of insights
Events (Who does what to
whom) What happened?
Patterns (Recurring patterns of behavior) What is happening over time?
Structure
(How the parts of the system are organized) Why is this happening?
Mental Models
(Assumptions or worldview)
In what way have our mental models created
the structures that are in place?
”Real” world
”Systems
Thinking” world
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 8
Sweeney, L.B.. (2001). When a Butterfly Sneezes: A Guide for Helping Kits Explore Interconnections in Our World Through Favorite Stories. Waltham: Pegasus Communications, Inc.
Event-Oriented World View The Standard Approach
RESULTS
SITUATION
GOALS
DECISION
Assumptions Note: which are
rarely questioned
PROBLEM
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 9
Event-oriented View of Traffic Congestion The Standard Approach
Congestion Build New
Roads
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 10
The required approach: Feedback World View Introduction to Feedback Systems Thinking
Morecorft, J D.W (2015). Strategic Modelling and Business Dynamics: A feedback systems approach. West Sussex: John Wiley & Sons Ltd.
Situation Goal
Problem
Problem
Decision
Action &
Results
Solution
Other
Situations
Other
Goals
Other Problems/
Discrepancies
Other
Decisions
Other Actions
& Results
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 11
Traffic Congestion A Feedback View
road
construction
pressure to
reduce
congestion
travel
time
desired
travel time
B1
Capacity Expansion
+
DELAY
- +
-
highway
capacity
+
Based on a figure from Business Dynamics, Sterman 2000. Traffic volume depends on congestion, closing several feedback loops that cause traffic to increase whenever new roads are built.
population
and
economic
activity of
region
average
trip length
DELAY
-
+
+
Extra Miles
B3
Take the Bus
B4
cars in
region
public
transit
ridership
cars per
person - +
traffic
volume + trips per
day
attractiveness
of driving
Discretionary Trips
B2 +
+ +
+
-
public
transit
fare
adequacy
of public
transit
+ -
+
Morecorft, J D.W (2015). Strategic Modelling and Business Dynamics: A feedback systems approach. West Sussex: John Wiley & Sons Ltd.
The Danger of a Narrow World View A Feedback View
The New Yorker Collection 1976 Arnie Levin from cartoonbank.com. All Rights Reserved.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 13
… leads to Unintended Consequences A Feedback View
The New Yorker Collection 1976 Arnie Levin from cartoonbank.com. All Rights Reserved.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 14
We live and work in systems of circular causality - but feedback paths and consequences are not obvious or are hidden:
Supply chains – the bull-whip effect.
Hotel showers – elusive comfort.
Motorways – mystery hold-ups.
Fisheries – where are the cod?
Oil – price volatility at the pump.
Fun with Feedback Feedbacks are Everywhere
Source: Morecroft, J (2008)
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 15
Policies that cause unintended side effects.
Efforts to stabilize a system actually destabilizes it.
Our decisions provoke reactions from others to restore the balance we upset.
“Anything that can go wrong will go wrong.”
- Murphy’s Law
Counter-Intuitive Behavior Introduction to Feedback Systems Thinking
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 16
Some common causes …
Our tendency to interpret experience as a series of events – leading to event-oriented approach to problem solving.
We do not understand the full range of feedback loops operating in the system.
We act as if cause and effect are always closely linked in time and space.
Policy Resistance Introduction to Feedback Systems Thinking
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 17
Exogenous point of view …
My wife is always mean to me.
It’s all her fault.
If she would just be nicer, my life would be better.
Endogenous point of view …
Maybe there’s something I’m doing…
A Feedback Systems Approach Perspective Endogenous Point of View
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 18
The deep foundation is the ENDOGENOUS point of view
The foundation applied:
A Feedback Systems Approach is the mental effort to uncover endogenous sources of system behavior.”
“System dynamicists use systems thinking, management insight, and computer simulation to hypothesize, test, and refine endogenous explanations of system change.”
The Central Distinguishing Feature of System Thinking … Endogenous Point of View
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 19
Building Blocks and Grammar Feedback Systems Approach: Thinking in Loops
Building Blocks and Grammar
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 20
Causal Mapping Representing Structure in Complex Systems
Causal mapping is a
powerful tool for
representing structure in
complex systems.
Arrows indicate causal
influence.
Quality of city life
Crime rate Retail outlets
Neighborhood
health clinics
Absentee
landlords
PopulationInmigration Outmigration
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 21
What is Feedback? Results of our actions define the situation we face
in the future. The transmission and return of information.
Two basic types of feedback:
Positive Feedback: Self-reinforcing
Negative feedback: Self-correcting
What is Feedback? Representing Structure in Complex Systems
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 22
Feedback Loops Representing Structure in Complex Systems
A feedback loop exists when decisions change the state of the system, changing the conditions and information that influence future decisions.
This is what caused your morning shower to be such a dramatic experience!
Decisions State ofthe system
Action
Perceptions
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 23
Examples of Feedback Loops Representing Structure in Complex Systems
Quality of
communication
Quality ofcommunicationbetween teams
Quality ofcommunicationwithin teams
TeamworkRisk taking
Trust
Solvency of
a Bank
Perceived solvency
of the Bank
Deposits Withdrawals
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 24
Two Kinds of Feedback Loops Representing Structure in Complex Systems
Reinforcing loops
Growth producing
Destabilizing
Accelerating
Positive: an even number of -’s
Indicated by…
Balancing loops
Counteracting
Goal seeking
Stabilizing
Negative: an odd number of -’s
Indicated by…
…also called Negative feedback loops.
…also called Positive feedback loops.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 25
Balancing Loops The Great Stabilizer
“Balancing feedback loops are equilibrating or goal-seeking structures in systems and are both sources
of stability and sources of resistance to change.” Meadows, H.D. (2008, p. 30). Thinking in Systems: A
Primer. Vermont: Chelsea Green Publishing.
…, pushing stability, resistance, and limits
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 26
Examples of Balancing or Counteracting Loops The Great Stabilizer
Desired amount of
water in glassWater
in glass
Pouring rate
Fraction
filled+
–
- +
Population Outmigration+
–
Gypsie mothsGypsie mothnet growth
Wasps Wasp net
growth
–
+
+
+
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 27
Typical Counteracting Loop Behaviors The Great Stabilizer
20
15
10
5
0 0 10 20 30 40
Filling a Glass
10,000
7,500
5,000
2,500
0 0 25 50 75 100
Population and
emigration
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 28
Reinforcing Loops The Engines of Growth and Collapse
“Reinforcing feedback loops are self-enhancing, leading to exponential growth or to run-away
collapses over time.” Meadows, H.D. (2008, p. 32). Thinking in Systems: A
Primer. Vermont: Chelsea Green Publishing.
…, when small changes become big changes
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 29
Examples of Reinforcing Loops The Engines of Growth and Collapse
PopulationBirths per
year
+
+
Performance
Motivation
+
+
Number of private
businesses
Tax base
Tax rate
Expected profitability
of business
Attractiveness
for business+
+
+
– –
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 30
Typical Reinforcing Loop Behaviors The Engines of Growth and Collapse
20,000
15,000
10,000
5,000
0
0 25 50 75 100
10,000
9,000
8,000
7,000
6,000
0 25 50 75 100
Population and Births Loop
Businesses and Taxes Loop
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 31
Tips for Determining Link and Loop Polarities Loops and Labels
For each link, determine the effect of an increase in the variable at the tail of the arrow: If the variable at the head increases, assign a plus.
If the variable at the head decreases, assign a minus.
For each loop, count the number of negative signs: An even number of negative links is a reinforcing (R) loop.
An odd number of negative links is a balancing (B) loop.
Most important: For each loop, tell a self-reinforcing or balancing/counteracting story, and check that the story
matches the loop polarity.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 32
Isolate and Identify Link Polarity Loops and Labels
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 33
Isolate and Identify Link Polarity Loops and Labels
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
+
(Always trace an Increase)
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 34
Isolate and Identify Link Polarity Loops and Labels
(Always trace an Increase)
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
+
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 35
Isolate and Identify Link Polarity Loops and Labels
(Always trace an Increase)
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
–
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 36
Isolate and Identify Link Polarity Loops and Labels
(Always trace an Increase)
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
–
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 37
Isolate and Identify Link Polarity Loops and Labels
(Always trace an Increase)
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
+
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 38
Completed Loop Loops and Labels
(Now tell the story)
At t ract iveness f or
business
Number of privat e
businesses
Tax base
Tax Rate
Expect ed
prof itabilit y of
business
+
– –
+
+
(R)
- or -
+
- or -
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 39
Delays The Hidden Troubelmakers
Delays are “interruptions between […] actions and their consequences.”
When things happen … eventually
Senge, P. (2006, p. 88). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 40
Introduction to Feedback Systems Thinking Feedback Systems Approach: Thinking in Loops
Putting it all together: System
Archetyps
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 41
Applying the Feedback Systems Approach Business Transformation Matrix
Analyze Understand Design Transform
Pattern
Structures
Mental Model
Events
(Real World)
(“Systems Thinking”
World)
Incr
eas
ing
Leve
rage
an
d C
om
ple
xity
Phases of the Learning Cycle
As Is To Be
Zon
e 1
Zon
e 4
Zon
e 3
Zon
e 2
Modified from J. Shibley (2006)
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 42
Systems Archetypes Dynamic Theories of Business Transformation Management
Senge, P. (2006, p. 88). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.
“The purpose of the systems archetypes is to recondition our perceptions, so as to be more able to
see structures at play, and to see the leverage in those structure.”
… reveal an incredibility elegant simplicity underlying the complexity of management issues.
Senge, P. (2006, p. 93 f). The Fifth Discipline: The art and science of the learning organization. New York: Doubleday.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 43
Fixes That Fail
Shifting the Burden
Limits to Success
Drifting Goals
Growth and Underinvestment
Success to the Successful
Escalation
Tragedy of the Commons
Systems Archetypes Seismology for leaders - Signals from the Underground
For more info see: Kim, D.H. and V. Anderson (2011). Systems Archetype Basics: From Story to Structure. www.leragenetworks.com: Leverage Networks, Inc.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 44
Systems Archetypes - Fixes That Fail Seismology for leaders - Signals from the Underground
Causal structure
In a “Fixes That Fail” situation, a problem symptom cries out for resolution. A solution is quickly implemented, which alleviates the symptom.. However the solution produces unintended consequences that, after a delay, cause the original problem symptom to return to its previous level or even get worse.
Fix
-
+
+
Problem Symptom
Unexpected Consequences
+
t
B1
R2
Signals
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 45
Systems Archetypes - Shifting the Burden Seismology for leaders - Signals from the Underground
Symptomatic
Solution
Fundamental
Solution
Problem
Symptom
Side-effect
- +
+ -
+
- R3
B2
B1
In a “Shifting the Burden” situation, a problem symptom can be addressed by applying a symptomatic solution or a fundamental solution. When a symptomatic solution is implemented, the problem symptom is reduced or disappears, which lessens the pressure for implementing a more fundamental solution. The symptomatic solution often produce side-effects that further divert attention away from more fundamental solutions.
Causal structure
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 46
Systems Archetypes - Limits to Success Seismology for leaders - Signals from the Underground
In a “Limit to Success” scenario, growing actions initially leads to success, which encourage s even more of those efforts. Over time, however, the success itself causes the system to encounter limits, which slows down improvements in results. As the success triggers the limiting action and performance declines, the tendency is to focus even more on the initial growing action.
Causal structure
Limiting
action
- + +
+
Performance
Constraint
Efforts
+
B2 R1
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 47
Systems Archetypes – Drifting Goals Seismology for leaders - Signals from the Underground
In a “Drifting Goals” situation, a gap between desired performance and current reality can be resolved either by taking corrective action to achieve the goal or by lowering the goal. The gap is often resolved by a gradual lowering of the goal. Over time, the performance level also drifts downward. This drift may happen so gradually, even without deliberate action, that the organization is not even aware of its impact.
Causal structure
Goal
Actual
Gap
-
+
+
+
-
+
Pressure to Lower Goal
Corrective Action
B1
B2
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 48
Perceived Need
to Invest
Demand
Impact of
Limiting
Factor -
+ +
+
+
-
+
+
Capacity
Growth
Effort Performance
Standard
Investment
in Capacity + t
B3
B2 R1
“Limits to Success”
System Archetypes - Growth and Underinvestment Seismology for leaders - Signals from the Underground
Causal structure
In a “Growth and Underinvestment” situation, growth approaches a limit that could be eliminated or postponed if capacity investment were made. Instead, as a result of policies or delays in the system, demand (or performance) degrades, limiting further growth. The declining demand then leads to further withholding of investment or even reduction in capacity, causing even worse performance.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 49
Systems Archetypes - Success to the Successful Seismology for leaders - Signals from the Underground
Allocations to A
instead of B
Resources to
B
Success of
B
Resources to
A
Success
of A + +
+ -
- +
R2 R1
Causal structure
In a “Success to the Successful” situation, two or more individuals, group s, projects, initiatives, etc. are vying for a limited pool of resources to achieve success. If one of them starts to become more successful (or is historically already more successful) than the others, it tends to garner more resources, thereby increasing the likelihood of continued success. Its initial success justifies devoting more resources while robbing the other alternatives of resources and opportunities to build their own success, even if the others are superior alternatives.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 50
Systems Archetypes - Escalation Seismology for leaders - Signals from the Underground
Causal structure
Quality of A’s Position
Relative to B
A’s
Results
B’s
Results
Threat
to B
Threat
to A
B2 B1 Activity
by A
Activity
by B
In an “Escalation” situation, one party (A) takes action to counter a perceived threat. These actions are then perceived by the other party (B) as creating an imbalance in the system that then makes them feel threatened. So, B responds to close the gap, creating an imbalance from A’s perspective, and on it goes. The dynamic of two parties, each trying to achieve a sense of “safety,” becomes an overall reinforcing process that escalates tension on both sides.
+
+
+
+
+ + -
-
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 51
Systems Archetypes – Tragedy of the Commons Seismology for leaders - Signals from the Underground
Causal structure
+
+
+
+
+
+
+
+ -
-
- +
Resource
Limit
A’s
Activity
B’s
Activity
Total
Activity
Gain per Individual
Activity
Net Gains
for A
Net Gains
for B
In a “Tragedy of the Commons” situation, individuals make use of a common resource by pursuing actions for their own enjoyment or benefit, without concern for the collective impact of everyone’s actions. At some point, the sum of all individual activity overloads the “commons,” and all parties involved experience diminishing benefits. The commons may even collapse.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 52
Applying the Feedback Systems Approach Lessons Learned
A Feedback Systems Approach - Lessons
Learned
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 64
Be a Master in Business Transformation Management Why a Feedback Systems Approach
Masters in Business Transformation Management work on the system not in the system!
The world is complex. Change within any organization is also complex.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 65
Places to Intervene in a System Applying the Feedback Systems Approach
12. Numbers - Constants and parameters such as subsidies, taxes, standards
11. Buffers - The sizes of stabilizing stocks relative to their flows
10. Stock-and-Flow Structure - Physical systems and their nodes of intersection
9. Delays - The lengths of time relative to the rates of system changes
8. Balancing Feedback Loops - The strength of the feedbacks relative to the impacts they are trying to correct
7. Reinforcing Feedback Loops - The strength of the gain of driving loops
6. Information Flows – The structure of who does and does not have access to information
5. Rules - Incentives, punishments, constraints
4. Self-organization – The power to add, change, or evolve system structure
3. Goals – The purpose or function of the system
2. Paradigms – The mind-set out of which the system – its goals, structure, rules, delays, parameters – arise
1. Transcending Paradigms
Incre
asin
g L
eve
rage
Meadows, H.D. (2008, p. 147 ff). Thinking in Systems: A Primer. Vermont: Chelsea Green Publishing.
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 66
Applying the Feedback Systems Approach Business Transformation Matrix
Analyze Understand Design Transform
Pattern
Structures
Mental Model
Events
(Real World)
(“Systems Thinking”
World)
Incr
eas
ing
Leve
rage
an
d C
om
ple
xity
Phases of the Learning Cycle
As Is To Be
Zon
e 1
Zon
e 4
Zon
e 3
Zon
e 2
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 67
Modified from J. Shibley (2006)
Still interested? For more information …
Readings: Meadows, H.D. (2008). Thinking in Systems: A Primer. Vermont: Chelsea Green
Publishing. Morecorft, J D.W. (2015). Strategic Modelling and Business Dynamics: A feedback
systems approach. West Sussex: John Wiley & Sons Ltd. Sterman, J.D. (2000). Business Dynamics: Systems Thinking and Modeling for a
Complex World. McGraw Hill.
Training: Check out: http://www.fhnw.ch/business/continuing-education/seminar-
managing-digital-transformation
Contact: [email protected], T: +41 61 279 17 70; Twitter: @MvKutzschenbach
What to Do on Monday? Be a Master in Digital Transformation
… or better yet, visit our “Seminar Managing Digital Transformation” in Spring 2016!
Okt-15 A Feedback Systems Approach to Business Transformation – Dr. M. v. Kutzschenbach 68