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Management and the Systems Approach

Contribution to the First International Electronic Seminar on Wholeness,

International Society for the Systems Sciences


Markus Schwaninger

University of St. Gallen

December 10, 1996

As this seminar emphasizes, the systems approach strives for wholeness. What has this to do with management? Is not management a job of manipulating others to get ones own - often short term - interests accomplished? Even though this may often be observed practice, a systemic stance suggests a different view and concept of management: Management, from a systemic point of view, is about actors (e.g. individuals, groups, or organizations), to

cope with complexity attain viability and development co-evolve with the milieu or environment in which they are embedded

Complexity, as understood here, is dynamic, not static. The quest for viability is not about mere survival. On one hand, it is about a system maintaining its identity, but on the other it can also imply a substantial change or evolution of identity.

If development is a systems growing capability to meet its own and others needs (after Ackoff, 1981), the issue is one of viability beyond survival (Schwaninger, 1993). Many transformations of firms and whole sectors of the economy provide pertinent examples. Coevolution with the milieu or environment in which an actor is embedded is natural, in this context, but it has its limits: If intelligent actors are characterized by a) adapting to and b) shaping their environment, they show a third ability, which is c) procuring a new environment on transforming the actor-environment-system altogether, if necessary.

Managing is about the design, the (self-)control and the transformation of organizations. To manage in reality needs more than the abstract purpose of viability and development. A logical stratification is necessary (cf Schwaninger, 1993):

a) Normative management: This is the domain of the founding principles for the purpose of viability and development. The criterion organizational fitness, at this level, is legitimacy or fulfilling a valuable role within the more comprehensive system.

b) Strategic management: This is the domain of orientation, the goals being value potentials, the criterion of organizational fitness being effectiveness (in the collaborative and cooperative senses).

c) operative management: This is the domain of realization, the goals being value (provided to different stakeholders - customers, employers, shareholders etc.), the criterion of organizational fitness efficiency (e.g., in the sense of productivity).

An integral, whole, systemic management has to achieve a sustainable balance between steering variables of all three logical levels named, despite the contradictions inherent in this texture.

According to the Conant-Ashby-theorem (Conant/Ashby, 1970), the result of a management process can not be better than the model on which it is based (except by chance). Or: In terms of Ashbys Law (Ashby, 1964), a management model must exhibit requisite variety. Many models in use do definitely not comply with this fundamental requirement. This is the case where only economic variables are modelled, while neglecting the social and ecological aspects. Complex systems require complex models, but we also know, that the endeavour of maximizing one variable in a complex system (or model) will lead to growing bottlenecks and entail unstable or chaotic behaviour sooner or later. These theoretical and operations-research-based statements can be corroborated on the grounds of empirical studies from different strands of research on organizations. Here, only three examples can be cited:

1.) Collins/Porras (1994): Under the title 'Built to Last', former McKinsey? consultant James C. Collins and Stanford professor Jerry I. Porras have published the results of their inquiry into the 'Successful Habits of Visionary Companies' (Collins/Porras, 1994). The authors have observed the evolution of a set of “visionary companies” - “premier institutions - the crown jewels - in their industries, widely admired by their peers and having a long track record of making a significant impact on the world around them” (p.1) -, over decades. They have compared them with a control set of companies, which are also “good” companies, but “don't quite match up to the overall stature of the visionary companies” (p. 2).

The outcome of the study was: “They are more than successful. They are more than enduring … Visionary companies attain extraordinary long-term performanceTo illustrate this, two equal investments in $1 in two general-market stock funds, one for the comparison companies, and one for the visionary companies of Collins' and Porras' sample, on January 1, 1926, with later reinvestments of all dividends, and appropriate adjustments when the companies became available on the Stock Exchange (in the study, all companies were held at general market rates until they appeared on the market), the following results would have been obtained: The $ in the general market fund would have grown to $415 on December 31, 1990; the $ invested in the group of comparison companies would have grown to $955, more than twice the general market. However, the $ in the visionary companies stock fund would have grown to $6,356 - over six times the comparison fund and over fifteen times the general market (for details, see Collins/Porras, 4ff.).” (pp. 3f.) However, contrary to a widely taught doctrine, profit maximization is not their dominant driving force. “Through the history of most of the visionary companies we saw a core ideology that transcended purely economic considerations. … they have had core ideology to a greater degree than the comparison companies in our study” (p.55).

2.) Kotter/Heskett (1992): In a large empirical investigation, Harvard professors John P. Kotter and James L. Heskett tried to ascertain the link between corporate culture and performance (Kotter/-Heskett, 1992). Starting from a sample of 207 firms from twenty-two U.S. industries the authors examined in detail subsets of 22 and 20 firms respectively to test specific culture/performance theories. The studies show that the theory which proposes, that strong cultures lead to high performance, is incomplete. A strong culture can also have detrimental effects on performance, if the values adhered to inhibit proper alignment with the milieu.

The results of their study strongly suggest that the orienta-tion towards all main stakeholders of an organization discrimi-nates strong from weak performers: “Firms with cultures that emphasized all the key managerial constituencies (customers, stockholders, and employees) and leadership from managers at all levels outperformed firms that did not have those cultural traits by a huge margin. Over an eleven-year period, the former increased revenues by an average of 682 percent versus 166 percent of the latter, expanded their work forces by 282 percent versus 36 oercent, grew their stock prices by 901 percent versus 74 percent, and improved their net incomes bys 756 percent versus 1 percent.” (Op. cit., 11).

3.) Meffert/Kirchgeorg (1992): These researchers from the University of Muenster, Germany, studied the ecology-related behavior of a large sample of industrial companies. The 'offensive' ecological innovators performed better or equal in comparison to all other strategy types (defensive, selective, internally oriented), as far as the attainment of a range of ten types of goals - such as profit, marketshare etc. - was concerned.

Summing up, these examples show, that it is not enough to maximize one variable, e.g. shareholder value, but to maintain different goal variables in balance. The results of all three studioes underpin the postulates for a holistic, integrative management, as formulated in this paper.

To be complete, it must be said that wholeness is a crucial principle not only for the (self-) control of entire organizations. This same principle applies to management of viable entities at any level, be it of supersystems (e.g. a group of companies, an industry, a community or a state) and subsystems (e.g. a division, a plant, a team or an individual). Stafford Beer, the father of management cybernetics, in his Viable System Model has furnished a theory and the necessary diagnostic tools for conceiving systems as viable entities (Beer, 1979, 1981, 1985). Some of his collaborators have developed instruments for putting Beers model to work and cumulated a growing evidence on relevant cases (Espejo/Harnden, 1989; Espejo/Schwaninger, 1993; Espejo/Schuhmann/Schwaninger, 1996; Schuhmann, 1981; Schwaninger, 1989; Schwaninger, 1997). Finally, a whole stream of work in the new cybernetics has been dedicated to the issue of sustaining auto-organization, eigen-control, and self-reference. The spear-heading works in this vein come from Heinz von Foerster, the originator of second order cybernetics, and Niklaus Luhmann, the sociologist whose theory of social systems has been seminal.

These authors have taken the observer into consideration, whereby they have introduced relativity into their models. This is an important step towards higher variety. The crux is that many of their pupils advocate unlimited relativity, and thereby succumb to (dogmatic) relativism, which deprives the search for invariances, inherent in any theoretical endeavour, of any perspective. But searching for invariances is the essence of theory-making, which again is at the heart of understanding and purposeful action.

A systems approach to management, as the author understands it, should help actors integrating different perspectives and enabling for sustainable human activity. Therefore, it must attempt, on one hand, for a practice which links immediate practice to far-sighted reflection. On the other, it must strive for a theory which makes invariances accessible to human understanding, as a resource for prudent action.

The invariance we are reflecting here, is wholeness; to put it in the words of Warren McCulloch?, one of the grandfathers of cybernetics: The world is one, and so are we.

References: Ashby, W.R.: An Introduction to Cybernetics, London: Methuen, 1964.

Beer, St.: Brain of the Firm, second editon, Chichesteretc.: Wiley, 1981.

Beer, S.: Diagnosing the System for Organizations, Chichester etc.: Wiley, 1985.

Beer, S.: The Heart of Enterprise, Chichester etc.: Wiley., 1979.

Collins, J. C./Porras, J. I.: Built to Last. Successful Habitsd of Visionary Companies, Harper Business, 1994.

Conant, R. C./Ashby, W. R.: Every Good Regulator of a System Must be a Model of that System, in: International Journal of System Science, Vol. 1, 1970, No 2 (89-97)

Espejo, R./Schwaninger M./Schuhmann W.: Corporate Trans-formation and Learning. A Cybernetic Approach to Management, Chichester: Wiley, 1996.

Espejo R./Harnden R. (Eds.): The Viable System Model, Interpretations and Applications of Stafford Beer's VSM, Wiley 1989; Review in: Die Unternehmung, 45. Jg., Nr. 5, 1991, 372-374.

Espejo R./Schwaninger M. (Eds.): Organizational Fitness - Corporate Effectiveness through Management Cybernetics, Frankfurt/New York: Campus, 1993.

Kotter, J./Heskett, J.: Corporate Culture and Performance, New York: Free Press, 1992.

Meffert, H./Kirchgeorg, M.: Marktorientiertes Umweltmanagement, Stuttgart: Poeschel, 1992.

Schwaninger, M.: Integrale Unternehmensplanung. Frankfurt, New York: Campus, 1989.

Schuhmann, W.: Informationsmanagement. Unternehmensf�hrung und Informationssysteme aus systemtheoretischer Sicht, Frankfurt/New York:Campus, 1991.

Schwaninger, M: A concept of Organizational Fitness, in: Espejo/Schwaninger, Organizational Fitness, 1993.

Schwaninger, M.: Integrative Systems Methodology: Heuristic for Requisite Variety, in: International Transactions in Operations Research, 1997 (forthcoming)

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