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Taking a Systems View

Taking a Systems View

Too many organizations are measuring the new with the old. A growing number of experts say the management methods of the manufacturing age are outdated and need to be replaced by metrics that measure the value of the intangible assets that make up organizational capital

Talk about perverse consequences. BP sets out to slash 25 percent of its fixed costs and ends up killing 15 workers and injuring 180 others, in the worst industrial accident in the US in 15 years. Instead of counting its savings it finds itself having to sink $US1.6 billion into a legal defence fund, facing a congressional investigation and with some of its officers exposed to potential criminal sanctions.

General Motors reviews the real impact of its IT cost-cutting initiatives, only to discover that all of its efforts have amounted to much ado about virtually nothing. CTO Tony Scott tells a CIO summit that not only had almost no money been saved, the effort had provoked perverse consequences that proved painfully expensive.

Too many senior executives are still trying to shoehorn the management methods that stood organizations so well in the manufacturing age, into the information age

Yahoo! told 10,500 US workers to take a holiday or unpaid leave the week between Christmas and New Year's Day — notionally saving around $US21 million but risking the alienation of an unquantifiable number of customers planning to spend part of their own vacation time online.

And in organization after organization across the globe major investments in IT, measurement techniques and other remedies, not to mention the dedicated efforts of change managers trying to drive productivity improvements, end up making no discernible difference to organizational performance.

Why? Because, a growing number of consultants and analysts say, too many senior executives are still trying to shoehorn the management methods that stood organizations so well in the manufacturing age, into the information age.

Imagine trying to train a horse to run faster by teaching each of its legs to perform more efficiently. The concept is ridiculous on its face, and patently unworkable. Yet a dozen years after Mike Balle first used the analogy in his book Systems Thinking, Resource Alternatives Australia principal John Parsons says that is pretty much the mentality many organizations persist in bringing to their efforts to boost organizational productivity.

By creating wealth, productivity is the ultimate driver of long-run growth, he says. Yet at a time when the business landscape is turbulent and organizations compete to squeeze maximum productivity out of minimal resources, most organizations are still deploying a piecemeal approach to management, according to Parsons, an avid proponent of systems thinking. They will enthusiastically seek ISO certification, adopt the latest technique and re-tool, all in the expectation that each measure in isolation can boost productivity. They are kidding themselves, he believes.

"Traditional business analysis, with its preoccupation with breaking everything down into its component parts and then studying the parts, is useful when dealing with machines," Parsons wrote in a 2000 paper called "Productivity Measurement in the Service Sector". "In the early days of the industrial age it was possibly convenient to adopt such an approach, but such thinking will mislead, often dangerously, when applied to today's complex conditions of existence."

For Parsons, the answer is to adopt a systems view of the organization. Systems thinking emerged from chaos theory, a body of knowledge that rejected Newton's view of the world as machine in favour of a vision of a world of complexity, where everything connects in a vast and ever-evolving web.

Ken Standfield, chairman of the International Intangible Management Standards Institute and a global expert in the field of intangible management, says it is time existing management disciplines were upgraded to reflect the shift from the manufacturing age to the intangible (Internet) economy. Standfield's 2002 book, Intangible Management: Tools for Solving the Accounting and Management Crisis, shows how organizations can identify, measure and manage the intangible values now dominating the value proposition of most initiatives, sales, operational activities and customer value itself.

In it he demonstrates the stark differences between a company that manufactures product and one that creates value through intangible benefits like knowledge, relationships and time. He introduces a set of accounting tools and a new intangible management framework, aimed at protecting investors while giving them the means to generate long-term growth.

"In the organizations we have been tracking literally throughout the world there are a lot of examples of decisions that have been made which are basically destroying productivity right, left and centre," Standfield says. "One of the biggest problems that we face is that the management methods which senior executives manage by are based in the manufacturing world. They don't see knowledge or collaboration or any of those things as being an issue at all."

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