CHAPTER FOUR: SYSTEMS THINKING
When "Good Enough" Isn't Good Enough,
Core Ideas of Total Quality
© by Ends of the Earth Learning Group 1998
Linda Turner and Ron Turner
TABLE OF CONTENTS
|References and Copying Rights
Most people have been taught to analyze situations by breaking them down into
discrete pieces and then mastering each of the pieces individually. For instance, in
order to understand how a car works, we typically study the separate parts such as
motor, brakes, transmission, etc., and then explain each part separately from the car
as a whole.
When things go wrong in an organization, most people similarly look at the separate
parts to find what "broke", so they can fix it. If a car won't start in the morning, it
might be because the spark plugs need replacement. Diagnosing problems for most
people consists of looking for that one "special" thing that is causing problems.
This kind of thinking is called analytical thinking or reductionist thinking. It is based
on the premise that we can understand the whole best by breaking it into smaller
digestible pieces. Analytical thinking works especially well for situations where
something is broken.
Systems thinking does not reject analytical thinking, but warns that sometimes by reducing things to smaller pieces, we lose track of what is happening in the system as a whole.
A systems approach doesn't look for something broken but rather looks at the overall
design and says, "What can we do to improve overall functioning?" By changing fuel
or changing air filters, we won't prevent sparkplugs from breaking down, but we may
reduce the frequency of breakdowns.
Systems thinking takes a holistic approach to organizational analysis that looks at the
"big picture" all at once without getting lost in the details of a microscopic
examination of each part. The easiest way to explain this is through an example.
Assume we have a four-person office with the following roles: sales, billing, purchasing, and production. Analytical thinkers would tell each of these four people to"do your best." The sales person would be selling as much as possible, billing would be working on improved collections rates, production would be speeding things up, and purchasing would be looking for the best possible deals on raw materials.
Figure One describes our simple four person company as a circle with interconnections among the four people. The customer is also included as part of the system. The diagram suggests that each person will impact the others in some way, and as a group, they will collectively determine the customer response.
SALES POSITION Assume the salesperson is paid on a commission basis so
that she has incentive to maximize sales. She will pursue strategies that typically
include giving minor exceptions such as promises about delivery dates, customization
of product, or special billing procedures. In each of these cases, these promises will
negatively impact production and/or billing by increasing their costs. The exceptions
may also negatively impact purchasing if special inputs must be purchased in order
to meet the needs of the customer.
While clearly there are times when the system benefits from sales departments being able to give exceptions, there are also times when these exceptions will not be worth it to the system as a whole.
Even if sales isn't making special promises, problems will develop for the rest of the office if the salesperson is too successful. At some point, increased sales will exceed production capacity. The production person, billing person, and purchasing agent may all find themselves increasingly running behind.
While eventually these departments may add personnel in order to keep up with sales, there usually is a lag period during which customers will get "left behind" thus increasing customer dissatisfaction. By the time capacity is increased, repeat business will be falling off, and suddenly sales may find itself unable to match the new increased production capacity.
PURCHASING POSITION Assume the purchasing agent will get a bonus based on how well she reduces unit cost of purchased inputs. This means she will pursue a strategy designed to get "better deals overall." She may buy in large volumes in order to get discounts.
Unfortunately, storage now becomes a problem for the production department. Production finds itself crowded and having to take more time to restock inventory in order to find what is needed for some particular project. Some of the inventory gets damaged, but purchasing won't care since the cost of damaged goods is put onto the production person's cost sheet. Production will be further injured by large volume purchases because that means that production can make changes in inputs only once every six months (or a year) when the large volumes finally run out.
As the purchasing agent shops around for lowest price, she will regularly switch vendors. This will have unintended impacts on the production person. For instance, paper from one vendor may not absorb ink exactly like another vendor. Inks might come in different sized containers. Sometimes cheapest price means slower service and unnecessary delays in shipping.
PRODUCTION POSITION Assume the production person's bonus is based on how well she reduces production costs. In other words, she gets rewarded for making the production process more efficient.
The production person will pursue strategies that concentrate on getting the product out. As long as customers don't return their products, production will not care about overall quality. That means when customers complain to sales about quality issues, the production person will defend herself by arguing that customers are unreasonable and overly demanding. Or production may blame sales for making unreasonable promises to customers about exceptions.
In the long run, an undue focus on production will increase customer dissatisfaction, causing the billing department's collection rate to fall and making it more difficult for sales to repeat business.
BILLING EXAMPLE Assume the billing person's bonus is based on the collections rate and unit transaction cost. She gets rewarded for increasing the percent of charges which are collected, and she gets rewarded for reducing the cost of billing per dollar of sales. The billing person will have incentive to take a "hard nosed" attitude toward customers. Billing will not want to hear complaints about production quality or promises by sales that weren't met. The billing person will have incentive to accuse late payors of being deadbeats, and to threaten them with lawsuits if they don't immediately catch up on late bills.
Even though the collections rate may be influenced more by overall customer satisfaction than any other factor, the billing person will tend to ignore this factor because it is outside her control. The only things she can do to earn her bonus are things that reduce the overall size of the customer base.
Clearly the system as a whole will work better if the four individuals work together and define success jointly. This means more talking, slower decision making, and actions that take into account the impacts on others in the system.
Sales will then know better than to sell products faster than production can keep up. Collections efforts will take into account promises of the salesperson and quality results. Purchasing won't look for lowest price, but rather for best value taking into account both impacts on production and future returns by customers. Production in turn will make "efficiency" decision that take into account impacts on quality, returns, sales efforts, and collections.
TABLE OF CONTENTS
|References and Copying Rights