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  1. 1. International Center for Outperformance System Theory Basics
  2. 2. “Modern Outperformcers do not only act differently, but they mostly think differently International Center for Outperformance than their competitors. They do not follow the recommended “Best practices”, but orientate on the “Best thinking” of their talents. This intellectual reorientation distinguishes themselves from their competitors. Their (break even) performance is only possibly by their talents, which generate it. Not to humanistic attitude, but the economic necessity, they have chosen a development which makes individual ability a source of competitiveness.” “There are no patent recipes [for outperformance]. By “painting after numbers” no van Gogh occurs.” Wohland/Wiemeyer: “Denkwerkzeuge der Höchstleister”, p. 13 & 15, italics added, own translation into English
  3. 3. System Theory Basics: Agenda International Center for Outperformance ● Ashby's-Law ● “Peach” model ● Definitions ● Overview of the “thinking tools” incl. definition ● Explanations of single “thinking tools” ● Similarities and differences between the “thinking tools” and Beyond Budgeting ● Resources Please note that terms in italics refer to the specific language of the System Theory and are explained in short in the chapter “Definitions”
  4. 4. Ashby's-Law International Center for Outperformance The law of Ashby states that both system and the environment should have the same level of complexity in order that the system survives. To conclude: if the complexity of the external market environment rises, the internal complexity of the organization has also to rise. The complexity difference between the market and the organization is recognized as market pressure. Only organizations with enough internal complexity generate market pressure and are dynamic robust to the market pressure of the competitors. From the System Theory's point of view “Transformation” of tayloristic organizations means to increase the internal complexity to the level of the external market complexity. Complexity cannot increased by traditional planning, budgeting, steering, or control, but only with living human capabilities like creativity, initiative or intuition.
  5. 5. The “peach” model To describe the “collapse” of Taylorism in dynamic and complex markets, the “peach” model can be also International Center for Outperformance used. This model is based on the General System theory based upon Niklas Luhmann, whose modern representatives are Gerhard Wohland and Matthias Wiemeyer. In dull markets (1st picture), in which Taylorism is the leading management model, impulses are transferred directly from the periphery to the center of the organization. Within the center these impulses are transferred into steering signals (work directions, budgets, planning, KPI systems, Precess descriptions etc.). Afterwards the information is passed back to the periphery, where now the reaction to the impulse is carried out by the periphery. In complex and dynamic markets (2nd picture) the information derived from the impulses at the periphery are different from the steering mechanism from the center (directions, budgets) and more up-to-date, the periphery has a knowledge advance compared to the center. Due to this information difference between the periphery and the center the steering mechanism from the center “collapse” and are no longer guilty. Instead the periphery uses their knowledge advance and makes decisions without the center (leadership). The organization does not proverbially “collapse” but the organization usually creates more and more centralized functions e.g. Chief Ethics Officers, Chief Innovation Officers etc. or process managers, or quality managers or policies.
  6. 6. The “peach” model International Center for Outperformance With reference to the “peach” model is is important to add that the model itself is not related to centralization/decentralization and therefore in dynamic markets the center and the periphery are not linked to decentralization. Within dynamic markets parts of the market-based and dynamic-based tasks from the center are now self-managed by the periphery. Usually in tayloristic organizations the center tries to fix the steering whereas modern outperformers focus instead on innovation, leadership and strategy in the center and the periphery takes on day-to-day business (complete functions are separated this way into the periphery and the center, s. also “thinking tools” “Symmetrization” and “Problem Transformation”). As an example, the function controlling would include an investment planning for a new plant as innovation of the center and an operative planning of a plant would be day-to-day business within the periphery.
  7. 7. The “peach” I: Dull markets International Center for Outperformance s ld er o reh S ha Decision Center Stimulus t Periphery r ke Ma Response Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p.25
  8. 8. The “peach” II: Dynamic and complex markets International Center for Outperformance Decision s er Decision h old e ar Sh Decision Center Decision Stimulus Decision t Periphery r ke Ma Decision Steering mechanisms from the Response center collapse with increasing complexity and dynamic Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p.25
  9. 9. Definitions ● Center / Periphery: Every organization has to cope with the market pressure and the shareholder pressure. Within in dull markets, both affect the center. (s. also “peach” model). Within dynamic markets, the center International Center for Outperformance is the collection of functions that are affected by shareholder pressure, periphery is the collection of functions which are affected by market pressure. Within dynamic markets, the periphery are own centers of competence besides the center. ● Market: the market is the system internal environment for the subsystems suppliers and customers. The market itself is a social system and exists only of communication, which is in this context the exchange of scarce goods and services. ● Market Pressure: is created by organization's that are better than their competitors. Only organizations with enough internal complexity generate market pressure and are dynamic robust to the market pressure of the competitors. ● Steering / Leadership: Steering is the linking of center and periphery in dull markets. Steering are itself directions with a knowledge difference, usually (e.g. in Taylorism) the steering unit has the knowledge advance compared to the unit which is steered. Typical elements of steering are budgeting, planning, incentives, KPI systems, process descriptions and work directions. Leadership is the linking between center and periphery in dynamic markets. Due to the collapse of the steering in dynamic markets, steering has to be added with leadership (which actually means that decisions have to be made at the periphery due to the knowledge advance of the periphery and that the periphery self-manges itself). Leadership also means constructive disturbance of the self-management at the periphery. ● Management: is the unit to distinguish between steering and leadership. ● Operations: are the smallest parts or atoms of a system. They could be chained together and than create a system.
  10. 10. Definitions ● Innovation: is an adaptation (or the try) to a changing environment. ● System: Systems are created if similar operations are linked together as a chain. Every system is divided International Center for Outperformance into the system and its environment. Each system does exist as long as it can distinguish itself between system and environment. The single operations of the systems are only internally, external operations belong to the environment and are not part of the system. A social system's operations is communication, examples for social systems are a conversation, the economy, organizations and enterprises. Referred to organizations, the organizations is the system and the market is the system's environment. ● Environment: s. System ● Complexity: s. complex ● Complex / Complicated: Complexity is an attribute of the system. If not everything can be linked together, than a system is complex. Complex systems can only exist, if they chose their operations by decision. Due to the fact that there could be decisions differently be met, they are determined by surprise and several systems are a chain of surprises. Opposite to complexity complication is not an attribute of the system but a relationship between awareness and “something”, is always relative and a measurement of uncertainty of an observer and disappears after a learning process. ● Trivial: has got the same meaning as complicated. ● Reference: If a system reacts on an impulse from the environment, which is for organizations the market, this is called an external reference. Within low-dynamic environments, the center often translates the external impulse into an internal reference which are for example KPI systems or quality management handbooks, and used within the organization for value creation. If dynamics of the environment increases, references translated by the center are too slow and instead the periphery has to translates the references in real time
  11. 11. Definitions ● Duality: The expression duality refers to the duality between complex / dynamic and complicate / formal parts. If dynamic is low the little dynamic part is not considerable (this is the core of tayloristic International Center for Outperformance organizations). As dynamic grows, so do also its dynamic parts (usually lots of problems than appear and can't be described due to lacking language). In general both parts (dynamic and formal) depend on each other and cannot exist without themselves. The Integration behind the Distinction complicate complex formal ”World“ dynamic dead living Steering Management Leadership Knowledge Competence Ability Behavior Culture Values Data Communication Information Rule Process Principle Structure Decision Method (Problem)tool Idea ..... .... .... Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 124; BBTN13, slide 5
  12. 12. Definitions ● Dynamic / Dynamics: is originated within Physics and describes the measurement of velocity and the extent of change in the forces on a body. But dynamic also appears within economic markets as a International Center for Outperformance result of constriction. The primary root for constriction of markets is globalization (geographically constriction due to expansion of local markets abroad). A good metaphor for this constriction of markets is the growing population of a fungi culture within a petri dish: as the population covers the complete petri dish the space gets narrow and toxic and fast growing fungi take over. They expand quickly due to constriction. Assigned to economic markets, this means that in today's market conditions dynamic is more important that size or costs. Begin Expansion Constriction Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 22
  13. 13. Definitions – Taylorism: According to the System Theory Taylorism is not the devision of labor and hierarchy, but the reduction of an organization's level of complexity to the low complexity's level of dull mass marke it is the preferred outperformance for dull mass markets. (s. also Ashby's-law and the following chart) International Center for Outperformance man Complexity living Dull mass Manufacture Market constriction / Outperformance markets emerge due to globalization Dynamic organizations create market pressure IT rises Market pressure Taylorism Traditional organizations are effected by market pressure dead 1900 1950 2006 t Manufacture Tayloristic Industry Modern Organization Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 23
  14. 14. Definitions ● Outperformance / Outperformcers: is not “High-Performance”, but a break even performance in a specific environment. In dynamic markets outperformers create the market pressure by using International Center for Outperformance outperformance in the value creation. Within in the value creation values and ability are the foundation for outperformance. Usually outperformance is reached, when the complexity of the environment and the organization are similar. True outperformance is characterized by the following three points: – Periphery and center are linked by not by steering, but by leadership (s. peach model) – The labor devision between periphery and center is divided into day-to-day business and innovation (s. symmetrization) – Periphery and center use symmetric interfaces (s. symmetrization) Performance Outperformance C(i): internal complexity C(e): external complexity 1 Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 142
  15. 15. Definitions ● Knowledge / Ability: To ability is often implicit learn learning also referred to. Ability describes itself the ability to react problem-oriented; it requires a talent and further needs training. Contrary knowledge consists of statements which will not be denied, further knowledge is complicated. International Center for Outperformance ● Control: is the measurement of distrust and takes places if work is not within the interest of the organization. With reference to dynamic markets it is too laborious and time-consuming. ● Rules / Principle: Rules are a cause relationship of “if ... then” which means if there is a specific situation, the rules clearly state the action without requiring a decision. Contrary a principle is always guilty without any requirements. When a principle is applied no action takes place at once but a decision is required before an action takes place. Because people can make a wrong decision a principle always implies a responsibility by the person who made the decision. ● Dead / Living: Dead systems are for instance computers or machines whereas living systems are humans. But humans could also act dead e.g. in a tayloristic organization. The living is finally responsible to create market pressure in today's highly complex markets, because only living things can cope with the daily surprises of high dynamics e.g. with creativity, talent, intuition and decision making. ● Data / Information: Data are formal structures and only they can be saved, transported und processed by computers. Contrary information are an event within the consciousness and cannot therefore be transported, processed or saved. ● Behavior / Value: Behavior is like the front stage of the organization's culture. Behavior is usually determined by rules or fostered using incentives or punishment Contrary values are like the back stage of an organization's culture and form the emotional elements of the memory of a single person or an entire organization. Values reduce the complexity of the communication and therefore enable the increase of specific complexity; further values do not ensure a specific behavior.
  16. 16. Overview of the “thinking tools” International Center for Outperformance A “thinking tool” or in short “tool” is a thinking pattern of an outperformance organization researched and described by Gerhard Wohland and Matthias Wiemeyer. ● The “thinking tools” of the outperformers all aim to increase the dynamic part of a problem (s. duality), they are no substitute for conventional approaches and make up about 10% of a consultancy project from comperdi GmbH (world's main management consultancy for the thinking tools, ● They are all based on the General System Theory described on the slides before ● They are all except Beyond Budgeting created and researched by Gerhard Wohland and Matthias Wiemeyer ● Please get in contact directly with Mr. Wohland ( for detailed information in English (s. below for six descriptions), German speaking readers can get explanations here: or more detailed in the book “Denkwerkzeuge der Höchstleister” (engl. “Thinking tools of the outperformers”, the book and further publications from Mr. Wohland and Mr. Wiemeyer are only available in German) ● They can be split into four parts:
  17. 17. Overview of the “thinking tools” International Center for Outperformance General Function-based thinking tools thinking tools (incl. Beyond Budgeting) Industry-based Supporting thinking tools thinking tools
  18. 18. Overview of the “thinking tools” International Center for Outperformance General Thinking tools ● Culture-Observation / Kultur-Beobachtung ● Problem-Transformation ● Dual Process-Design / Duale Prozess-Gestaltung ● Strategy-Development / Strategieentwcklung ● Dual Value Creation / Duale Wertschöpfung ● Federative Organization / Förderative Organisation ● Federative Topic Leadership / Förderative Fachführung ● Interest Management / Interessenmanagmenet
  19. 19. Overview of the “thinking tools” International Center for Outperformance Function-based thinking tools ● Symmetrizing of interfaces / Symmetrisierung von Schnittstellen ● Beyond Budgeting ● Transmethodical Projectmanagement / Transmethodisches Projektmanagement ● Damage prevention and restoration / Havarieprävention und -sanierung
  20. 20. Overview of the “thinking tools” International Center for Outperformance Industry-based thinking tools ● Industrialization within the Assurance Industry / Industrialisierung in der Assekuranz ● Dual Value Creation / Duale Wertschöpfung ● Organizational Development in the pubic sector / Organisationsentwicklung im öffentlichen Bereich
  21. 21. Overview of the “thinking tools” International Center for Outperformance Supporting thinking tools ● De-democtratization / Ent-Demokratisierung ● Master/Student Relationship / Meister/Schüler Verhältnis ● Entsorgung von Gammel-Tatsachen ● Master-loges / Meister-Logen ● Castrated Workshops / kastrierte Workshops ● Morale Desinfection / Moral-desinfektion ● Ko-Management ● Meeting handcraft / Sitzung-Handarbeit ● Competence Management ● Symbolic Action / Symbolische Art ● Constructive irritation / Konstruktive irritation ● Talent-Fostering / Talent-Förderung ● Affliction Work / Trauerarbeit ● Lab / Labor ● Chained Interviews / Verkettete Interviews ● Local Competece / Lokale Kompetez ● Relationships within complexity / Verwandschaft im Komplexen
  22. 22. Explanations of single “thinking tools” International Center for Outperformance 1. Symmetrization 2. Dual Process Development 3. Problem Transformation 4. Culture Observation 5. Strategy development 6. Economic Outsourcing
  23. 23. Symmetrization Symmetrization of interfaces is the most important “thinking tool” to create an dynamic robust organization that generates market pressure. Key to understand “symmetrization” is that there is no distinction between central and decentral, but a new devision of labor between the periphery and the International Center for Outperformance center which depends on the separation between innovation and day-to-day business. Core the this “thinking tool” is to the symmetrization of the asymmetric linking of center of periphery (the steering which is collapsed before). External symmetrization uses outsourcing, whereas internal symmetrization uses the distinction between innovation and day-to-day business. Within the internal symmetrization day- to-day business is reintegrated into the value creation and the periphery; the linking between innovation and day-to-day business is done by projects. Asymmetric internal interface Symmetric internal interface Central service Central service Leadership Symmetri- Innovation zation Innovation Day-to-day business Steering Project center service service service service right periphery Day-to-day business value creation value creation customer customer Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 227
  24. 24. Dual Process Development A process is a chronological sequence of operations, which are linked to a shared problem and which are divided into two single groups and represent this way the duality of the process. The first group of operations are those which are repeated each time (they are the structure) and due to this fact are fixed International Center for Outperformance within a process description that depends on rules. The second group are operations which built a reaction to surprise and therefore cannot be fixed within a process description but usually handled individually by people using principles. If dynamics are low, there a few surprises, which will be solved with a common sense or viewed as a higher interference. Usually in low dynamics new processes are initiated afterwards a surprise. If dynamics are high, there are more surprises and fewer repetition takes place. In high dynamics the original process description is not altered (only the structure of the process gets smaller and therefore the process description is shorter, too), but as surprise shows up, decisions based on principles are required for action. In this way the rules (process descriptions) are replaced by principles and people capable of making decisions. Low dynamics High dynamics Problem-solving technology: People with ideas d e p le su ion e ris i ing cis inc rp li v pr ion 1 2 3 4 5 re tu tit ad uc pe le de ru s tr re Problem-solving technology: ”Process“-description Low-dynamic High-dynamic problem problem Source: BBTN13, slide 11
  25. 25. Problem Transformation A problem is an impulse on a system, which cannot be ignored by the system and therefore has to be coped with. Problems are dual: a method can be used to solve similar problems, an idea can be used to solve new ones. An arising problem can only be transformed, if its single parts are divided into complicated and International Center for Outperformance complex parts, usually by functions which is represented in the following chart (the second chart shows also the devision between complicated using methods and complex using the “thinking tools”). complicated, Project Management methods are used Management Ste to solve problems ng eri e e ri ur ng te /S ct /L ru ea ip sh st IT de er Qualifi- Couple rsh a d dg e d / Ne ip Le bility / Knowle cation utral A V complex alue a tion creat / Op timiz ve Be ing / Para i t te edu ction erat rm sitic Sales Costs R ed en t /S / F Ideas are used to tic solve problems tee ris rin aylo g Knowledge T Organization Management Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 196
  26. 26. Problem Transformation Problem International Center for Outperformance Problem Transformation Static Dynamic Static components components Methods and Thinking tools Standards Solution Solution Final solution Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 198
  27. 27. Culture Observation Culture is the unit of distinction between behavior and values, which both exist side-by-side and not one after another. Neither from the values can be the behavior concluded nor from the behavior can be the values concluded. Within tayloristic organizations in low dynamics, a behavior-based culture is adequate, International Center for Outperformance but with increasing dynamics values, and the corresponding value-based culture cannot be ignored. Behavior in tayloristic organizations is governed through steering e.g. directions, arguments, rules, incentives, punishment and threat; values are usually derived from society. In high dynamics the quality of the value-based culture is a critical success factor; the value-based culture itself consists of ideas, insight, role models and experiences. Behavior-based culture Value-based culture (tayloristic-dull/slow) (post-tayloristic/dynamic) Behavior (doing) Values (thinking) Consists What you can see What‘s behind of: and change by decision. and cannot be changed by decision. Governed Steering (complicated) Leadership (complex) through: Extrinsic motivation to behavior Intrinsic motivation to thinking can be changed can only be observed Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 169; BBTN13, slide 13
  28. 28. Strategy development If the way towards a Target can be determined in advance, a plan, which describes in detail and obligatory for all further actions, is adequate. Contrary a strategy, which is not fixed, is required if the way can only be found after departure. During a strategy there is at first an empty strategy space between Actual and International Center for Outperformance Target. Within this strategy space decisions can be met and action can be carried out, before asking question before. In this way strategy is an requirement for flexible organizations; a requirement for a link between central leadership and decentral autonomy. Further strategy is created by leaving out things. 5 4 Target (Targets) 2 1 6 e Actual y spac (Current Strateg Status) 3 Possible ways Strategy adverse way Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 224
  29. 29. Economic Outsourcing From the System Theory's point of point the aim of outsourcing in not to achieve economies of scale and to International Center for Outperformance cut costs, but to adapt to high dynamics. Outsourcing is a means to reduce manufacturing levels and plays an important role to “transform” tayloristic organizations. Only organizations that focus on single parts, can compete in high dynamics; these parts refer to the core competence, everything else can be outsourced. When offerings are also available from suppliers, they are referred to as shell competence and do not contribute to the competitiveness of an organization due to the fact that the offering is freely available for others on the supplier market. To distinguish between core and shell competence both internal and external references are used and four cases are possible. They are shown in the following chart and explained afterwards in short. supplier market (external reference) existing missing 1 3 Buy core Buy shell (“Santa Clause“ Business we buy it! (outsourcing) interface) intention (internal reference) we make it 4 2 Make shell ourselves! Make core (waste/muda) Source: BBTN13, slide 15
  30. 30. Economic Outsourcing Case 1 and 2 are in harmony, in case 3 and 4 there are conflicts. International Center for Outperformance Case 1 is the ideal case for the own production of core competences. The organization can distinguish itself from the competitors because the offering is not available on another market. Case 2 is the ideal case for outsourcing, costs are cut and quality and flexibility are increased automatically. Case 3 is in conflict with internal and external distinction between core competences. There are three possibilities: A the competence will be bought from a supplier that has no competitors and can set prices and quality, B the outsourcing is assured by creating a market, C Partnership with supplier instead of outsourcing. A “Santa Clause” interface is created if the steering of a asymmetric interface collapses: within tayloristic organization performance generation and consumption a linked by an asymmetric interface with steering, after the collapse of the steering performance generation is overloaded and interference makes the problem even worse. Case 4 There are two possibilities: A costs are higher than the costs of the supplier and waste is generated (often as a result of a collapsed steering when the internal supplier is operating without market pressure), B the organization has the same performance as the supplier or is even better and therefore has to offer the product/service on a market e.g. to expand to new markets.
  31. 31. Similarities and differences between the “thinking tools” and Beyond Budgeting Similarities: International Center for Outperformance ● The world has changed: complexity and dynamic increased. ● Taylorism fails within highly complex and highly dynamic markets. ● Both use the “peach model” to explain the collapse of Taylorism (the peach model was originally taken over from Mr. Wohland and Mr. Wiemeyer by the Beyond-Budgeting-Community. Differences: ● The System Theory refers to “market pressure” whereas Beyond Budgeting refers to “market pull”. ● Within the System Theory functions are separated into complicated and complex parts whereas functions no longer exist within a devolved network structure. ● Within a devolved network structure no center exists, further innovation is part of every employee's job within the Beyond-Budgeting-Model and not the center's. ● From the System Theory's point of view Beyond Budgeting is a “Thinking Tool” among others whereas Beyond Budgeting considers itself to be a leadership model (or management model). ● The meaning of several System Theory expressions are not similar within the Beyond-Budgeting-Model.
  32. 32. Resources Online Resources: ● XING Beyond Budgeting Forum Video: “Führen mit flexiblen Zielen”, accessed 22th July 2008: International Center for Outperformance ● ● BBTN13 - Dynamic Robust Problem Solving, accessed 13th August 2008 through ● Comperdi GmbH Homepage:, accessed 14th August 2008, single webpages include: erkzeuge_1.html erkzeuge_1.html e/uebersicht_branchenbezogene_Werkzeuge.html ml Books: ● Pflaeging, Niels: “Führen mit flexiblen Zielen. Beyond Budgeting in der Praxis.”, Campus, 2006 ● Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007 (main resource) ● Senge, Peter: “The fifth discipline. The art and practice of the learning organization.”, DoubleDay 2006
  33. 33. Copyright & Terms of use International Center for Outperformance License: This paper except the front cover picture and the logos is licensed under a Creative Commons BY-SA License. Credit: "International Center for Outperformance (" within the reference list Recommended Quotation: ICO35 – System Theory Basics, accessed on xx.xx.xxxxx through