Systems Thinking Fuels High-Velocity Organizations - Steven Spear, MIT Engineering

Steven Spear

Companies that are in the same industry, use the same basic technology, and address the same market needs can nevertheless exhibit huge disparities in performance. Consider Honda vs. Chrysler, for example, or Intel vs. Advanced Micro Devices. Through a combination of low cost, efficiency, timeliness, and responsiveness, some companies just perform more efficiently.

In the course Creating High-Velocity Organizations, an elective offered in MIT's System Design and Management (SDM) program, students examine how and why some companies succeed while others fail through written and video case studies, lectures, and in-class simulations. Examples center on heavy and high-tech manufacturing, new product development and manufacturing, healthcare, and the military.

One case, for instance, involves a high-level system collapse in healthcare. The students watch a video dramatization involving a foreign-born couple that goes to the hospital to deliver a baby, but runs into trouble. Through a series of seemingly inconsequential events (including a mislaid sticky note), the provision of care breaks down with dire consequences.

The emotional content of the video makes the lesson stick, which is important because SDM students, by and large, will become leaders who create value through the hearts and minds of others. They need to understand the ripple effects of their decisions.

To bring home the lessons of the class, students begin by picking a mission-critical process from their past to re-examine. As they progress through the 20 class sessions, they apply each teaching point to this example, developing a strategy for improving the process step by step.

Over the years, students have chosen a wide range of processes to examine—from software engineering to the refurbishment of jet engines—yet invariably, midway through the course, all the students say they can't believe how flawed their original process was.

A major reason so many processes fail is that the systems on which we depend and for which we are responsible have changed from simple and stable to complex and dynamic. Cars, for example, were originally almost entirely mechanical products made of iron and steel. As a result, the number of skills represented in these cars was actually quite small. But manufacturers have since incorporated many new materials and technologies into cars—from aluminum block engines and advanced polymers to advanced computer processors—that require contributions from an ever-expanding number of people and disciplines.

The environment in which cars are manufactured is also vastly more complex today than ever before. Manufacturers rely on an international web of suppliers and face competitors worldwide—all are working to create the next great feature or design. As a result, business is constantly evolving and rapidly moving.

This transition of systems to complex and dynamic characterizes most industries today, and it requires major changes in management. Company leaders need to be able to visualize a system in order to respond to changes nimbly. Students therefore learn the benefits of organizing complex organizations into manageable units at various levels—a concept called "nested compartmentalization."

Using nested compartmentalization makes it possible for one person to visualize and manage the interactions that occur at any level. Think of many eggs within a carton, many cartons in a crate, many crates on a pallet, and many pallets in a truck. The person managing the number of cartons in a crate and how they are packed doesn't need to know all the details necessary to pack the eggs in the carton or the pallets in the truck. That person just needs to know how this specific system integrates into the whole. Nested compartmentalization thus reduces complex systems to layers of simple systems, each of which one person can visualize and therefore manage quickly.

Speed is a critical factor because the complex interconnectedness of today's organizations allows small errors to spiral rapidly into catastrophe. Leaders therefore need to greatly ratchet down the thresholds below which they treat a system aberration as insignificant background noise and above which they react to address the problem. To do this, they must have a clear vision of the system they are managing.

The course touches upon various popular management methodologies—including Total Quality, Six Sigma, and Lean Management. But the emphasis is on the holistic management of systems—particularly of the people in the system—rather than on tools. Students are taught to think methodically about the design of complex systems so that they can encourage exceptional rates of internal improvement and innovation.

The main takeaway is that unless you have a methodical system of design, operation, and improvement, complexity will overwhelm any advantage gained through new technology. If you do have an effective system, enormous competitive advantage can be garnered.

Editor's note: The author of The High-Velocity Edge: How Market Leaders Leverage Operational Excellence to Beat the Competition, Steven Spear has taught Creating High-Velocity Organizations at MIT since 2006.