Wednesday, December 10, 2014

A Systemic Approach to Improving Corporate Performance

William F. Roth  PhD
The concept that needs to be introduced at this point is “systemic thinking,” a concept very much in vogue twenty-five years ago that eventually fell out of favor, overshadowed, unfortunately, by more quantitative approaches. The systemic approach to management is built on two pillars. The first is the belief that “a whole is more than the sum of its parts.” This means, basically that the interactions between the parts of an organization are just as important as the parts themselves in terms of the organization meeting its objectives.

The second pillar of the systemic approach is the “Development Ethic.” It says that employees should be encouraged to develop and utilize their positive potential to the fullest possible extent in order to improve their quality of work life and of life in general and to improve the fortunes of the company. 

Organizations that have become “systemic” in nature possess four key characteristics. First, they are truly participative in the sense that every employee affected by a decision is allowed some level of input into that decision. Second, organization activities are integrated on all levels and between all levels. Third, organizational activities facilitate the on-going learning of all employees. Fourth, the organization is capable of dealing with continual change in both the external and internal environments, change that is occurring with increasing rapidity.

How do we design an organization that has these characteristics, shaping the involved organization processes in such a way that they support the highest possible level of productivity? First, turn support functions into profit centers. They sell their service to production units. This is a bad idea, right? Without competition they would be free to overcharge. But what if production units were free to buy the involved service from an outside supplier if that supplier was cheaper?  Input Units would then be forced to compete. Also, under this arrangement, because they were now profit centers, Input Units could sell their services to other companies so long as no conflict of interest existed, thus improving corporate profits.

Second, reshape the reward system so that it encourages all the desired systemic organizational characteristics. The “Three-Tiered Reward System” fits well with this model. All employees receive salaries that will constitute the smallest part of their reward during good times and will allow employees and families to survive during bad times. All Output and Input Unit employees receive a share of a percentage of their unit’s profits.  Finally, all employees will receive a company-wide bonus, one normally comprising the largest part of their reward in order to keep employees from focusing on the productivity of their individual units rather than on the productivity of the organization as a whole, in order to encourage organization-wide cooperation and integration.  In this model, upper level salaries will be supported by a tax levied on each unit’s profits. Members of upper level management will be eligible to share in the company-wide bonus which will also be drawn from the unit tax revenues.

Third, decision making will be turned over to a hierarchy of “boards.” Each manager, starting at lowest level will have a “board of directors” on which he or she sits. Other members of each board include the manager’s direct reports, be they low level workers or other managers, and the boss of the manager whose board it is. The direct reports, if they are also managers, of course have their own boards and bring along input from their direct reports who also have boards. The boss, as well, has his or her own board on which the boss’ boss sits, bringing along input from his or her boss who sits on his or her board. As a result, any manager above the lowest level receives input, direct or indirect, from three levels below and three levels above.  Boards can also invite representatives from other units who might make a contribution to take part in meetings. Obviously, this approach encourages both participation and the integration of efforts.

Each board’s responsibilities will include:

  1. Planning for the unit whose board it is.
  2. Policy making for the unit whose board it is
  3. Coordinating the plans and policies of the immediate lower level.
  4. Integrating the board’s plans and policies with those of lower level and higher-level units.
  5. Improving the quality of work life of those the level board governs.
  6.  Evaluate on an on-going basis the performance of the manager whose board it is.

What these level boards do, of course, is take over the major responsibilities of management. The manager whose board it is becomes mainly a facilitator, making sure that the board’s efforts remain focused on the organization’s long-term objectives, facilitating and helping integrate the efforts of his or her board with those of other boards.

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