Creation of a Virtual Experiment through a Computerized Case study as a tool towards the creation of Organizational Learning and Assimilation of a Systemic Dynamic way of thinking.

 

by: Eli Schragenhaim, Moshe Yerushalmy

Systemic thinking is one of the largest challenges that any manager faces. The ability to think systematically means to foresee the generality of the influences of one action in one part of the organization, on the other parts of the organization, thus evaluating the contribution of the action to the success of the organization. Edward Deming claimed that the main problems of organizations lay in the interfaces. It does not mean only the relationships between managers of different functions or levels in the organization, but also the management of cross organizational processes.

Any point in the interface between functions in the organization through which a process passes is a source of misunderstandings, actions which do not contribute any additional value and friction. A point of failure especially widespread in medium and large organizations, is a localised view of local managers, a point of view which tests each decision according to its influence on the sub-organization, and overlooks, whether intentionally or through a lack of knowledge, the total-organizational influence of the same decision.

Why is there difficulty in systemic thinking? On the one hand there is a connection between systemic thinking, based on generalization and lack of concentration on details, and individual concrete thinking. Meaning: people have different abilities to develop a systemic thinking. On the other hand there is a possibility to help and train managers in such a way of thinking. The meth suggested here is to perform a wide simulation of situations of managerial decision making, which influence the whole system.

The task is not easy at all, of course, One known possibility is to create a static case study which speaks about a concrete situation in the organization, and try to activate managers around this case.

The result of such an activation is that although they experience the multifaceted case study and improve their strategic thinking, most of these cases concentrate on one specific subject, which is only a small part of the organizational activity. i.e., the simulation of a case study of this kind lacks the experience of simultaneously coping with a variety of subjects, an important experience from the point of view of high level systemic thinking. Moreover, a static case study cannot point clearly to actual results of the decisions taken and the actions performed. Consequently, it may happen that differences of opinion among managers are not only not resolved, but become legitimate, inferring that there is more than one point of view to the subject dealt with. The problem of unsolved differences is that at the practical level no policy about what should be done crystallizes- a fact which seems to us essentially contradictory to the wish of systemic thinking which brings improvement in the functioning of the organization. In order to ensure an activation which will reach a sound decision, it is advisable to create, even in a static case study, a "school solution" to compare with the solutions of the participants. There are, of course, several possible solutions that will benefit the organization, if only a way to choose among them could be found.

A static case study has many disadvantages. Beyond focusing on a specific subject, which creates an oversimplification of reality (which is, of course, comprised of several intertwined subjects), there is also a lack of possibility to advance along the time line from which many limitations in the interactive thinking arise. Any claim within the case study, that if certain decision is taken there will be certain implications, has only partial validity, as it cannot be checked and verified. Moreover, any decision which is taken, influences the whole system. This means that a change takes place within the system, and there is now a new situation which may require new thinking. In a static case study those new decisions cannot be examined in the new reality. The dynamic element, which has a far reaching influence on the integrative thinking, does not reflect in static cases.

Let us demonstrate some of the possibilities (both abilities and limitations of a static case study) in creating an experimental infrastructure for systemic thinking. We have chosen a case study with a negative connotation in order to emphasize the need for training in integrative thinking. Let us assume a case according to which the company has to decrease its manpower by 10%, is brought in front of a group of managers. It is undoubtedly a difficult case, but by no means an impossible one in the life of an organization. How will the managers deal with the task in front of them? Every manager is of course interested that his own workers would be exempt of the dismissal. If the group of managers is expected to manage as a team, they will have to reach an agreement. Will the discussion be fruitless or will it bring to the surface systemic questions which will lead to the conclusion that there should be reductions in certain places, while leaving others as they are? This is the first test for integrative thinking. Let's assume the group decides on the easy (and most popular) way out: each manager will dismiss 10% of his staff. Will this end the team discussion and will every manager have to decide on his own which workers to dismiss?. If this is what happens we have clear proof of very weak systemic thinking here. The situation calls for thinking over several subjects. The first subject that comes to mind for an all-systemic examination is the manpower policy, meaning deciding on the all-systemic criteria to choose in a situation like this.

This will be - in our opinion - the main subject of a systemic discussion in this case study. Actually, the case study and the problem with the decision making arouse several important additional subjects. For example: due to the reduction in the number of employees, will the company continue delivering the same variety of services or products to its customers? If the conclusion is positive, it would have an immediate influence on the choosing of the manpower to be dismissed. The central processes in the company would have to be inspected too, as pinpointing non essential tasks, as compared to essential ones, brings up a better characterization of what may be given up in a time of hardship. All those subjects are interwoven and the systemic thinking has to pass from one subject to another, and back again when different alternatives are brought up. In a whole integrative thinking the option of preventing reduction in manpower, and the subsequent damage the organization could suffer from such a move, should be discussed too. Of course, the actual problem which caused this extreme solution should be dealt with.

How will we know whether a good decision has been made in a static case study? The instructor's experience is the only answer to that, as the case study does not really take place, and we really feel the need for a verdict of reality to our decision. Moreover, after the reduction, the organization will be in a different situation. What would the next subjects be to focus the attention of management? A static case study cannot deal with it. This case study ends with the decisions of management and their discussion with the instructor.

The technological development of the computer enables both similar and different ways of training in systemic thinking, ways which carry results much stronger than those of static cases. First, there is an actual opportunity of advancing in time with the case study. Thus the case becomes a dynamic case study - the decision becomes an action, the action alters the balance of forces in the organization. Now all we have to do is ask whether those are the results we intended getting. Beyond the specific results, the team of managers find themselves in a new reality which they have to analyze and make decisions about the subjects they have to focus on. In the managerial thinking we should distinguish between two kinds of decisions: a decision about what must be decided on, and decisions which place themselves on the manager's desk.

When the manager gets an order from his superiors to reduce manpower by 10% it is an open decision which is placed on his desk. When the company finds itself in serious economic problems, the manager himself has to take the initiative and look for ways of minimizing costs or for additional financing. This is a decision which the manager must initiate. Localizing the problem and deciding on the alternatives for inspection are a first rate thinking challenge, and it is included in the dynamic-systemic thinking. Such a way of thinking is difficult to develop and train through static cases. True, it is possible to create a case study whose purpose is identifying an important problem which requires decision making, but the moment it is clear that there is a problem of decision making hiding somewhere in the case study, the participants, who are aware of the rules of the "Make believe" cases, will look for the spot of the decision- making. In reality, the localizing of a subject for discussion, its analysis and the decision- making is infinitely more complex, and of course it is not clear that the new situation created requires a new decision, which anyhow is not on the agenda. For this reason it is very difficult to build the managers perpetual commitment to identifying problems which require difficult decisions in the near future. A dynamic case study, which advances with time, is capable of "make believe" situations, where the manager's ability to identify decision- making situations, as the case study itself does not demand inspecting the situation and making decisions, in a loud and clear voice.

Let us inspect a simple example. What may cause the top management of a company to inspect penetration into a new market segment? Do managers think like that all the time? The idea may have surfaced as a result of the localization of a specific chance in the market - for example, the suggestion of a marketing chain (" why don't you enter the market of x or y....- demand grows and your technology seems appropriate?"). In a case like this the decision is placed on the table thanks to an outside initiative. In another case a marketing man came across a product and said to himself "why don't we...". Here, the initiative is an inside initiative, but the decision for discussion was brought up by chance. The decision in question is not "should we enter a new market segment" but "should we enter a specific market segment?". This is a great limitation, one of concentrating only on those decisions which place themselves openly on the desk. How can management get to checking a decision of this kind without an external or occasional factor which will make it relevant? By a systematic and continuous analysis of the state of the organization, and what can be improved.

An analysis which will point out the limitations of the company's present market may open the option of penetrating additional market segments for discussion. From this point on the discussion should include an analysis of the different alternatives, but the main point is: a decision was made to inspect penetration into additional market segments. The diagnosis of the need to make a decision is a characteristic of managerial thinking, which can be taught and practised.

A dynamic case study which is based on simulation which develops with time may create decision -making situations, without stating clearly that this is happening. Meaning, in order to decide in time that maybe a decision must be made, there is a perpetual need to follow the organization's situation and to diagnose the need for a decision. A computerized case study enables, for instance, a group of managers to manage an industrial plant for a year. Of course, the computerized plant is infinitely simpler than any real one. We will discuss the limitations of a computerized case study later on. At the same point of time when the managers receive the command, the plant works according to the decisions and lines designed by the prior management. Meaning: there is the possibility of ordering the computer to run ahead in time. At this point new orders will enter the system, and those will immediately be translated into production orders, the stock will diminish and according to the purchase policy new orders for more raw material will be effectuated from the suppliers. The financial actions will also be made automatically according to the actual principles (customers' credit and suppliers' credit.). Apparently, there is no need for managers. Only, fulfillment of organized processes and defined rules for every-day decision making do not assure that those decisions are in the company's favor. In fact, if we let a computerized case study advance without any decision or managerial interference, the result will not suffice us.

The challenge of the group of managers is to localize the weak points of the organization, to alter only what needs changing in order to improve the system, and to do it with the right timing. In order to manage the task the team must identify the important information, which has been hiding among huge quantities of data, which will lead to the conclusion that a decision should be made on the subject. For example, if it is crystal clear that the marketing of certain product grows by a considerable amount, up to the point of exhausting the production capabilities, a decision about what to do must be taken. One of the alternatives could be raising the prices, thus, diminishing the demand and remaining profitable. Another decision could be increasing the prices of other products, in order to leave room for this product.

The process which leads to decision making at this level of importance comprises two stages: The first stage is the identification of the problematic situation. This identification leads to the awareness that there is a need to make a decision which will help with the solution of the problem. If this identification is made on time, it means that the actual problem has not yet placed itself on the discussion table, but has been found through the early identification. The following stage is the analysis of each alternative up to the time of decision. The computerized case study very much stresses the aspect of deciding about what to decide. The second stage, of analyzing the alternatives is of course strongly felt in the case study. The need to follow the implication itself and inspect the actions performed actually cause the expected change in the functioning of the whole system to arise from the case study as well.

The live case study, which develops with time, creates dynamic situations, thus creating a framework for the studying of the dynamic significance of each decision. One of the meanings of dynamism is that the effect of each action or event becomes clear only after some time, Jay Forster created the term system dynamics, where he claimed that there is a misunderstanding about the systemic influences of the period of time which passes between an action and the phenomenon caused by it. A well known example for the dynamic effect is the balance of the hot water in the tap. When the water is cold, we quickly turn the tap in the hot direction, but it takes only a few seconds to realize we have overdone it, and now we have to turn the tap in the direction of the cold and so on. In his book "The Fifth Discipline", Peter Senge raises the issue of dynamic thinking and its relation to integrative thinking, and demonstrates our lack of intuition regarding the dimensions of its influence (The Beer Game).

Dynamic thinking holds great significance in the life of organizations. When it seems there is a basis to the diagnosis that the marketing of certain product is increasing - the one who should react first is the purchasing manager. His reaction must be careful and controlled. As we may see from the integrative case study which we call "The Beer Game".

The computerized case study enables us to clarify the dynamic meanings in management in a direct way. Changes in the market are introduced into the case study, and the team of managers must identify the tendency, and understand the dynamic significance which it produces. The actions performed in order to develop the market are also exposed to the dynamic influence of the gap of time between the action and its results. Let us assume that in order to increase the sales the decision was to reduce the price by 5%. Will this reduction cause a meaningful increase in the demand? When will we be sure that there is a meaningful increase in the demand? Time passes until the level of influence of a change in the price becomes clear and steady. The shift in demand may cause a change in the level of load on the machines. This change also does not happen immediately either, but becomes apparent as time passes.

An additional factor stressed by the computerized case study is coping with uncertainty. The dynamic end is related to understanding the uncertainty which exists in the surroundings. Assuming we cannot be sure exactly how the market demands will behave when the price goes down by 5 %, the decision is even made under uncertain conditions. Nevertheless what can we say about the decision? Does the risk to the organization look reasonable? Has it been taken into account?. What is the significance of an uncertain decision when thinking about the follow up? Training of managers to make decisions under conditions of uncertainty may contribute to a better and more organized process of decision making.

We have mentioned several central subjects in managerial thinking that a wide scoped simulation case study is able to create; teaching and training environment. The next question we have to deal with is What is the ability to learn from experience? Meaning, does the fact that such a group of managers face of such a case and get the results, ensure learning?

This question is much more general than relating to the computerized case study. What is our ability to learn from experience in general, and from a one time event in particular?

It is obvious that experience brings about some sort of learning. How much experience do we need to get to the second level of learning, meaning- learning that creates a new understanding of the surroundings, and is capable of creating a systemic change as a result?

Our accumulated experience (and this also means learning from experience) points to three conclusions:
It is difficult learning from experience, especially from a one time event. We often learn the wrong lesson from the event.
We can learn how to improve learning from experience.
When the ability to learn better from experience is created, there is a possibility of learning much more quickly.

The instructor in a computerized case study has a very significant role in guiding the learning. His main role is not only to teach the material, i.e. showing an organized way of how one should act, but also to use the case study, and many times the surprise from the results of the case study, to advantage, to ask difficult questions thus arousing the thinking of the management team who run the case study.

The surprise factor is of a huge importance in creating learning. Were the case end with the results the participant had foreseen, the most we would have achieved is the reinforcement of existing thinking patterns. Only the computerized case study, with its uncertainty, with the need of integrative thinking and with the need to take into account dynamic factors, clearly creates situations which call for the change of existing thinking patterns, thus creating a new opportunity for a concentrated learning from experience.

Since the case study is based on computerized simulation, it enables the participants to repeat it over and over. This is a big advantage to the learning through experience: after the first experiment some lessons are learned. Are those lessons correct? The application of the conclusions on the case study and the repetition enable us to check the conclusions made. If the outcome is that the application did not help, we have here a surprise which calls for additional learning. If the lessons learned helped in this case, it is advisable to think of applying them experimentally in another computerized case study, in order to learn the limitations of those lessons.

What are the limitations of a computerized case study? Two categories of limitations come to mind. One is based on the limitations of the computerized system to create a real scenario, similar to the surroundings of the participants, in order to reflect the generality of the factors taking part in the dynamic systemic thinking. The second category is the actual learning from specific events - meaning a limitation on the ability to generalize what was learned through experience with totally different systems and situations.

The first category of limitations of the computerized system is obvious. It is impossible to create a case study that would contain all the complexities of real life. It is difficult to introduce the soft, human side of management: understanding of people, the means to motivate people and the channels to transmit messages and values. It is of course, possible to integrate these factors partially through questions and possible answers. Another partial integration of the soft factors may also be achieved through the use of teams facing the case study, and to include the group dynamics taking place in the team as an integral part of the case study. In such a procedure the case study will also arouse the question of levels of openness during the group discussion, how much each of the members contributed to the coping with the case study, and whether any of the members of the team took the leadership.

The utmost reality is too complex to be described in detail in a computerized case study. What is possible is to introduce to the case study enough parts of it, in order to create a high level of complexity, so as to create a valuable learning. This level of complexity is a central link in the building of a computerized case study. If it is too high, the trials to learn in the given time might fail, due to a lack of ability to update all the thinking patterns which need to be updated. If the level of complexity is low, the learning from experience will be very little.

The second category, the limitations of the generalization from a computerized case study, is important to mention in order to bring the expectations down into a proportion. Case studies help to nurture dynamic systemic thinking. The computerized case study makes practice and exercising possible in such a generalization, but it is limited in its ability to check the generalization of what was studied in other systems.

The enormous circulation of information systems like ERP, Enterprise Resource Planning, creates an urgent need for assimilation of dynamic managerial thinking in many organizations. The ability of the computerized case study to create a learning and environment for practice for such a way of thinking can be of great assistance to such a process. Nevertheless, we must remember that learning does not always mean assimilation, since the manager's ability to think integratively, does not assure his willingness to do so. And this is another subject for systemic managerial thinking - how to create learning which also leads to the assimilation of managerial dynamic systemic thinking in uncertain surrounding.

Under the pictures:
Eli Schragenhaim, joint manager in MBE Simulations Ltd. A well known international expert on the theory of constraints and the development of computerized instructional devices for managers. Together with Dr. Avner Pasal he developed a unique methodology for the assimilation of learning from experience in organizations.

Moshe Yerushalmy, , joint manager in MBE Simulations ltd. . A well known international expert on the application of advanced data systems, and its connections with the requirements of the dynamic - integrative management.

The significance of the ability to think systemically is to foresee the generality of influences of one action in one part of the organization, on other parts of the organization, thus evaluating the contribution of the action to save the company.

The technological development of computers have enabled both similar and different ways of training in systemic thinking which produces much stronger results than the static case study.

In managerial thinking we must distinguish between two kinds of decisions: decisions of what should be decided, and decisions that place themselves on the manager's desk.