Systems

SYSTEMS THINKING
How complex organizations actually work, and why.
Javier L. Izquierdo.

EUMA Spain – National Training Day – Valencia June 8th 2012

Systems Thinking - Agenda (I)

• The evolution of thought leading to Systems Thinking.
• What is Systems Thinking?
• General Systems Theory in a nutshell.
1. The Entropy problem.
2. The Open Systems solution.
3. The System, its Boundary, Environment and Objective.
4. Feedback.
5. Coping with the Environment.
6. Reacting to the Environment.
7. Adapting to the Environment.
8. System modelization.
9. System interaction.

EUMA Span – National Training Day – Valencia June 8th 2012 Systems Thinking – How complex organizations really work, and why

Systems Thinking – Agenda (II)

• So, what is in for me? Systems Theory in Management
1. Structure, hierarchy and power.
2. The pyramid rises.
3. The pyramid crumbles.
4. The scarab survives.
5. The eye of the beholder.
6. Companies as Systems.
7. People as Systems.
• Suming up.

EUMA Span – National Training Day – Valencia June 8th 2012 Systems Thinking – How complex organizations really work, and why

Systems Thinking - The evolution of thought leading to S.T. (I)

• Ancient schools of thought were generally holistic.
• The Universe was understood as whole, comprised of interconnected
un-detachable parts.
• The key to ancient thought was the idea of Being.
• All very beautiful, but also very impractical.
• The Roman Exception.
• Both Christendom and Islam maintain the holistic view.
• In the West, through the scholarly preservation of ancient knowledge
and philosophy (mainly Aristotle).
• In the East, through the study and development of classic philosophy
accepting the classic Weltanschauung.
• This goes on until the middle ages but enters a crisis with the
Renaissance.

EUMA Spain – National Training Day – Valencia June 8th 2012 Systems Thninking – How complex organizations really work, and why

Systems Thinking – The evolution of thought leading to S.T. (II)
• In 1637, René Descartes publishes the Discourse de la Méthode, setting

THE PRECEPTOF
THE PRECEPT OF
the basis for scientific thought.
• The Cartesian Method can be summarized in four precepts:

EXHAUSTIVITY
1. Precept of Evidence.
REDUCTIONISM
CAUSALITY
EVIDENCE
2. Precept of Reductionism.
3. Precept of Causality.
The study of a phenomenonstudy of the by
The enumeration and should be
A complex object acceptedshould start
4. Precept of Exhaustivity.

Nothing of a phenomenon should be
components
should and proceed in
be
• The ethereal, the divine, the metaphysical… fall off the Field of Reason..
the simplest objects
• Reductionist science and the Scientific Method give amazing tangible
analysed byof complexity, it downa
results.breaking assuming
ascending orderunless evitently
asas true as possible, making it
complete • Focus on doing, not being.
• Focus on creating accurate models to predict the future and control

absolutely manyas such.
into aseven when objects are
simpler
natural order certain that nonedo not
Nature, not on the Truth.
recognized naturally.
• Knowledge is flexible, non-dogmatic, peer-reviewed.
precede each other
• Reductionism, however, fails to explain certain phenomena.
components as necessary.
forgotten.
• In the early 20th Century, the Cartesian method is shaken by the advent
of Thermodynamics, Relativity and, particularly, Quantum Physics.

Systems Thinking – So what is System Thinking?
• An alternative way of looking at reality.
• Reality is not made of isolated, static objects, easy to break down.
• Reality is made of multiplicity of active objects influencing each other.
• To understand reality, we must:
• analyse these objects’ activity (Process), and
• analyse the interactions between processes.
• Example:


Systems Thinking - Agenda Systems Thinking?
What is
• analyse these objects’ activity (Process), and
• Example:
System

Input
Process Output
(Thruput)

Feedback

What is
• analyse these object’s activity (Process), and
• Example:

Input Output


What is
• analyse these objects’ activity (process), and
• Example:


What is
• analyse these objects’ activity (process), and
• Example:
Therefore:
• System thinking means connecting the dots to understand what is going
on.
• Systems thinking means considering the environmental causes,
influences and implications of a given problem and its solution.


Systems Thinking – General Systems Theory in a nutshell.
1. The Entropy problem.
• A brief caveat.
• In 1850, Robert Clausius enunciates the Second Law of Thermodynamics: “No
process is possible whose sole result is the transfer of heat from a body of lower
temperature to a body of higher temperature.”
• This means that the entire Universe slowly cools off irrevocably.
• When we consider heat in terms of how fast a particle moves this means that, in
any isolated system particles will tend to be uniformly distributed.
• This means that all isolated systems can only spontaneously go from states of
high order (in which, say, a particle can only be still or move to point A) to more
chaotic states (in which, say a particle can move to any of ten places).
• This is a basic law of the Universe, as inherent to it as gravity or the arrow of
time
• However in the early 20th Century the biologist Ludwig con Bertalanffy noted
that this was not so in the case of life, that life transformed chaos into order.
• HOW WAS THAT POSSIBLE?

Systems Thinking – General Systems Theory in a nutshell.
But before we go on…
… can any of you think of something that can
perform the “forbidden heat transaction”?
Make something hotter at the expense of something else becoming colder?
What about the other way around?
Making something colder at the expense of something else growing hotter?
A fridge works by extracting heat from the inside, making it cooler, and
What if I told you that you
transmitting that heat to the environment through the heat sink in the
have one in your kitchen?
back, making the environment hotter. So it makes hot things hotter and cold
Would that help?
things colder.

HOW IS THAT POSSIBLE?

Systems Thinking – General Systems Theory in a Nutshell
2. The Systems solution.
• Von Bertalanffy decided to study life in terms of its processes, of what it does,
not what it is.
• These processes were described as turning an “Input” into an “Output” by
whichever means, and called “Systems”.
• This changed the perspective radically.
• By drawing resources from the Environment as Input, a properly designed
System can transform them into the desired Output, which may include a
reduction of Entropy.
• In other words, Systems can (and are the only way to) bring order to chaos.
• But, in order to do that, the System must be able to draw resources, toinside
Power
Input Hot get
Coldoutside
Output an
Input, to process it and to arrange it into an Output.

HOW IS THAT POSSIBLE?

3. The System, its Boundary, Environment, and Objective.
• The central part of System Theory is the System itself, a process that turns an
Input into an Output.
• The System is delimited by a membrane of variable permeability called the
Boundary.
• Outside the Boundary lies the Environment. This includes both Input, Output,
Life, the Universe and Everything.
• All systems have an “objective” or “purpose”, determined by their process.
Environment
• Some of these are obvious, Boundary Some are so complex as to be almost
some are not.
invisible. Some even appear to have a purpose to hide the real one!
System
• Another brief caveat about design and objective.
Input Output


3. Open and Closed Systems.
• Depending on the permeability of the Boundary, Systems can be categorized as
“Closed” or “Open”.
• Closed systems have less permeable boundaries, meaning that they interact little
or very little with the environment.
• Open systems have more permeable boundaries, which means that they affect,
and are affected, by their environment in an higher degree.
• No System is perfectly open or closed:
• A totally closed System would have no interaction with the Environment
whatsoever, and would therefore be undetectable and meaningless.
• A totally open System would have to interact so much with the
Environment that it would, for all purposes, be the Environment itself.
• The more open the System is, the more it affects itself.

There are many other ways to categorise Systems: according to their “objective”, to
their lives, to their internal organization, etc. We will be considering at-least-
partially open Systems that run for several cycles.


4. Feedback
• Feedback is the way in which the System affects itself.
• The System gets an Input from the environment, Processes it and creates and
Output that is returned to the Environment.
• This means that in the case of running, open Systems, the System Output will
affect, in some measure, future Inputs that will affect the process that will in turn
affect future Outputs.
• The most obvious example of this is resource consumption.
Environment
Boundary
Input System
System Output
Input Output

Feedback


4. Feedback
• Feedback is the way in which the System affects itself.
• The System gets an Input from the environment, Processes it and creates and
Output that is returned to the Environment.
• This means that in the case of running, open Systems, the System Output will
affect, in some measure, future Inputs that will affect the process that will in turn
affect future Outputs
• The most obvious example of this is resource consumption.

Input System Output


4. Feedback
• Since both input and output are part of the environment, the process of the
system can be visualized in terms of how it changes the environment.
• As the system output affects the environment from which the system gets its
input, the system affects itself via feedback.
Environmental Environmental
stage 1 stage 2
Input Output

Feedback

5. Coping with the environment.
• The environment is not made out of useful input alone.
• The environment is in constant change. Some of these changes can adversely
affect the system, even destroying it (Catastrophic Event).
• Systems which can withstand the changing environment will endure and
continue existing. Systems which can not will eventually cease to exist.
• This automatically leads to natural selection.
• The obvious way to counter the adverse effects of the changing environment is
to protect the system by isolating the system.
• This is closing the boundary, which leads to closed systems.
• Nature offers many examples of the closed boundary strategy: armoured
animals (from insects to rhinos), isolated habitats…
• Human-made systems can also show closed boundary strategies: autarkies,
armies, faith-based memeplexes, circular reasoning, conspiracy theories…
• Closed systems, however, are subject to increasing entropy, which leads
fatally to catastrophic event and system collapse.
• But there are other ways of avoiding catastrophic events…

6. Reacting to the environment.
• Some systems are able to react to changes in their environment. These are called
reactive systems.
• A very abundant example would be a plant.
• When there is sunlight in the environment, a plant will absorb high-energy
photons, water from the earth and carbon dioxide from the air (as Input), and
create ATP for itself while returning oxygen to the air (as output).
• When there is no sunlight no HE photons are absorbed, and a number of
completely different chemical reactions will take place.
6 X O2
6 X H20

ATP

6 X H20


• Some reactive systems are also able to react to the Environment in a way that
protects them from Catastrophic Events. These are called Adaptive Systems.
• A simple adaptive system simply changes itself so what was dangerous is not so
anymore.


• Some reactive systems are also able to react to the Environment in a way that
protects them from Catastrophic Events. These are called Adaptive Systems.
• A simple adaptive system simply changes itself so what was dangerous is not so
anymore.
• More complex Systems can change themselves so they will produce Outputs
that, in turn, will alter the Environment -via Feedback- so it is not dangerous
anymore.


8. System modelization.
• The behaviour of Systems and their interaction with the environment (and with
themselves) can be subject of mathematical modelling.
• As long as the model is sound, this allows very accurate predictions, which in
turn allows for precise planning and informed decision-making.
• So, in this example, if C(0) is the initial amount of rabbits, C(n) the number of
rabbits after the n couplings have occurred and r is the rate at which the
population grows with each coupling, it is verified that:

n
C(n) = C(n-1) + 100% C(2) 8
2 4 (3-1) r 4 (n-1) (3-1)
(1+r)C 4 = Q.E.D.
(3) (0)
(2)

• The environment is not only made of static objects. It includes many other
systems as well.
• This means that the activity of a particular system (A) can be influenced by other
systems that affect: (i) A’s environment or (ii) A directly, or (iii) both things at
the same time.
i. Our rabbits could be affected by the Carrot Beetle System, a system quite
similar to the Rabbit System but that removes carrots from the
environment, thereby depriving them of their sustenance.
ii. Our rabbits could be affected by the presence of the Fox System, a system
which purpose is to hunt and eat rabbits.
iii. Or our rabbits could find themselves before the Farmer System, that both
collects carrots and hunts rabbits.
• These interactions can also be mathematically modelled, but the scope of such
goes well beyond this nutshell.
• But for instance…


PREY-PREDATOR EQUATION SYSTEM

C’(t) = rC(t) – kC(t) L(t) = rC(t) (1-(k/r) L (t))
L’(t) = -sL(t) + hC(t) L(t) = -sL(t) (1-(h/s) C(t))
Where:
• t is the growth rate of rabbits when isolated,
• s is the negative growth of foxes when isolated,
• k is the rate at which encounters between foxes and rabbits diminish the number
of rabbits,
• h is the rate at which encounters between foxes and wolves increase the number
of foxes,
• k C(t) L(t) is the number of rabbits eaten by foxes in a day in which there have
been CTLT encounters, and
• H C(t) L(t) is the number of foxes born in a day due to the increase of the supply
of rabbits.


Systems Thinking – So, what’s in for me? S.T. in Management
1. Structure, hierarchy and power.
• When we look around at nature we see that social animals seem to be hierarchically
organised with those who command and those who obey.
• The same seems to be true of the most basic basic human organizations: the family.
• Primitive human organizations mimic (and usually stem from) family structures, with
some individuals commanding and many others obeying.
• Those who obey may do so because they trust the leader (leadership through authority)
but most of the time do so because they fear the leader (leadership through power) and
the consequences of disobeying. There are survival reasons for this.
• Therefore, primitive leaders held their position not necessarily due to their wisdom but
due to being the ones able to force others to do what they would not do otherwise. By
being the strongest, fiercest, and having the biggest stick.
• Contrary to modern intuition, even order based in fear is more successful than chaos in
coping with the environment.
• As families become tribes and tribes become confederacies the leader is further removed
from the followers, and intermediate command stages appear.
• This is the origin of hierarchy and the chain of command. And things don’t seem to have
changed all that much…


• The pyramid system is the basic form of power.
• Through internal repetition (“fractalization”) seems the natural way for those who hold
the power to be able to control larger groups.


• The pyramid system is the basic form of power.
• Internal repetition (“fractalization”) it seems the natural way for those who hold the
power to be able to control larger groups.
• However, as the system increases in complexity the probability of the environment
affecting some part of it so it goes amiss and causes chaos increases exponentially.
• The natural reaction of the controller of the System is to fight said chaos trying to
increase control over the System through several means:
• Closing the boundary to preventing external influences from challenging the power
he holds over the System.
• Increasing centralization.
• Micromanaging system members directly.
• Micromanaging system members indirectly (through regulations, contingency
plans…)
• The general idea behind this behaviour is the X Theory of Work: System members can
not be trusted to act for the good of the System.
• Workers are lazy and try to do as little as possible.
• Bosses are greedy and try to pay as little as possible
And it’s most probably happening…

3. The pyramid crumbles.
• The larger a pyramid system is, the more likely it is to eventually fail.
•Closed Systems can not adapt to the
There are a number of reasons for this:
a) Internal reasons:
Environment, which will continue to change.
i. Lack of identity between the purpose of the System and that of the System’s
members, leading to ineffectiveness as System members pursue their own
Eventually the Environment will change in a
ends and more resource allocation in internal control.
ii. Increasing problems with information transfer (decision funnels, insufficient
way that will produce a catastrophic event
transfer speed, inability to process all needed information, etc.).
iii. X Theory leads to a vicious circle of violence and ignorance.
leading to systemic failure.
b) External reasons:
i. Passive changes in the environment to which the System can’t adapt fast
CLOSING THE SYSTEM IS NOT THE
enough.
ii. Competitors taking more advantage of the environment and diminishing
ANSWER
useful inputs.
• The more centralized the pyramidal system is, the slower it reacts and the more likely to
be destroyed due to outside influence.
• The more decentralized the pyramidal system is, the more will members pursue their own
purposes and the more likely to be destroyed due to internal collapse.

4. The scarab survives.
• Nature, however, shows us systems of a level of complexity beyond anything mortal man
has ever imagined. So how are these systems possible? How are they managed?
• The fallacy of collective consciousness.
• Just because something looks like it is conscious does not mean that it really is.
• Social insects do NOT have any kind of hierarchical structure. An anthill or a
beehive are not managed, they just are, they just work.
• The millions of cells in our bodies, of hundreds of different species, are not
managed by any central authority either. Yet our body appears to be a single, co-
ordinated unit.
• These are examples of macrosystems, systems made out of systems, each one
pursuing its own and particular purpose.
• These particular macrosystems are holistic entities, they are more than the sum of
their individual parts.
• That is so due to the serendipitous interaction of these systems, not to the pre-
existence of a central manager or controller. This can be proved by simple causality:
the mind controlling the anthill can’t be its own cause.
• Just because something looks like it is managed does not mean that it really is.


5. The eye of the beholder.
• The key to managing complex structure depends on understanding their true nature.
• Complex, stable structures exist in nature as a result of serendipitous interaction
amongst their members.
• Each ant, or bee, or cell, has a set of “hardwired” instructions (“purpose”) that tells them
what to do in specific cases. The colony is the result of the interacion of those
individuals, not the other way around.
• Human societies are more complex but basically the same. Each individual looks after
their own particular (not necessarily selfish) interests and to further these they reach
agreements with other individuals.
• Tribes, cities, nations, empires, armies and companies and corporations should also be
seen as a result of the serendipitous interaction of humans, as a tool of humans to
achieve their own goals, not the other way around.
• The human mind works by creating simple models out of analogy that help us understand
and predict reality. That’s why we talk about the will of a corporation or the intelligence
of an ant colony. But it’s just an analogy, corporations have no will, ant colonies have no
collective consciousness.
• Simplifications are useful, not true. They can not be relied on to their last consequences.


6. Companies as systems.
• The first thing to do is to identify the objective of the Company System.
• This should be in the mission/vision/strategy statement.
• Be wary and be realistic. Most of these statements do not include “making money”
for some reason.
• The dangers of wrong objective identification.
• Next the manager must understand the Process of the Company System.
• Next he must understand his function in the Company System, what kind of output is
expected of the managed team out of which input and why.
• Managers then should design their teams considering functions, not people, and
then try to find the most suited people to these functions. A person can have many
roles at once.
• Managers should always clearly inform their team members of their function, what
is expected of them and why.
• If this information is right and understood, the team System can now (i) operate and (ii)
provide feedback on how to improve efficiency without increasing costs or diminishing
quality.
• Informal structures and the Y theory of work.


7. People as Systems.
• People are not “human resources”.
• Each individual is a system with his own environment, process and objective and the
chances of good management increase if people are seen this way and not as a resource.
• The keys to management are:
1. Identifying the objective of the team system.
2. Identifying the integral objectives of each individual (person) system in the team.
3. Including the objective of the team system as a short-term objective of the
individual system.
4. Receiving and interpreting feedback to react to the new environment conditions as
they arise.
• There are a number of ways to achieve step 3:
• Salary.
• Recognition.
• Principled negotiation.
• The general idea behind this is the Y theory of work. Work is good, gives a sense of
worth and self-esteem and people without work go ill (occupational therapy).
• Workers are good because it is on their own interest to be so.
• Bosses are fair because they risk losing good workers otherwise.

Systems Thinking – Suming up
1. A Company is a complex System comprised of incredibly complex Systems: its
employees.
2. Trying to force things is wrong. Employees have their own, integral purposes and
will not react well to being prevented from achieving them.
3. Systems Management acknowledges that, and:
• Focuses on finding people that will willingly make the purpose of the Team System part
of their own purpose.
• Focuses on transmitting the Team System’s objective to the team members so they
understand what the team does, why, and which is their part.
• Focuses on trust and confidence, not micromanagement. Decentralizes, encourages liquid
positions, embraces change and recognizes success.
• Focuses on results, not procedures, and encourages new, mode efficient ways of oing
things.
• Does not care where improvements come from and rewards them.
• Understands the changing nature of the environment and the need to constantly change to
adapt to it.
• In short, system management is about trust and co-operation to achieve
common goals, not about stick and carrot,

Systems

Thank you for your attention


Systems

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