Posted: May 10, 2010
Creating the “new normal”
Tom Frey talks about a competitive edge through systems thinkingBy Tracy E. Houston
Recently I came across the term 'holonomy.' It is a term coined by a physicist to describe the science of wholes and their interacting parts.
The concept of whole thinking was seriously missing during the Meltdown of 2008 and is one of the critical elements driving us towards a "new normal." Directors are moving toward a set of intelligences around economic interdependencies, vulnerabilities and global coupling inherent in the 21st century business environment.
To gain more top-of-the-house intelligence requires a thoughtful economic assessment and a deeper understanding of whole or systems thinking. For this reason I sat down with Thomas Frey, founder of the DaVinci Institute, to discuss how to create competitive advantage from systems thinking. I originally met Tom when I sat on my first board in the energy industry a number of years ago.
Q: Tell me your thoughts on what systems thinking is?
A: Systems are really the foundation upon which we operate. Think of it like an operating system on your personal computer but for the business environment. Systems put all the structures in place we rely on. They are a deeply ingrained part of our culture. We rarely question them. Yet, they are often times very inefficient.
Think of the tax code here in the U.S. No one really understands it yet we are all influenced by the tax system daily. Systems often do not meet what I call an 'understandability standard.' They operate in a silo and so do the experts that work inside them. This is detrimental to creating competitive advantage for a company.
When the mental structures only work for a few, the losses will be spread over the many. Think of the expansive mathematical models used by those in the derivative or exotic financial instrument markets. They were not fully understood by many and those that created them were operating from inside a silo. Silo intelligences pose a great challenge for directors who need to understand risk and reward from an organizational viewpoint.
Q: Are there opportunities for U.S. businesses in the transition from national to global systems?
A: Yes, there are great opportunities. Some global systems are already in place. You can mail a letter or plan a trip to China and be fairly certain that sooner or later you or the letter will get to the desired destination. We need executive-level leaders who understand the networks tied into systems and can envision them in the future.
Networks are basically simple minded organism that systems rely on. They have helped us gain more efficiency in our lives and business. Think of the phone industry. They were so easy to use they changed the way we communicated very quickly. Similarly, our network of highways began as a system of interconnected roadways that were very simple to use.
One key for directors is to clearly understand the networks that support the company's systems and ensure that these alliances are in good health. Any place the network can go down represents a serious vulnerability for the company. Directors need to ask what is plan B if this relationship goes south overnight. Not an unheard of scenario these days.
Newer global systems like GPS and the Internet provide a platform for other global systems. If the SEC approves the IFRS accounting standards, the governance world will feel a dramatic immersion into a 'new normal' for global governance.
Q; What are the top three biases that would keep directors from creating competitive advantage?
A: 1. Slow adoption to new realities. Our biases tend to be based on the outdated systems we are accustom to.
2. Old ways of making money are slow in the acknowledgement of social causes. Existing revenue streams tend to cloud judgment and slow down a company's willingness to probe for a deeper understanding of their customer's underlying motivations.
3. Speed of success. Antiquated images of change are not in line with pace of change today.
Q: What are the top three vulnerabilities for large corporations as we move into a world with global systems?
A:1. Complexity creates vulnerability. How much time do we spend searching for weaknesses verses relying on the systems that have always worked for the company?
2. Lack of vision. When do we ask questions about how systems can evolve, and more importantly, why they are evolving?
3. Ability to successfully manage operations. It is more difficult to keep a finger on pulse of our increasingly virtual workforce and their relationships with a progressively fluid marketplace.
Q: Any closing thoughts?
A: People living during the Roman Empire had to work with a very convoluted numbering system - Roman Numerals. Every number was an equation and that prevented them from doing any higher math. They were so immersed in this system that they had no clue how limiting it was to their society. An obvious question to ask today is - "What systems do we employ today that are the equivalent to Roman Numerals that are preventing us from doing great things. Turns out that this kind of convoluted system thinking can be found in virtually every corner of our businesses.
Before Peter Drucker died he felt that the most important learning at the MBA level was what he called executive level thinking or integrated thinking. In today's terms, that means converging evidence based thinking into possibility based thinking from the position of the whole organization. Words for the wise, and words that will help take us to the "new normal."
Tracy E. Houston, M.A. president of Board Resource Services, is a board advisory consultant and executive coach headquartered in the Denver area. She conducts board evaluations and assists boards with a variety of issues that increase effectiveness. She can be reached at firstname.lastname@example.org or http://www.eboardmember.com
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