Management Science and Operations for MBAs

Organizations as Complex Systems

Tonights Objectives
To explore the nature of complexity in business. To understand why mental structures are so important To portray the structures used by experts Compare and contrast those structures Embrace a method for addressing complexity.

Complexity
Nature does not organize meaning. Interpretation places meaning on reality.

Prejudice is naturalbrainwiring. Labeling is negating but natural.

Paradigms as lens Reaction to reality is a function of interpretation. Interpretation determines success.

Wrong interpretation wrong answer and failure Right interpretation right answer and success

Raw Complexity
Design and redesign Database Analysis Consumers

Incoming
Supplies A B C D Support Services Production, assembly, inspection

Organizing Complexity
Humans take raw complexity and place meaning on the complexity. Largely, what is sought is found.

If quality is explored as a problem, quality will be found to be a problem. If HR is believed to be the source of trouble, people will be discovered to be the problem.

Reality does not changethe real problem and the right solution do not change. The match.

Paradigms/Mental Structures

Paradigms drive people to look for issues

Marxism/Classism Socialism/Keynesian Economics Capitalism/Austrian Economics Anarchism Jingoism/Nationalism/Localism Sexism Racism Ageism Religionism etc., etc, etc. etc.

Causes and Effects

Understanding causality is key:

Dividing the world into antecedents and consequences. Understanding processes that instigate the transformation.

Causality Conditions:
Temporal Sequentiality Concommitant Variation Non-spurious association Theoretical Linkage

Complexity with Dynamics

Design and redesign Database Analysis Consumers

A B C D

Production, assembly, inspection

Support Services

Value Chain

Incoming Supplies

Problems with Dynamics

Causation is seldom simple.

Covariances

Law of unintended consequences

Push on the balloon problem

Feedback loops Cause and effect separations in time Open systems problems

False boundaries

Attempts at maximization

Complexity with Structure

Design and redesign Database Analysis Consumers

A B C D

Production, assembly, inspection

Support Services

Value Chain

Incoming Supplies

Problems with Structure

Boundaries become obstacles

Entrenchment Fiefdoms

Boundaries follow authority

Boundaries assign blame Boundaries mask causation and covariance effects

Destroy complexity needed

More attempts at maximization

Which is better--preferences
Individual preference Need for structure Need for understanding causation Most scholars agree that boundaries are confining and artificial. Most scholars agree that boundaries are real and must be addressed.

Structures by Experts
Managing complexity is key Scholars, consultants and executives are driven to find what works. Not reinventing the wheel Looking for generalizations Develop into theory Apply to specific contexts Find where does not work Revamp/refine theory

An historical perspective
Nothing is new about the challenges facing industry. Complexity is just more complex, the solutions are more elusive, and the context is more populated with stiffer competition. Still, a discussion of recent history is very informative.

Looking to History for Answers

Craftsmanship Guilds and Apprenticeship Eli Whitney and uniform parts Henry Ford Walter Shewhart and PDCA

Hawthorne Plant

British Military Quality Standards

WWII interchangeable parts problems US Military Standards

ISO 9000 and 2000 update

The Crisis
By 1980, the U.S. economy was faltering. Annihilation of entire industries by Pacific Rim Tigers. By Carter administration, U.S. economic situation looked hopeless, much like now. Industry looks for guidance and exemplars. The state of business theory is inadequate virtually no one goes to a business school looking for guidance.

In Search of Excellence, by Peters and Waterman. Published in 1982

1. 2. 3. 4. 5. 6. 7.

Stay Close to the Customer Have a Bias for Action Autonomy and Entrepreneurship Productivity Through People Hands on - Value Driven Stick to the Knitting Simple Form - Lean Staff

8. Simultaneously Loose - Tight Functions

Tom Peters and Nancy Austin, A Passion for Excellence, published in 1986

1) Take Exceptional Care of Your Customers Through High Quality Products and Services 2) Constantly Innovate

Bob Waterman, The Renewal Factor, Published in 1987

1. 2. 3. 4. 5. 6. 7. 8.

Stability in Motion Informed Opportunity Open Inquisitive Leaders Friendly Facts and Congenial Controls Direction and Empowerment Teamwork and Trust Attitudes and Attention Causes and Commitment

Dr. W. Edwards Deming

If Japan Can Do It, Why Cant We, 1980 Assumption is that Japan has the answers.

Clearly, Japanese quality had leapfrogged US. IBM, Xerox, Ford, etc.

Discovery of W. Edwards Deming

Deming is god-like in Japan and worshipped in US for next 13 years. Other perhaps more important people got short shriftJuran, Gyrna, Feigenbaum, Sarasohn, etc.

W. Edwards Deming, 14 Points, from Out of the Crisis, published in 1986

1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs. 2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change. 3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on mass basis by building quality into the product in the first place.

Demings 14 Points Continued

4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust. 5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs. 6. Institute training on the job.

Demings 14 Points Continued

7. Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers. 8. Drive out fear, so that everyone may work effectively for the company. 9. Break down barriers between departments. People in research, design, sales and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.

Demings 14 Points Continued

10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force. 11 a. Eliminate work standards (quotas) on the factory floor. Substitute leadership b. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

Demings 14 Points Continued

12. a. Remove barriers that rob the hourly worker his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality b. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means inter alia, abolishment of the annual or merit rating and of management by objective.

The Last of Demings 14 Points

13. Institute a vigorous program of education and selfimprovement. 14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job.

Admonitions vs. Structure and Process

Executives were frustrated by broad generalizations and dogma, all of which had easily identifiable exceptions. Exceptions cost several executives their jobs. Blind faith/simple answers lead to disillusionment. Deming frustrated because executives avoid study and hard work. Develops SoPK (more later) More concreteness desired Documentable (ROI-justified) results

ISO 9000 Series Certification

Organization for International Standardization (ISO versus OIS) The agenda Arising from European Economic Community

Trade

Barrier Threats

European Organization for Technical Approvals (EOTA) European Organization for Testing and Certification (EOTC)

Accreditation Process
An organization must audited by a certified registrar. This registrar must meet ISO standards (10011-2 Standard) and use ISO processes (10000 Series Standards) Originally, a major problem for US companies Soon everyone and their cousin are auditors with flexible standards.

Accreditation Process
The American Society for Quality (ASQ) has taken charge of the US process along with ANSI. The Registrar Accreditation Board (RAB) of the ASQC now administers the American National Accreditation Program for Registrars of Quality Systems ANSI/ASQC Q90 Series Standards parallel IS0 standards. So, accreditation became much easier to obtain

ISO 9001 Falls Out of Grace

ISO 9001 loses luster.

Trade barrier excuse retreats with ease of obtaining certification

Quality Standards are largely determined by the client, which leads to disasters.
Firestone 500 plant The concrete lifejacket test case Virtually anyone can get certified.

ISO 9000/2000 series standards changed to reflect input from customers and allow for objective standards, but these are weak.

ISO 14000 Environmental Standards

ISO 14000 Standards are designed to certify the environmental policies of companies Presumably, companies that meet these standards also meet international standards for sound environmental policy, a potential legal defense. May be made a continuing requirement for ISO 9000 Series certification

Deming Prize
Japanese Union of Scientists and Engineers Deming Prize 1951 US tries to begin similar award process Purpose is to benchmark good practices, while appealing to winner attitude of executives Deming is appalled.

The Deming Prize

Following Demings 1950 lectures To encourage Japanese companies to adopt Demings management method Categories

Individuals Enterprises including public, small enterprise and divisions Overseas companies

Baldrige Quality Award

Established in 1987 by the Malcolm Baldrige National Quality Improvement Act. Managed by the National Institute of Standards and Technology within the Department of Commerce with no public money. When Quality went out of vogue, replaced with performance excellence. Mirrored Deming Prize, but presented as uniquely American.

Baldrige Framework
Customer- & Market-Focused Strategy and Action Plans

2 Strategic Planning 1 Leadership 3 Customer & Market Focus Driver Triad

5 Human Resource Focus

6 Process Management

7 Business Results

Work Core

4 Information & Analysis Brain Center

Integrating the Architecture

Driver
Senior executive leadership is actively involved in creating values, goals, and systems. Facilitates the pursuit of quality goals. Promotes quality values and processes to important stakeholders. Walks the talk

Integrating the Architecture

Work Core
Well-defined and well-designed processes for meeting quality and performance requirements Must be focused ultimately on adding value to customers and meeting or exceeding customer requirements All processes must be aligned with other organization processes so that the system is consistent, non-contradictory

Integrating the Architecture

Results - Measures of Progress

All actions must be focused on producing results, including financial performance, productivity, internal quality and supplier quality All results must be continuously improving All results must be documented All results must be benchmarked against a standard

Integrating the Architecture

Goals
Customer satisfaction must be ultimate focus of the companys energy. 1998 Criteria uses more of a balanced scorecard approach. A system for understanding customer expectations must be established. A system for measuring and tracking customer satisfaction must be established. All measures must be benchmarked relative to competitors and/or world-class companies.

Deming Counters
Deming does not buy into the structure of Baldrige but is quiet about structure of Deming Prize. Does not believe in the prescriptive nature of criteria

Too simplistic Not generalizeable to all companies Laughable winners (Cadillac!)

Especially does not like the superficial glorification and advertising of winners (Cadillac!) Baldrige counters

Demings View
Every problem is a leadership problem. There is no substitute for leadership. Success is largely about developing leadership capacity in every system in the organization. Leadership capacity requires addressing the complexity head-on, without structures, with skills. Leadership requires high levels of intelligence founded on a theory. No instant pudding. SoPK

Demings System of Profound Knowledge

Systems Theory

Appreciation Of Psychology

Understanding of Variation

A Theory of Knowledge

How we will address complexity

First, the class will study Deming.

Each facet of profound knowledge

Second, Baldrige will be explored in detail

Each category with focus on Process Management Excellence criteria

Approach Deployment

Scoring

This approach will add relevance and depth to all classes taken in the program.