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We’re going to change programming for the next  2 weeks and publish a guide how to navigate business challenges and transform your business in today’s market reality. This is a 10-part series that will help you create a more effective internal system and employ a flexible structure that will minimize the need for future restructuring. Ultimately, our goal is to help executives find and implement the system best suited to meet their organizational goals.

Let’s get started.

Systems Thinking

We all feel it. We all discuss it. We all experience it: Something is rotten in the state of Denmark. BP, Fannie Mae, Great Recession – you name it. We continue to apply our old way of thinking to new problems that were created by our old way of thinking. While resistance is strong to adopt a new way of thinking, new ideas are emerging that will help us guide through the dramatic changes that are about to take place.

Before we further discuss systems thinking, we need to understand the nature of systems. A very simple definition of system:

A system is an ecosystem that can’t be separated into independent parts without loss of its essential properties or functions.

This doesn’t seem that complex but its implications are fairly revolutionary. During my tenure at business school, I learned everything I need to learn about marketing. We received cursory insights into finances, personnel, production, sales, etc. but we almost never discussed the interdependencies between each division. It’s fairly obvious that a failure in one division will dramatically impact the performance of all other divisions. Management was seen as handling specific levers to improve performance of your division. That’s an Industrial Age thought pattern that should have been discarded a long time ago.

As mentioned above, it’s hard to change thought patterns but the failures of old thinking leads us to this new perspective:

No part of any system should be adjusted without a deep understanding how this change will impact the whole ecosystem and clearly analyze if this change is beneficial to the whole system. That expands the role of management to

a) Manage all interactions of their employees

b) Manage interactions between all internal divisions

c) Manage interactions between all stakeholders

Efficiency vs. Effectiveness

Think about Search Engine Marketing: Google is very efficient in delivering good search results. But they have to calibrate their results to be as effective as possible to help their bottom line. Imagine Google would deliver the perfect search results each time you’re using the service. They would be very efficient as a tool but not very effective as a money-making machine since nobody would click on paid results anymore. On the other hand, Google would go out of business within a short period of time if their organic results would deliver a sub-par experience while the only value is through paid ads.

Businesses always need to calibrate the two dimensions of efficiency and effectiveness. The advertising industry is a good example where everything has become much more efficient but not very effective. We’re doing things right in advertising but we’re doing the wrong thing. Meaning: we’re getting better at doing the wrong thing. Most industries would benefit from focusing on effectiveness first before they deploy efficiency strategies. No matter how efficient you become doing the wrong thing, you just become better at being wrong.

Analysis vs. Synthesis

Many companies employ business analysts, rely heavily on thinking that takes systems apart and looks at each part separately. Synthesis, on the other hand, looks at systems as part of bigger systems: industry, society, the whole planet.

This analytical thinking and constant disassembling of parts has crept into each part of our private life: Businesses are designed for work, not play or learning. (Let’s not even talk about inspiration). Schools are for learning but not for play or work. Yet, we know that certain school models (Waldorf comes to mind.) integrate each important aspect of our lives into one package. People don’t just want to work when they head out to their jobs. They want to learn, be inspired and play. We are beginning to understand that we can’t be effective carrying out any important functions if not all aspects of our lives are integrated.

Problem Resolution vs Paradigm Change

A few years back, I had to deal with severe back pain. I’m in pretty good shape, run quite a lot and my back has always been problematic. The first physician I saw just gave me Vicodine. He ignored the real problem, just hoped the pills would make my pain go away. The second doctor wanted to fuse my spine. He wanted to resolve the situation by bringing out the big guns. The third physician prescribed physical therapy. His idea was to optimize my back, make it more capable of adjusting and less prone to pain.

I decided to follow the fourth doctor: myself. I started to observe when I tend to have back pain, look at the triggers. In addition, I experimented with different forms of exercises: Yoga, abdominal exercises, swimming. I lost weight, I changed my diet. I changed routines. Basically, I looked at myself as a system, not a myriad of symptoms. And my goal was to optimize the system; to find out the right things to do to improve my health and then optimizing my system over time.

Let’s just have a quick look at the advertising industry: It was never cheaper to deliver impressions to people. I can buy 1,000 impressions for under $1. And the whole industry is busy delivering even more efficient impressions: Brands are cutting commissions of their agencies, holding companies are building huge data centers to deliver cheaper impressions, sites carry up to 20 impressions on one page. More. Faster. Cheaper. Unfortunately, the whole industry is answering the wrong question right. More efficiency is not at the core of the problem. Declining effectiveness is the real problem.

Because the advertising business has problems connecting with people and delivering valuable results to companies, this problem is categorized as an “advertising” problem and thereby retained and not solved in the advertising department. I would argue, the best place to treat a problem is not necessarily where it appears. Advertising is just one part of the system and its challenges shouldn’t be discussed by that discipline alone. Advertising is a cultural pillar and its decline needs to be discussed with sociologists, technologists, futurists, psychologists, anthropologists – you name it.

There are many ways of looking at a problem, the most productive way of dealing with a problem is seldom obvious. For that reason, problems should be viewed from as many different perspectives as possible through collaboration of multiple points of view.

In Part 2, we will discuss different types of systems, their effects on organizations and the way they are managed.