Archives for posts with tag: Systems Thinking

IMG_2803

I was just reading Nicholas Carr’s “The Big Switch”, especially intrigued by the chapter discussing Edison and Insull. As a brief reminder:

Unlike many inventors, Edison didn’t just invent individual products; he created entire systems. This sets him way above lesser inventors who focused on products first before they tackled integrating these new inventions into the overall system. Edison first imagined the whole, then he built the necessary pieces, making sure they all fit together seamlessly. Edison talking about the vision of his electricity system:

“It was not only necessary that the lamps should give light and the dynamos generate current. but the lamps must be adapted to the current of the dynamos, and the dynamos must be constructed to give the character of current required by the lamps, and likewise all parts of the system must be constructed with reference to all other parts, since, in one sense, all the parts form one machine.”

To develop this system, Edison had to pursue technological breakthroughs in every major component of the system. He had to pioneer a way to produce electricity efficiently in large quantities, a way to transmit the current safely to homes and offices, a way to measure each customer’s use of the current, and finally, a way to turn the current into controllable, reliable light suitable for normal living spaces. And he had to make sure that he could sell electric light at the same price as gaslight and still turn a profit.

Despite his visionary genius, Edison couldn’t see beyond his licensing and components business. It took an employee of Edison, Samuel Insull, to perfect the economics of the technological system. What Insull understood was that utility-supplied electricity could serve a far greater range of needs than it had up to then. Electricity could become a true general purpose technology, used by businesses and homeowners to run all kinds of machines and appliances. But, for electricity and electric utilities to fulfill their destiny, the way power was produced, distributed and consumed would need to be transformed. Insull’s biggest challenge would lie in convincing industrial businesses that they should stop producing their own power and instead buy it as a service from central plants.

Which brings me to VRM.

Doc Searls just posted a few blog posts, discussing the state of VRM. Check them out here, here, here and here.

We’re in the early stages of VRM. In Edison terms, we’re about to invent indascent light. We’re still far away from developing systems and even further from integrating these systems for Fortune 500 companies, dramatically changing their business model. That leaves us with some time to think through and discuss what systems need to be developed to make this a smoother transition. Much smoother than the disruption experienced in the music and overall publishing industry.

Advertising/Marketing

According to PricewaterhouseCoopers, global ad revenue will climb to a half trillion dollar business by 2014. That’s a lot of revenue. A lot of jobs. And, even more important, deep integration into the overall fabric of our global society. What will happen to all of that when VRM takes off and becomes the dominant expression of the marketplace? What will advertising transform into? How can advertising support the VRM concept? Doc Searls states that “the amount of advertising that does nothing for customers is usually close to one hundred percent.” (I don’t agree with that statement at all. Good advertising still delivers value to people and creates demand. And always will. Unfortunately, good advertising is rare these days.) How, as a community can we bridge this gap between Doc Searls statement and the advertising industry? I’m concerned that pushing advertisers into a partisan corner might lead to obstruction and pointless territory fights. Instead, we should work collaboratively with advertisers how to make the VRM model work for each stakeholder.

It might be my own bias as a life-long marketer but I don’t believe the attitude “Marketing messes everything up” is productive and won’t get us where we want to be.

Sunk-Cost Fallacy

Rob Knight wrote brilliantly about the challenges of persuading companies happy with the current Status Quo to consider VRM as a viable concept. Larger enterprises have invested billions in CRM systems they expect to improve their ROI for decades to come. Executives have put their career on the line believing in these systems, convincing boards to spend a pretty dime. For VRM to become more than a niche concept, we need to convince Fortune 50 companies to buy into this concept. We can’t just rely on small companies with limited resources for CRM systems to create a groundswell that will force global enterprises to participate. We have to develop systems that help CRM-centric enterprises to transition into the VRM world. For many companies, Social Media was just another Second Life until the big boys (Ford, Best Buy, etc.) showed up. Doc Searls makes a good argument that VRM gives CRM systems more to relate to, and we’re not fighting a religious fight of CRM vs. VRM. Still, as we experienced with the advent of digital marketing and its challenges to be a partner on the marketing table, there are struggles ahead with people staying on the pure CRM side as long as they can. And we should be prepared for it.

Human Nature

One of the pillars of VRM is the ability of individuals to take charge of their data instead of managing them via a platform and exchanging that data for the functionality that the platform might provide. For VRM to succeed, adoption rate has to be huge. And that concerns me. We rely a lot on the willingness of individuals to participate and co-create these new systems. Let’s not forget: intelligent people post their full birth date on Facebook and check frequently on Foursquare into their own homes. My point: We can’t just rely on the individual. We have to take into account human nature which often includes laziness and carelessness. We need to invite anthropologists and behavioral psychologists into the discussion and allow them to help us in the effort. Some of this will happen organically since the VRM discussion starts to flare up more and more. But some organic planning for a more collaborative development wouldn’t hurt.

Warren Bennis once said:

“Innovation – any new idea – by definition will not be accepted at first. It takes repeated attempts, endless demonstrations, monotonous rehearsals before innovation can be accepted and internalized by an organization. This requires courageous patience.”

Right about now, we need the courageous patience of Samuel Insull.

excited

Image: Courtesy of donttouchmymoleskin

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.