Introduction to Management Cybernetics

Author: Dr. Werner Boysen Cybernetics is a Introduction to Management Cybernetics transdisciplinary approach for exploring regulatory systems— Motivation and their structures, constraints, and Objectives of possibilities. Norbert Wiener this Learning defined cybernetics in 1948 as “the scientific study of Series control and communication in the animal and the machine.

Dr. Werner Boysen

The author‘s motivation for this Learning Series is to help influential people get to better decisions in our dynamic- complex (business) world. I. Why we need Management Cybernetics

Motivation and Objectives of this Learning Series

The author’s motivation for this The consequences of our activities Counter-measures are often taken Major problems require holistic Learning Series is to help influen- appear with delay and have a cast- too hesitantly and not with the solutions and well coordinated tial people reach better decisions er effect. That makes it difficult to necessary enthusiasm. processes, also in companies. in our dynamic-complex (busi- enforce effective measures. ness) world. Unfortunately, people introduce People often try to tackle global An example is the high nitrate measures too hesitantly and only problems with local measures, Our (business) world is charac- pollution of our ground and if the pain cannot be cushioned which cannot be successful. For terized by an increasing dynamic drinking water by using too much any more. And people often do example, a German solo attempt complexity which often cannot be fertilizer. Another example is the not wait until their measures show cannot resolve the global climate fully understood. Therefore, this global warming taking course ex- effectiveness, but skip over the problem. A global alignment often complexity is often inappropriately ponentially by human intervention measures too early because they fails because of diverging interests reduced by decision makers. Sim- in natural regulation systems. We do not understand the interre- and (too) long decision-making ple mental models are applied. Ex- can also observe undesired devel- lations and they are not patient procedures. Serious problems are ponential developments, tipping opments in companies caused by enough to wait for the results of often not solved because of rela- points and trend inversions are of- harmful management. correct decisions. tively unimportant rivalries. ten not recognized, underestimat- ed, missed, ignored or faded out. Usually noticeable phenomena As effective decisions normally Because many problems are com- appear with a delay and are ig- imply constraints, they are unpop- plex, measures have to be set Such wrong understanding and nored or suppressed for a long ular and harm the decision makers. up holistically. This also applies handling of complex interrelations time. The later counter measures To avoid personal consequences, to developments and changes in may lead to wrong decisions and are introduced, the more dramat- right decisions are often sof- companies. As in topics with glob- illusory solutions. We observe and ic measures have finally to be tened, are not implemented al relevance, highly qualified ex- suffer the consequencesin bad taken to reach the “green area” with the necessary enthusiasm perts also act in companies within politics, in climatic changes, in again. Often it is not possible at and fail to meet their objectives their departments; the large levers dealing with raw materials and in all. The phenomena continue to while the underlying problems for improvement are the capability the management of companies. have an effect. become worse. to consistently embed compa- nies in attractive markets with We do not treat the roots of aberra- Nitrate diffuses into the soil very In many cases, decision makers high potential and in achieving a tions, but impose covers on acute- slowly and seeps into the ground “buy” apparent carefreeness and high-quality alignment among ly arising symptoms. For example, water many years after having take comfort in continuing to con- specialists – with the background funds are created to compensate been applied in agriculture. But sume resources. Human beings of a mutual goal. Brazilian farmers for economic then the nitrate concentration in also belong to these resources, losses in soja cultivation for large the ground water further increas- suffering physically and psycho- food companies due to the forest es although no additional fertilizer logically from enduring problems. clearance – instead of preventing is applied. Apparent solutions cause further the forest clearance. The system cascaded problems. will tip. The Amazon forest will be- come a steppe. We are destroying our livelihood.

4 The Consumer Goods Forum End-to-End Value Chain 5 What you can What you How can you Index expect from benefit from benefit from this Learning this Learning this Learning Series Series Series?

The objective of this Learning By working through my Learn- • Every learning session Series is to set stimuli for self-re- ing Series about Management can be completed in 15 flection and to offer references for Cybernetics, you will be able to minutes. Hence, working benchmarking organizations in dy- considerably improve the quality through the full series of 12 namic-complex environments. of your business. learning sessions will require 2.5 hours of your time. • This learning series • You will recognize that dynamic provides a compact view of complexity is increasing. • To make the most of it, reflect management cybernetics. on the content of each • You will understand why session and transfer the • Within the scope of this traditional management recommendations to your Learning Series it is not my does not work in dynamic- own business and to your intention to deliver a detailed complex environments and specific challenges. Build blueprint for implementation, that we need cybernetic your growing business case! but rather stimuli for self- thinking in management. reflection and references for a rough benchmark for • You will learn the necessary your organization. For further basics about cybernetics details, feel free to contact me. and will be introduced to the most relevant aspects of • Many management areas are cybernetics in management. touched on in this Learning Series, but I consciously avoid • You will gather useful additional an outright management techniques for improving revision course; this Learning your management skills. Series rather highlights the cybernetic specialties • You will become familiar with in each of these areas. practice-proven methods and tools to improve the quality of the dynamic-complex system and to lead systems.

• You will get relevant sources for further reading about each topic.

6 The Consumer Goods Forum 7 Management awareness of Why we need Cybernetic reciprocal e ects management strategic set-up cybernetics IV III The cybernetic I consulting approach II Show XII SummarySum Systemic Show XIII thinking How to introduce cybernetics Measuring to a business cybernetic excellence

Show XI System-orientated process design and stabilizing feedback Integrated mechanisms ITIT workflow appplications

HowH to right-size reesources along thhe business process Stay tuned Best-practiceB leadership for the new in cybernetic organizations releases of this Coping with Learning Series! dynamic complexity 11 Why We Need Introduction to Management Management Cybernetics Cybernetics 1 PAGE 11 Index I Learning Objectives 1. Why Session I Management Cybernetics? PAGE 14

In this section… 2. How Does the Cybernetics

• You will learn why linear cause- PAGE 20 and-effect thinking does not Approach Work? lead to sustainable results in a dynamic-complex world A. What should this desired complexity look like? PAGE 22 • You will be introduced to basic terms of cybernetics B. How can management in complex environments succeed? PAGE 24 • You will get a first glance of how organizations in dynamic- complex environments can be successfully managed Questions for Reflection PAGE 26

Summary of Section PAGE 28

Relevant Sources for Further Reading PAGE 29 I. Why we need Management Cybernetics

Our thinking patterns do not work any more because our world is de-materilizing,

1. Why The relevance of tangible assets is decreasing! Management Our complex world is not explained by the properties and the capabilities of its elements, but by the properties Cybernetics? and the capabilities which arise from the relationship between these elements (emerging properties). Many of our “thinking patterns”

…only work reliably in steady environments with Therefore, the new mostly linear cause-and-effect relationships sources for value are: …date back to former times when ad-hoc solutions were

required without considering network effects • Individuality, plurality and diversity (“both … and …” instead of “either … or …”) …are the wrong orientation frame and lead to wrong Managers should conclusions in complex environments • Interdisciplinary work make sure that these sources are explored! • Relationships in open networks They should learn to Many of our thinking patterns • Communication along processes think in complementary dimensions! endanger the survival of organizations. • Intangible values (intellectual property, contractually secured rights etc.)

Why are these patterns no longer effective?

14 The Consumer Goods Forum End-to-End Value Chain 15 I. Why we need Management Cybernetics

...and because networks increase the complexity and create uncertainty. – By nature, we will not be able to dominate the complex world.

• Networks cause mutual effects and direct and indirect feedback on their own actions.

• In networked structures effects on actions can appear in random places and at random moments.

sub-prime crisis in USA worldwide financial crisis Even though all rules and basic Worldwide economic crisis national cash nutrition conditions are known, by nature, the risk of inflation subsequent effects? future cannot be predicted.

• The effects can crop up in completely unexpected magnitudes (the “butterfly-effect”). Nescience

It is not possible to predict how the dune lines will develop. (Photo: Namib panorama) “Even if the complete information of all elements of this complex system were available, we could not predict the Bad News: There is uncertainty and it is unavoidable. Good News: It is exactly this uncertainty that enables evolution! behavior of the system.”

“It is not necessary to predict the future, but it is advisable to be prepared for probable scenarios. Making assumptions about the future means thinking about possible scenarios and their consequences.”

Wisse Dekker, CEO Philips 1982-1986, Chairman European Roundtable of Industrialists 1988-1992)

16 The Consumer Goods Forum End-to-End Value Chain 17 I. Why we need Management Cybernetics

We should realize that we are parts of our world. We cannot “outsmart” our world without suffering the consequences.

! !

! ! ! The top objective of all systems is to survive. ! Our nature is capable of surviving by dint of an adaptive and dynam- ! ic evolution, driven by complexity.

The species-rich and networked ! nature is “living” the complexity – unlike human beings, who tend Communicative to inappropriately simplify interre- lations and to opt for short-term feedback systems objectives, jeopardizing long-term Most distress in organizations by survival. Human beings rather act ! lacking or misleading communica- as if they are not operating within tion around the interfaces resulting systems, but are in fact dominat- in ineffective and inefficient process- ing the systems from an exterior es, which makes life difficult for the and higher position. That cannot people involved and has a demoti- work well. We are all parts of our vating effect. world. All our decisions and ac- tions have repercussions for us.

Cybernetics offers methods to achieve organizational stability and sustainability. Cybernetics offers a set of skills Our society is a system, and our suitable for understanding and companies are also systems. Both influencing the behavior of organ- are best defined ascommunica - izations. With the aid of these skills, tive feedback systems. The larger communication, and in turn, perfor- and the more complex organi- mance can be noticeably improved. zations become, the more their behavior and their performance are defined by the quality of the feedback between their members (citizens, employees, departments etc.) and towards their environ- ments.

18 The Consumer Goods Forum End-to-End Value Chain 19 I. Why we need Management Cybernetics

Organizations led in line with the cybernetics approach develop resistance to disturbance and disruption. They always find new stabilities.

2. How Does The tricky thing is that the Cybernetics organizations need a certain Approach Work? complexity (variety) to install possibilities with which to cope with the complexity of their environment William Ross Ashby

However, the more complex organizations become the more difficult it is to manage them with conventional means Heinz von Foerster

20 The Consumer Goods Forum End-to-End Value Chain 21 I. Why we need Management Cybernetics

Attentively “listening” at the inter- A. What should faces, they perceive opportunities for adapting at all times in order to this desired find the best balanced result. Con- sequently, the system’s behavior complexity and its performance results from an agile circular interaction between look like? the “elements” instead of from top- down instructions

The organization as a whole, each of Complexity also means diversity. its business areas, departments and The more experience, insights and even the people themselves should cultural views, the more successful operate as an open social system well-balanced decisions and action with an “osmotic skin”. become.

22 The Consumer Goods Forum End-to-End Value Chain 23 I. Why we need Management Cybernetics

Allow your organization the needed variety to become self-controlled. Ensure that all processes are clearly defined, well interlinked and regularly kept updated. Advocate an effective organizational information and knowledge management.

B. How can Strive for this complexity in your organization and make sure that the risk is management in managed within the organization (thinking in probabilities, hedging and/or sharing of risks etc.). Allow for redundancy which can support the organizational stability. complex environments succeed? Promote individual responsibility and grant the necessary authority to the people to take well balanced decisions at the respective operative level (subsidiary principle). Only intervene as an exception. Accept the black-box-phenomenon (Stafford Beer).

The challenge for top management is to initiate top-down the move towards self-regulation and to monitor carefully how the system is performing in terms of adaption (surface behavior). “The purpose of a system is what it does!” (Stafford Beer)

Communicative interaction is a necessary precondition for flexibility and adaptability, both being crucial for stability. Through its interactions the organization has to be continuously on the move and constantly find“floating equilibrium” (homeostasis according to Karl Ludwig von Bertalanffi). This so- called “self-control” is the counterpart to control in the customary sense.

Give the system time to “settle in” and to become effective by itself!

Accept oscillations. Hysteresis is a necessary characteristic of regulation.

Continuously “add energy” to the organization in the form of skills and methods in order to improve the capabilities of further sharpening processes and structures (running investment against the steadily growing entropy).

24 The Consumer Goods Forum End-to-End Value Chain 25 I. Why we need Management Cybernetics

Questions for Reflection

1 Please, draw your 4 How well embedded organization as a is your organization system of interacting in its environment? elements. 5 How flexible and 2 Evaluate the quality adaptable is your of the communication organization? What in your organization. do you do to achieve and to keep the 3 What makes your needed adaptability organization special? and capability for development of you organization?

26 The Consumer Goods Forum End-to-End Value Chain 27 I. Why we need Management Cybernetics

Summary Relevant Sources of Section for Further Reading

• The author’s motivation for this Learning and create uncertainty. We will not be • Baecker, Dirk (HRSG.)(HRSG.):: Schlüsselwerke • Neumann, John v.; Morgenstern, Series is to help influential people to able to dominate the complex world. der Systemtheorie, VS Verlag für OskarOskar:: Spieltheorie und wirtschaftliches improve their decisions in our dynamic- Sozialwissenschaften, Wiesbaden Verhalten, Physica-Verlag, Würzburg, complex (business) world. • Even though all rules and basic conditions are 2005, 3-531-14084-1. Wien 1973, 3-790-80134-8. known, by nature, the future cannot be predicted. • The objective of this Learning Series is to • Büchel, Kurt G.; Sieger, Helge (Hrsg.)(Hrsg.):: • Vester, FredericFrederic:: Die Kunst vernetzt zu denken – set stimuli for self-reflection and to offer • We should realize that we are parts of our Krisenmanagerin Natur. Was Wirtschaft und Ideen und Werkzeuge für einen neuen Umgang references for benchmarking organizations world. We cannot “outsmart” our world Gesellschaft vom erfolgreichsten Unternehmen mit Komplexität, Deutsche Verlagsanstalt in dynamic-complex environments. without suffering the consequences. aller Zeiten lernen können, DWC Medien, DVA, München 2002, 978-3-423-33077-0. München 2009, 978-3-981-03551-3. • By working through my Learning Series • Organizations led in line with the • Wiener, NobertNobert:: Mensch und Menschmaschine. about Management Cybernetics you cybernetics approach develop resistance • Cladwell, MalcolmMalcolm:: Tipping Point. Kybernetik und Gesellschaft, Alfred Metzner will be able to considerably improve to disturbance and disruption. They Wie kleine Dinge Großes bewirken Verlag (Athenäum), Berlin, Frankfurt am Main 1952. the quality of your business. always find new dynamic stabilities. können, Wilhelm Goldmann Verlag, München 2002, 978-3-442-12780-1. • Wiener, NobertNobert:: Cybernetics or Control • Cybernetics can provide useful additional • Allow your organization the necessary and Communication in the Animal and the techniques to improve your management skills. variety to become self-regulated. • Flechner, Hans-JoachimHans-Joachim:: Grundbegriffe Machine, The Massachusetts Institute of der Kybernetik, Wissenschaftliche Technology, USA 1948, 978-0-262-23007-0. • Our thinking patterns no longer work • The management’s task is to initiate self- Verlags-gesellschaft, Stuttgart 1969. because our world is dematerializing and regulation and to keep it running by making sure because networks increase the complexity that enough information and energy are added.

28 The Consumer Goods Forum End-to-End Value Chain 29 22 How to Implement nroduon o nemen Cybernetics Cernes in a Business 2 PAGE 31 Index II Learning Objectives 1. Why Session II Management Cybernetics? PAGE 34 In this section…

• You will get to know the crucial difference between indicator Questions for parameters and flow parameters Reflection PAGE 46

• You will learn the significance of well-aligned operational functions for sustainable results Summary of • You will be introduced to the Section PAGE 47 elements of a proven model kit for a cybernetic organization set-up Relevant Sources for Further Reading PAGE 48 II. How to implement cybernetics in a business

Management Cybernetics offers methods to achieve organizational stability.

1. A corporation’s top objective is to survive – to do this, it is necessary to have a 1. Why sustainable and good financial result. Management 2. The required pre-conditions are a sufficient order intake, a sufficient gross margin and an Cybernetics? effective and efficient order execution.

Many managers tend to directly call in results on target figures. They do not realize that these target figures are just the result of the underlying complex interactions. The target figures only serve as indicators, but not as levers. The Sucient next level down also usually just consists of non-operable recording parameters. Sucient gross margin order intake

The key management task is to identify the flow parameters and to optimize their operational alignment within the market context. In enterprises, these flow parameters are the effects of the operational functions.

Management cybernetics is about optimizing the information flow between these operational functions. According to Stafford Beer, an enterprise is an emergent system that does exactly what is defined in its information flow. Thus, the properties of an enterprise are defined by the interaction of its operational functions. E ective and ecient order execution “Cybernetics and good, effective management are identical” (Fredmund Malik, Führen, Leisten, Leben, p. 28). We should overcome the “old” mechanistic way of thinking and “think and act in systems”.

34 The Consumer Goods Forum End-to-End Value Chain 35 II. How to implement cybernetics in a business

5. Not all variables are suitable for management action. We should 3. These pre-conditions can only be fulfilled by a distinguish between flow parameters and indicator parameters. well-aligned dynamic-com-plex interaction of the operative functions along the business process… Flow parameters Indicator parameters

These parameters significantly influence other param- These are parameters which are influenced by many eters. Their settings can be influenced by the actors. other parameters, but do not influence other param- eters. Indicator parameters record the result of the Critical parameters interactions of flow parameters. They show the status Critical parameters are a special subset of flow and their changes over time show the development parameters. Critical parameters influence many of the system. eislation an other parameters and are influenced by many uielines ailable ystems an pplications other parameters. As the behavior of a system is particularly influenced by the interaction of apital aret such critical parameters, the highest attention Leadership and Financing Controlling should be paid to the critical parameters.

IT Support ailable ecnoloies Logistics Su cient gross margin

oistics aret Su cient Product order intake Management Production

ailable etos eislation an Eective and Product uielines ailable ystems HR e cient order Development an pplications Management execution

abor aret apital aret Leadership and Marketing Controlling Purchasing Financing ompetitie Sales ailable nironment IT Support ecnoloies Logistics Su cient ourcin aret gross margin aret oistics aret Su cient Product order intake Management Production

Objective ailable etos Indicator Eective and Product Parameters HR e cient order Development Management execution 4. …within the given market conditions. abor aret Flow Marketing Parameters Purchasing Sales ompetitie nironment

ourcin aret External Factors aret

36 The Consumer Goods Forum End-to-End Value Chain 37 II. How to implement cybernetics in a business

6. We can neither directly act on the objective nor on the indicator parameters; we can only influence the flow parameters. Effectiveness • Timing of the effect • Direction of the effect • Function of the effect 7. When doing so, we have to respect the drivers • Fade-away rate and the effectiveness of the measures. eislation an • Reinforcing or uielines stabilizing dynamic ailable ystems effects of all an pplications parameters

apital aret Leadership and Financing Controlling

IT Support ailable ecnoloies Logistics Su cient gross margin

oistics aret Su cient Product order intake Management Production

Objective ailable etos Indicator Eective and Product Parameters HR e cient order Development Management execution

abor aret Flow Marketing Parameters Purchasing Sales ompetitie nironment

Drivers • Interests and needs ourcin aret External of acting parties Factors • Possibilities, aret capabilities • Market influences • Information flow • Actions • Reciprocal effects

38 The Consumer Goods Forum End-to-End Value Chain 39 II. How to implement cybernetics in a business

1. If the operational output is poor, … 3. In particular, check whether the management Satisfaction • If customers are not happy because is able and willing to understand the system. of delayed delivery,

• and/or the quality does not Operative “System Results” meet the specifications,

Sta • and/or the staff is not satisfied because their Motivation Management’s activities are not well coordinated, resulting Awareness of Operative “System Results” in extra work and unplanned overtime, Reciprocal Eects Satisfaction then there is no point in inviting customers to a for- mula 1 race or arranging a team-building event with Image in Eyes of Customers the staff. That will not solve the underlying problems. Cost

Management of Stabilising The customer and the staff satisfaction are just ob- the Interfaces Feedback Sta Mechanisms Motivation jectives and not operable levers.

Processing Time

Instead, have a look at the classic indicators “Cost”, 2. … dig deeper to really understand Image in Eyes the system (Jay Wright Forrester). “Processing Time” and “Quality”. of Customers

But be aware that these indicators are just recording Quality parameters; they are also not operable levers.

Operative “System Results” Satisfaction

You should start to scrutinize the management’s Cost awareness of the reciprocal effects as the most im- Sta Motivation portant pre-condition for any improvement.

When you are sure about the management’s aware- ness, design the processes and carefully define the Processing communication around the interfaces. Time

Then introduce stabilizing feedback mechanisms (e.g.: Image in Eyes traffic light systems). of Customers

Quality

40 The Consumer Goods Forum End-to-End Value Chain 41 II. How to implement cybernetics in a business

4. Design the system’s “in-betweens”: processes, communication, 5. You now have a suitable basic cybernetic set- especi-ally feedback, multi-project management, and leadership. up. Cost, processing times and quality will improve, Finally, make sure that competing projects run through Support the feedback with the right IT applications. resulting in staff motivation and a better image. the defined process as smoothly as possible by appro- And last, but not least: promote good leadership. Success will further boost the improvement as it will priately designing the resources in each process step. lead to a circular feedback to the management set-up and the systems services.

Operative “System Results”

Management’s Awareness of Operative “System Results” Satisfaction Reciprocal Eects

Cost

Management of Stabilising the Interfaces Feedback Sta Mechanisms Motivation

Processing Time

Allocation (Partially) Image in Eyes of Resources Integrated of Customers IT Applications

Quality

(Multi-) Project Vertical Management Communication (Leadership) System Services System

42 The Consumer Goods Forum End-to-End Value Chain 43 II. How to implement cybernetics in a business

Always start by ensuring that The approach to a cybernetic set-up works in the management is ready for the same way as the approach to a restructuring a cybernetic approach. project: Staying at the surface is just like fighting against symptoms.

You should go back to the roots!

Management Systems Operative Business Set-up Services System Results Objectives

Analogy to crisis management

Shareholder Strategy Structural Retrieval or Crisis Crisis Crisis P&L Crisis Cash Crisis Insolvency

44 The Consumer Goods Forum End-to-End Value Chain 45 II. How to implement cybernetics in a business

Questions for Summary Reflection of Section

1 Please, list up the 3 Is your management To improve the resilience of your organization, build • Optimize your system by really changing the a cybernetic management set-up and identify and basic conditions, instead of trying to realize most relevant flow open-minded for a operate the effective flow parameters. changes with inappropriate basic conditions.

parameters in your cybernetic mode • A corporation’s top objective is to survive • The management’s task is to initiate self- organization which of operation? – to do this, it is necessary to have a regulation and to keep it running by making sure are suited to influence sustainable and good financial result. that enough information and energy are added. the results. 4 Are the processes • The required pre-conditions for sustainability • Always start by ensuring that the management are a secured sufficient order intake is ready for a cybernetic approach. In particular, in your organization offering sufficient gross margin and an check whether the management is able 2 Write down the designed in an effective and efficient order execution. and willing to understand the system. external factors your integrated way? • These pre-conditions can only be fulfilled by • Design the system’s “in-betweens”: processes, a well-aligned dynamic-complex interaction communication, especially feedback, multi- organization must How well are the of the operative functions along the business project management, and leadership. take as given. processes geared process within the given market conditions. • You now have a suitable basic cybernetic with each other? • Not all variables are suitable for management set-up. Cost, processing times and quality will action. We should distinguish between flow improve, resulting in staff motivation and a parameters and indicator parameters. We better image in the eyes of your customers. can neither directly act on the objective nor on the indicator parameters; we can only influence the flow parameters.

46 The Consumer Goods Forum End-to-End Value Chain 47 II. How to implement cybernetics in a business

Relevant Sources for Further Reading

• Apitz, Klaas; Gege, Maximilian: Was Manager • Königswieser, Roswita; Hillebrand, • Malik, Fredmund: Führen, Leisten, • Simon, Fritz B.: Einführung in die systemische von der Blattlaus lernen können – Erfolgsrezepte Martin: Einführung in die systemische Leben, Campus Verlag, Frankfurt am Organisationstheorie, Carl-Auer-Verlag, der Natur im Unternehmen anwenden, Gabler Organisationsberatung, Carl-Auer-Verlag, Main 2006, 978-3-593-38231-9. Heidelberg 2011, 978-3-869-70602-7. Verlag, Wiesbaden 1991, 3-409-13364-X. Heidelberg 2011, 978-3-896-70667-6. • Picot, Arnold; Reichwald, Ralf; Wigand, Rolf T.: • Surowiecki, James: Die Weisheit der Vielen – • Beer, Stafford: Kybernetik und Management, • Küppers, E. W. Udo: Eine transdisziplinäre Die grenzenlose Unternehmung. Information, Warum Grupen klüger sind als Einzelne, Goldmann S. Fischer, Berlin 1962, ASIN: B0000BG90H. Einführung in die Welt der Kybernetik – Organisation und Management, Gabler Verlag, München 2007, 978-3-442-15446-3. Grundlagen, Modelle und Praxisbeispiele, Verlag, Wiesbaden 1998, 3-409-32214-0. • Blüchel, Kurt G.; Sieger, Helge (Hrsg.): Springer Vieweg Verlag, Wiesbaden • Vester, Frederic: Die Kunst vernetzt zu denken – Krisenmanagerin Natur – Was Wirtschaft und 2019, 978-3-658-23724-0. • Sridhar, Kishor: Krisenimpfung – So machen Ideen und Werkzeuge für einen neuen Umgang Gesellschaft vom erfolgreichsten Unternehmen Sie Ihr Unternehmen widerstandsfähiger mit Komplexität, Deutsche Verlagsanstalt aller Zeiten lernen können, DWC Medien, • Lambertz, Mark: Die intelligente Organisation und zukunftssicher, Redline Verlag, Frankfurt DVA, München 2002, 978-3-423-33077-0. München 2009, 978-3-981-03551-3. - Das Playbook für organisatorische am Main 2013, 978-3-868-81369-2. Komplexität, Business Village, Göttingen • Fisher, Len: Schwarmintelligenz. Wie einfache 2018, 978-3-86980-409-5. Regeln Großes möglich machen, Eichborn Verlag, Frankfurt am Main 2010, 978-3-8218-6525-6.

48 The Consumer Goods Forum End-to-End Value Chain 49 33 ntrouction to anaement ybernetics 3 PAGE 51 Index III Learning “Structure Objectives Follows Session III Strategy” PAGE 54

In this section… Questions for You will learn how you can naturally • PAGE 60 find and follow your strategic Reflection

• You will learn how to maintain strategic flexibility and adaptability Summary of Section PAGE 61 • You will learn how to stay successful in your strategic partnerships Relevant Sources • You will learn how to install an effective innovation process and for Further to derive compelling products and PAGE 62 services for your target markets Reading III. Cybernetic strategic set-up

Demand-based strategy should be implemented by means of the business process, while the corporate structure should best support the processes. “Embed” your organization in the market by creating value for the market participants and stakeholders

• According to the subsidiary principal, by their environment. Critical question: every organization is fully responsible for “What would our environment miss if its own success. Do not blame markets your company did not (yet) exist?“ or other players for your failure. “Structure • Develop a clear profile in your market and • Every organization is just a part of its communicate it. Decide what you should not environment. To be successful, it should do (anymore) by yourself and, if necessary, Follows Strategy” add value to its environment (private and develop partners for these activities. public stakeholders, customers, suppliers and Alfred D. Chandler partners, employees). What is your added • Contribute to value in networks. value (unique selling propositions (USPs)? • Look for natural lock-in effects through • Companies which add value are in performance, trust and reliability. Do not rely demand and are supported and sustained solely on formal contracts (e.g.: acceptance duties).

Structure should support the processes Feed your business with descriptions of “future scope” with highly probable, consistent parameter values by means of a corporate foresight dialogue.

To prepare for an uncertain future … • Replace “uncertainty” by “probability”: Probability is calculable. By applying probability, • Install a continuous multi-dimensional and the future loses its cloudy appearance. Processs interdisciplinary strategic “foresight” dialogue are next in your organization. Establish a kind of thinking • Methodological tool-box for corporate foresight: in contexts, in complex interactions, in contrasts and in paradoxes to better acknowledge ♦♦ Scenario technique, based on legal, political the “insight horizon” of your organization. and technology scouting, literature research, trend survey (exponential developments, • Introduce new aspects for corporate disruptions, inversions) by Delphi surveys, development and prepare the future corporate technology surveys, wildcard analyses, Strategy path by developing an open communication statistics, information theory etc. is first concerning connected developments and the limits of your own operations. • Choose a solid balance between scientific expectations and practical relevance • Feed topics with medium-term horizon into the discourse about the operative business.

54 The Consumer Goods Forum End-to-End Value Chain 55 III. Cybernetic strategic set-up

Consider the basic conditions in co-operation relationships and try to influence them in your favor by means of game theory and statistics.

• Consider the game you are in. Do you want to of strategic interdependency with stay in this game? Are there other, better games? asymmetric information, often not Are there better customers or even markets? leading to the best possible solutions.

• Find out who is defining the rules in the game ♦♦ Try to understand the balancing act and you are in? Can you influence these rules? often the dilemma between individual logical rationality and collective damage. • Can a supplier be a customer at the same time? Can a competitor be a co-operation partner ♦♦ Make use of game-theoretical (“co-opetition”) or a customer at the same time? analyses to analyze the structure of interactions and to find solutions. • What is the strategy behind decisions? Statistical data can also be helpful. Do you see the “big picture”? ♦♦ Use institutions, social norms, social sanctions • Which trends can we identify? and also the self-organization of co-operation to cope with public goods problems. • In networked markets and in organizations decisions have to be made in situations

Include the “blue oceans” approach in your considerations, equipping your Provide the basic conditions for innovation, supporting a structured organization with an “osmotic skin” and a continuous open discourse. innovation process leading to precise fulfilment of market requirements

• Describe “future scope for possibilities” with • The combination of insights leads to a coherent • Define your strategy position and derive the • Introduce a checklist for describing highly probable, consistent parameter values corporate mindset concerning descriptors innovation objectives regarding products, innovation ideas in a simple, but for influencing factors, trends and possibilities for the future, including possible disruptive processes and the structure of your organization structured way (see attachment). incidents with serious effects, so-called“wild directly from your strategy position. • Identify potential business areas (new cards“. Make sure that weak signals for wild • Establish a defined stage-gate process for services, new markets, neighboring markets) cards are perceived by your organization and • Define an innovation team, consisting of the all innovation ideas (see attachment). for “blue ocean” opportunities (untapped that opportunities are capitalized and risk is Managing Director and representatives of Sales, demand) and derive conclusive and consistent actively managed instead of being avoided. Product Development/Engineering, Production, • Define and implement a practice-orientated strategies, also considering co-operations Finance and Controlling. Define the rules for the innovation process, including the identification of in partnerships and networks. The Business • In cross-border relationships, the intellectual decision-making process. Crucial to success is the idea, the evaluation, the sign-off procedure, Model Canvas methodology can help you capital increases by sharing it. the well-coordinated organization of innovation! the cycle times, the meeting frequency and to structure the process (see attachment). all respective responsible functions. • At all times, stay strategically flexible • Invite all employees, but also customers • Crystallize future-orientated innovations. and capable of adapting to changing and suppliers, to come up with ideas • Fill the process with life: Look for environmental conditions. for innovation, best thinking in solutions precise requirement profiles backed by and not in product categories. the market/customers. Do not forget to protect your intellectual property.

56 The Consumer Goods Forum End-to-End Value Chain 57 III. Cybernetic strategic set-up

Checklist for the Stage-gate Process: Descriptions of Example for Innovation Sign-off of Innovations Innovation Ideas Sign-off Phase Content oft the Phase

Basic acceptance and sign-off for market analysis, Label of the idea 1 conception and first investment calculation Type of innovation 2 Sign-off for engineering, business model specification etc. Product innovation Sign-off fort he realization of prototypes (product 3 features, business model with a lead costumer) completely new product 4 Sign-off for commercial readiness, maker-or-buy decision new product feature/attribute 5 Sign-off for market roll-out New application of an existing product 6 Succes monitoring Process innovation

Service innovation

New revenue model The “Business Model Canvas” (BMC) method allows and supports Degree of the innovation a systematic approach to strategy, starting in the market. Novelty in the market

Imitation of market-proven features

Potential

One-off effect

Repetition and scaling potential

Estimates additional revenue potential kEUR/year

Estimated annual cost saving potential kEUR/year

Target market/target costumers

Target market

Target costumers

Who had the idea?

Date Based on Alexander Osterwalder and Yves Pigneur, https://www.startplatz.de/startup-wiki/business-model-canvas/

58 The Consumer Goods Forum End-to-End Value Chain 59 III. Cybernetic strategic set-up

Questions for Summary Reflection of Section

1 Is the strategy of 3 Which are the most A demand-orientated strategy is always the first Establish a strategy-driven innovation process, step to embed your organization in markets. Focus involving the whole organization. Be alert to any your organization relevant result drivers? on solutions for customers; skip all the rest. changes in strategic partnerships.

explicitly formulated? • A demand-based strategy should be • Consider the basic conditions in strategic 4 Are the key partners implemented by means of the business partnerships and try to influence them in your process, while the corporate structure favor by means of game theory and statistics. 2 Is each of the co-operating with should best support the processes. members of your your organization • Provide the basic conditions for • Embed your organization in the market by creating innovation, supporting a structured organization aware of suitable to implement value for the market participants and stakeholders innovation process leading to precise fulfilment of market requirements. the strategy and is it the strategy? • Feed your business with descriptions understood, accepted of “future spaces” with highly probable, • The “business model canvas” method consistent parameter values by means allows and supports a systematic approach and supported 5 How does your of a corporate foresight dialogue. to strategy, starting in the market. by everybody? organization • Use cross-border relationships to increase acknowledge the need the intellectual capital by sharing it. 2 How well do the for strategic correction? • Include the “blue oceans” approach in processes of your your considerations, equipping your organization with an “osmotic skin” organization support 6 How is the innovation and a continuous open discourse. and foster the process defined in your • Make sure that weak signals for wild cards implementation organization? How is are perceived by your organization and of the strategy? that opportunities are capitalized and risk is it “implemented”? actively managed instead of being avoided.

60 The Consumer Goods Forum End-to-End Value Chain 61 III. Cybernetic strategic set-up

Relevant Sources for Further Reading

Interested parties can find further literature about a Brown & Co., Boston/New York/London Seele der Physik, Deutsche Verlagsanstalt Herausforderer, Campus Verlag, Frankfurt cybernetic strategic setup. 2000. Deutsche Ausgabe: Goldmann Verlag, DVA, München 2008, 978-3-421-04295-8. am Main 2011, 978-3-593-39474-9. München 2002, 978-3-442-12780-1. • Axelrod, Robert: Die Evolution der • Malik, Fredmund: Strategie – Navigieren in der • Primus, Arhur: Optimierung von Kooperation, Scientia Nova, Oldenbourg • Horx, Matthias: Das Megatrend- Komplexität der neuen Welt, Campus Verlag, Problemlösungsprozessen durch Verlag, München 2009, 978-3-486-59172-9. Prinzip – Wie die Welt von morgen Frankfurt am Main 2013, 978-3-593-39766-5. Wissensmanagement – Ein Vorgehensmodell, entsteht, Deutsche Verlagsanstalt DVA, Deutscher Universitätsverlag DUV • Beyers, Bert; Burmeister, Klaus; München 2011, 978-3-321-04443-3. • Merbecks, Andreas; Stegemann, Wirtschaftswissenschaft, Wiesbaden Neef Andreas: Corporate Foresight – Uwe; Frommeyer, Jesko: Intelligentes 2003, 3-824-40689-6. Unternehmen gestalten Zukunft, Murmann, • Förster, Anja; Kreuz, Peter: Different Thinking Risikomanagement – Das Unvorhersehbare Hamburg 2004, 393-8-01707-4. – So erschließen Sie Marktchancen mit meistern, Redline Wirtschaft, Frankfurt • Segil, Larraine: Strategische Allianzen – coolen Produktideen und überraschenden am Main 2004, 3-832-30964-0. Systematische Planung und Durchführung • Dathe, Johannes: Kooperationen – Leitfaden Leistungsangeboten, Redline Wirtschaft, von Unternehmensallianzen, Midas Verlag, für Unternehmen. Strategien, Erfahrungen Frankfurt am Main 2005, 3-636-01186-3. • Nagel, Reinhart; Wimmer, Rudolf: Systemische St. Gallen 1998, 3-907-10005-0. und Grenzen in Europa, Hanser Verlag, Strategieentwicklung – Modelle und Instrumente München und Wien 1998, 3-446-19270-0. • Frischmuth, Jürgen; Karrlein, Wolfgang; für Berater und Entscheider, Schäffer-Poeschel, • Shannon, Claude; Weaver, Warren: The Knop, Jan: Strategien und Prozesse für Stuttgart 2009, 978-3-791-02871-2. mathematical theory of Communication, University • Diekmann, Andreas: Spieltheorie – Einführung, neue Geschäftsmodelle, Springer Verlag, of Illinois Press, Urbana and Chicago 1963, Beispiele, Experimente, Rowohlt Verlag, Heidelberg 2001, 3-540-41295-6. • Nalebuff, Barry; Brandenburger, Adam: Library of Congress Card Catalogue: 49-11922. Hamburg 2010, 978-3-499-55701-9. Coopetition - kooperativ konkurrieren. Mit der • Kaplan, Robert S.; Norton, David, P.: Spieltheorie zum Unternehmenserfolg, Campus • Warren, Kim: Competitive Strategy • Eschenbach, Rolf; Hunesch, Hermann: Balanced Scorecard, Schäffer-Poeschel Verlag Frankfurt, New York 1996, 3-593-35585-X. Dynamics, John Wiley & Sons, Strategische Konzepte – Management- Verlag, Stuttgart 1997, 3-791-01203-7. Chichester 2004, 0-471-89949-6. Ansätze von Ansoff bis Ulrich, Schäffer- • Neumann, John v.; Morgenstern, Poeschel, Stuttgart 1996, 3-7910-1093-X. • Kim, W. Chan; Mauborgne, Renée: Der Blaue Oskar: Spieltheorie und wirtschaftliches • Weick, Karl E.; Sutcliffe, Kathleen M.: Das Ozean als Strategie. Wie man neue Märkte Verhalten, Physica-Verlag Würzburg, Unerwartete managen. Wie Unternehmen aus • Gassmann, Oliver; Sutter, Philipp: schafft, wo es keine Konkurrenz gibt, Hanser Wien 1973, 3-790-80134-8. Extremsituationen lernen, Schäffer-Poeschel, Praxiswissen Innovationsmanagement, Hanser Verlag, München 2005, 978-3-446-40217-1. Stuttgart 2010, 978-3-791-02968-9. VerlagMünchen 2008, 978-3-446-41481-5. • Osterwalder, Alexander; Pigneur, Yves: • Lindley, David: Die Unbestimmbarkeit der Business Model Generation – Ein Handbuch • Also remommendable: • Gladwell, Malcom: The Tipping Point – How Welt. Heisenberg und der Kampf um die für Visionäre, Spielveränderer und https://link.springer.com/book/10.1007/978- little things can make a big difference, Litle, 3-658-18917-4 (100 Management-Tools)

62 The Consumer Goods Forum End-to-End Value Chain 63

4 Management‘s

Introduction to Management awareness for Cybernetics reciprocal e ects Index IV Learning Objectives 1. Why Awareness of Session IV Reciprocal Effects? PAGE 14 The Management Model In this section… “CyberPractice” PAGE 18 • You will learn about managers’ limited direct influence on the properties and capabilities of their organizations Questions for Reflection PAGE 22 • You will acknowledge the need to perceive the “big picture” and operate in an integrated way Summary of Section PAGE 24 • You will understand the significance of variance and the need for complexity Relevant Sources

• You will get to know “CyberPractice”, for Further Reading PAGE 25 a proven management model IV. Management awareness of reciprocal effects

The sustainability of enterprises strongly depends on the management’s awareness of reciprocal effects and their leadership attitude.

1. Why Awareness Therefore, of Reciprocal nature has the edge Effects? over societies with human involvement.

• Living beings in nature adapt to changing environmental conditions and dynamically improve their capabilities. Evolution works because the full complexity in the eco-system of the interaction between all plants and animals happens naturally.

• In human society, as in politics and in enterprises, it is different because humans tend to improperly simplify existing complexity, leading to myopic decisions which do not consider the whole pattern of interlinked effects. This creates cascades of knock-on effects.

The better we acknowledge the complex reality, the more effectively we can decide and act.

68 The Consumer Goods Forum End-to-End Value Chain 69 IV. Management awareness of reciprocal effects

Stop believing that you can solve the problems Use the knowledge and the experience because you are in a management position. in your system as the key source for Try to understand and to use your system! good and sustainable solutions.

Managers are paid for results. The sad fact is that a single person can The specific interaction of a sys- “The purpose of a system is what never have the overview of the whole picture in order to take good tem’s elements defines the proper- it does.” decisions alone. ties and the behavior of the system. Stafford Beer “The image of the world around us “People are only role players in a which we carry out in our head is system. They act within the system, just a model. Nobody in his head even though they believe that they imagines all the world, govern- are managing it. This is not a popu- In complex environments, the complexity of your ment or country. He has only se- lar idea for those who believe that organization is the basis for survival. Increase lected concepts and relationships they are real “men of action” the degrees of possibilities for action (variance)! between them, and uses those to represent the real system” Jay Wright Forrester “The variance of a controlling sys- viting and authorizing your teams tem should be at least as high as to find solutions! the variance of the emerging distur- bances to be able to control them” Promote far-sightedness and at- Our decisions and actions have reciprocal tentive behavior. effects. Make decisions based on expected long- William Ross Ashby term effects, not for apparent quick results. Allow initiatives at the borders Do not try to replace complexity of your core business activity, “Everything is connected to ““Science” is derived from the by mono-causal reasoning. Accept because innovation arises from everything. It is not that A acts on Greek “ski” that means “cutting complexity. You cannot reduce it. the borders – from the interfaces B, or B on A, but everything si- off”. This illustrates that we are with others. multaneously affects everything rather used to analyzing sections Build at least the same complex- else. Jupiter is far away; never- of our reality instead of trying to ity in your organization as the Strive for well-aligned decisions theless, our personal decisions capture the whole picture. Manag- environment of your organization involving all relevant needs and and actions have an effect on ers should seek to recognize rela- possesses. interests. Jupiter and vice versa” tions and interactions, instead of thinking in a mono-causal “cause Promote open interaction within In dynamic-complex environments, and effect”-scheme” your organization. Foster diver- do not try to strictly follow a plan, sity! Facilitate inter-disciplinary but always be alert to spontane- Heinz von Foerster discourse. Build trust in the joint ously arising opportunities and competence of your teams by in- threats! Make use of the power of the moment!

70 The Consumer Goods Forum End-to-End Value Chain 71 IV. Management awareness of reciprocal effects

Do it like nature does: Use your staff’s competence in a cybernetic discourse and achieve well-aligned and sharpened solutions with high staff acceptance. The Management Model “CyberPractice”

5 Well-aligned and sharpened 6 Formal Management proposals/solutions · Managing Director · Business Unit Directors · Department Heads Specialists from the relevant · Supervisors business units or departments

Cybernetic Competence Teams

1 Needs 2 Aligned needs Proposals 3 Aligned assessments Assessments 4 Aligned proposals 5

Cybernetic discourse Employees in the relevant business units or departments

Sta // Peer-collegues Decisions

7 Implementation

72 The Consumer Goods Forum End-to-End Value Chain 73 IV. Management awareness of reciprocal effects

Self-regulation needs a starting impulse from top In a world characterized by uncertainty, management. Are you personally ready for cybernetics? your “Inner Form” becomes in-creasingly relevant for your orientation and to become effective.

“Everybody in the “We build a personality cult around the conductor, but we should know that not he makes the music, but the company should act music makes him.”

as a manager – in Bernd Linder-Hofmann et al.: their expert role and Integrale Aufstellungen, p. IX regardless of their hierarchical level!”

“If everybody is a manager, self- Heinz von Foerster The Western Way The Eastern Way regulation arises; a “Scientific” approach, based on A relationship approach requiring circular interaction is functional skills and oriented parties to cooperate, to develop towards benefit, measured ideas in co-existence with implemented in which by the criteria of efficiency different opinions, to pause and effectiveness, making for a moment, to disengage everybody steadily use of all resources. and to get involved again, influences everybody to tolerate and to resist. in the interest of

the company.” • In turbulent environments, gain your own everything, by your attitude of attentiveness and orientation from your inner balance – your by an integrative comprehension of the world. “Inner Form” (Linder-Hofmann, Zink). • Do not try to be the hero. For effectiveness and • Be present and alert, supported by your sustainability, rather rely on your organization awareness that you are connected with and on your personal relationships.

74 The Consumer Goods Forum End-to-End Value Chain 75 IV. Management awareness of reciprocal effects

Questions for Reflection

1 Are you aware of 2 To which degree 3 Does the capability of 4 How fast can your the degree your is the mode of reaction correspond organization realize management unerringly operation in your with the possible market opportunities? acknowledges market organization initiated market scenarios (e.g. developments and by the employees? loss of an important 5 How punchy is your tendencies within customer, decrease organization? the organization? of the demand for certain technologies or certain techniques)?

76 The Consumer Goods Forum End-to-End Value Chain 77 IV. Management awareness of reciprocal effects

Summary Relevant Sources of Section for Further Reading

• Stop believing that you can solve • In complex environments, the complexity of your • d’Aveni, Richard A.: Hyper-Competition. • Meadows, Dennis; Meadows, Donella; the problems yourself because you organization is the basis for survival. Increase Managing the Dynamics of Strategic Zahn, Erich; Milling, Peter: Die Grenzen des are in a management position. Try to the degrees of possibilities for action (variance). Maneuvering, The Free Press, Maximillan Wachstums, Rowohlt Taschenbuch Verlag, understand and to use your system. Inc., New York 1994, 0-029-06938-6. Hamburg 1973, 580-3-499-16825-1. • Do it like nature does: Use your staff’s • Our decisions and actions have reciprocal competence in a cybernetic discourse • Linder-Hofmann, Bernd; Zink, Manfred: Die • Miegel, Meinhard: Exit. Wohlstand effects.Make decisions based on the and achieve well-aligned and sharpened Innere Form. Zen im Management Gellius ohne Wachstum, Propyläen-Verlag, expected long-term effects in the system, solutions with high staff acceptance. Verlags GmbH edition Auszeit, Herrsching Berlin 2010, 978-3-549-07365-0. not for apparent quick results. am Ammersee 2002, 3-936-17903-4. • Self-regulation needs a starting • Mutius, Bernhard von (Hrsg.): Die andere • Use the knowledge and the experience impulse from top management. • Lindley, David: Die Unbestimmbarkeit der Intelligenz. Wie wir morgen denken werden, in your system as the key source for Welt. Heisenberg und der Kampf um die Kett-Cotta Verlag Stuttgart 2004, 3-608-94085-5. good and sustainable solutions. • In a world characterized by uncertainty, Seele der Physik, Random House Verlag, develop your “Inner Form” for your München 2007, 978-3-421-04295-8. orientation, in order to make good decisions and to become effective in a natural way.

78 The Consumer Goods Forum End-to-End Value Chain 79 5 ntrodution to anaement Cernetis Index V Learning Objectives 1. Why “Systems Session V Thinking”? PAGE 14

In this section… Questions

• You will understand the for Reflection PAGE 24 effect of positive and negative feedback loops

Summary of Section PAGE 26 • You will get an understanding of the “system dynamics” method to model and simulate the behavior of (complex) systems Relevant Sources

• You will become aware for Further Reading PAGE 27 of system dynamics resulting in exponential developments, tipping points and trend inversion

82 The Consumer Goods Forum End-to-End Value Chain 83 V. Systems thinking

The sustainability of enterprises strongly depends on the management’s awareness of reciprocal effects and their leadership attitude. If you do not wait with reinforced action until your basic action becomes effective (“time-delayed balance”), the result may become uncontrollable.

Positive feedback 1. Why “Systems Negative feedback Thinking”?

• “Systems Thinking“ is • We constantly create mental • System Dynamics is a a disciplined way of models without being method of implementing understanding dynamic aware of doing so. But systems thinking with the relationships in order to make research has shown that aid of computers. This is better decisions and to avoid we are not always good at particularly useful in the undesired consequences. understanding the implications event of complex problems. of our mental models. • With the help of Systems

Thinking practitioners gain • By creating a “computer Approach to solution: Observe the effect of introduced measures before reinforcing the action. a better understanding of model” which corresponds interdependent components to our mental model we can which make up a system and simulate scenarios and achieve this enables them to recognize analytical results which are not Two inherently stable systems linked by means of a levers for effective action. biased by personal influences. variable can wind each other up (“escalation”).

Positive feedback Negative feedback You can only act in a system-orientated way and compensate deviations if you acknowledge the behavior patterns.

Typically, complex systems are Peter M. Senge systematically driven by repetitive behavior pat- described 10 typical behavior pat- terns which can be copied into terns (The fifth discipline). qualitative models. Finally, conceptual approaches to To purposefully change the behav- solutions are drafted to facilitate ior of systems, these behavior pat- the handling of these behavior terns have to be identified within patterns. their structures.

Approach to solution: Active de-escalation by an intermediary; avoid future escalation by introducing negative feedback mechanisms.

84 The Consumer Goods Forum End-to-End Value Chain 85 V. Systems thinking

Relatively successful systems enjoy a larger feed of resources, making The “treatment of symptoms” may result in a temporary alleviation, them even more successful (“success for the successful”). but it leads to the dependence on further treatment of symptoms.

Positive feedback Positive feedback Negative feedback Negative feedback

Approach to solution: The disadvantaged party can improve its position only by a strongly motivated Approach to solution: An intensive discussion of the situation’s real complexity can help to acknowledge survival fight (increasing performance, high creativity, smart positioning), if the constellation is not balanced and to accept the true cause of the problem. An extensively applied system analysis, even utilizing out by the intervention of a higher-order institution (e.g.: the state, competition/cartel law). the collective intelligence of teams, should be preferred to short-sighted measures.

If stability is required, positive feedback mechanisms should Inappropriate corrective measures can – in the course of time – be replaced by negative ones (“limit to growth”). increase problems, even though the problem seemed to be solved.

Positive feedback Positive feedback Negative feedback Negative feedback

Approach to solution: Introduction of mechanisms ensuring that initiatives are always scrutinized Homeostasis: Coping with crisis by limiting or replacing positive feedback mechanisms by negative, as to whether they contribute to success or not. Avoid the perception of any illusory stabilization. stabilizing feedback mechanisms (homeostatic equilibrium = floating equilibrium) Decide as close as possible to the point where things are taking place.

86 The Consumer Goods Forum End-to-End Value Chain 87 V. Systems thinking

If you do not wait with reinforced action until your basic action becomes If you do not wait with reinforced action until your basic action becomes effective (“time-delayed balance”), the result may become uncontrollable. effective (“time-delayed balance”), the result may become uncontrollable.

Positive feedback Positive feedback Negative feedback Negative feedback

Approach to solution: Keep the objectives valid and scrutinize whether all possibilities to act have been tackled (different approach?). But do not “hunt a phantom”: If it becomes evident Approach to solution: By a meaningful alignment among the involved parties (comprehension) cyclical oscillation can be that the objective cannot be achieved, set realistic ones (different direction?). reduced and a quasi-stable situation around the optimum can be maintained; an intervention can mitigate the situation.

Two inherently stable systems linked by means of a Two inherently stable systems linked by means of a variable can wind each other up (“escalation”). variable can wind each other up (“escalation”).

Positive feedback Negative feedback

Positive feedback Negative feedback

Approach to solution: Mitigation by a sound analysis and alignment of the system resulting from the cooperation; Approach to solution: As resources become scarce, transitional decreasing capabilities and results should be accepted make sure that future cooperation relationships are equipped with stabilizing negative feedback mechanisms. while new resources are made available. This step should be regarded as an investment in a new prosperous phase.

88 The Consumer Goods Forum End-to-End Value Chain 89 V. Systems thinking

With “System Dynamics” methodology, dynamic-complex systems With SD software, challenging dynamic-complex systems can be modeled can be modeled and their behavior can be simulated. and simulated. Some experience is necessary for meaningful models.

• System Dynamics is a • Qualitative models • Quantitative models methodology developed by (influence diagrams): Jay Wright Forrester at the »» Offer quantitative Sloan School of Management »» Help to generally discuss scenario analyses, at the Massachusetts Institute dynamic-complex problems forecasts and insights of Management (MIT) for the and to identify feedback holistic analysis and simulation and missing feedback »» Help to substantiate of dynamic-complex systems. in the processes corporate, political or ecological planning • The effects of management »» Can provide valuable insights decisions on the systems’ and lead to mind changes behavior can be derived from the simulation. »» Can easily be transferred in equations and are the basis for quantitative models

Meanwhile, appropriate system dynamics software is commercially available. Proven SD software

ANYLOGIC Agent-based SD simulation, Java-based

Example of an SD model. Source: https://www.semanticscholar.org/pa- HERAKLIT Authoring software for simulation and strategy games per/On-developing-system-dynamics-model-for-business-An-Jeng/8e- 7ab9136fe0baf7794c0e1a6e15f193c9015133/figure/3

IMODELER Java-based SD tool for qualitative cause-effect analysis

ITHINK UND STELLA SD simulation tool isee Systems

POWERSIM SD simulation tool Powersim Software AS

SAVANNAH Simulation software for traffic planning, city planning, SIMULATIONS AG Production and supply-chain management

VENSIM SD simulation tool Ventana Systems Inc.

90 The Consumer Goods Forum End-to-End Value Chain 91 V. Systems thinking

SD has successfully been applied to meaningful complex topics and has led to significant insights.

Questions for Reflection

1 Does your 3 How well are the organization think in effective relationships Meadows, Donella H.; Meadows, Jay Wright Forrester: John D. Sterman.: Dennis L.; Randers, Jørgen; Industrial Dynamics, 1991. Business Dynamics – Systems system contexts? in your organization Behrens, William W.: The thinking and modeling really known? Limits to Growth, 1971. Extract for a complex world. Explanation of how SD can 2 How well are the Results successfully be applied Extract decision makers in 4 Have you ever • Given business as usual, to solve business and System dynamics is both a i.e., no changes to historical organizational problems. currently utilized approach to your organization modeled important growth trends, the limits to organizational problem solving at growth on earth would become the professional level, and a field aware of the limits dynamic relationships evident by 2072, leading to of study in business, engineering, of their mental and simulated “sudden and uncontrollable and social and physical sciences. decline in both population models in a dynamic- scenarios to support and industrial capacity”. complex world? decisions?

• Growth trends existing in 1972 could be altered so that sustainable ecological and economic stability could be achieved.

• The sooner the world’s people start striving for the second outcome above, the better the chance of achieving it.

92 The Consumer Goods Forum End-to-End Value Chain 93 V. Systems thinking

Summary Relevant Sources of Section for Further Reading

• “Systems Thinking“ helps to perceive the big • Meanwhile, appropriate SD software • Ariely, Dan: Denken hilft zwar, nützt aber • Meadows, Donella H.; Meadows, Dennis L.; picture of interrelations and interactions instead is commercially available. nichts. Warum wir immer wieder unvernünftige Randers, Jørgen; Behrens, William W.: The of “stopping short“ and analyzing only fragments. Entscheidungen treffen, Knaur Taschenbuch Limits to Growth, Universe Publishing, 1972. • With SD software, challenging dynamic-complex Verlag, München 2008, 978-3-426-78035-0. • You can only act in a system-orientated systems can be modeled and simulated. Some • Minsky, Hyman P.: Stabilizing an unstable way and compensate deviations if you experience is necessary for meaningful models. • Feller, Wiliam: An Introducion to Probablity. Economy, McGraw-Hill Book Company acknowledge behavior patterns. Theorie and its Applications, John Wiley New York, St. Louis, San Francisco, Toronto, • SD has successfully been applied to meaningful & Sons, Inc., USA 1950, 68-11708. London, Sydney 2008, 978-0-071-59299-4. • Peter M. Senge systematically described 10 complex topics and has led to significant typical behavior patterns (The fifth discipline). insights. For example, in 1971, Donella and • Burmeister, Klaus; Neef, Andreas; Beyers, • Senge, Peter M.: Die fünfte Disziplin. Dennis Meadows conducted an SD-powered Bert: Corporate Foresight. Unternehmen Kunst und Praxis der lernenden • By means of the “System Dynamics” (SD) analysis about the future of humankind at gestalten Zukunft, Murmann Verlag, Organisationen, Schäffer-Poeschel Verlag methodology, developed by Jay Wright Jay Wright Forrester‘s institute for system Hamburg 2004, 3-938-01707-4. Stuttgart 2011, 978-3-791-02996-2. Forrester, dynamic-complex systems can be dynamics at the MIT, commissioned by the modeled, and their behavior can be simulated. Club of Rome: “The Limits to Growth”. • Feller, Wiliam: An Introducion to Probablity. • Sterman, John D.: Business Dynamics. Theorie and its Applications, John Wiley Systems Thinking and Modeling for a & Sons, Inc., USA 1950, 68-11708. Complex World, Tata Mc Graw-Hill Edition, New York 2010, 978-0-071-06812-3. • Diekmann, Andreas: Spieltheorie. Einführung, Beispiele, Experimente, Rowohlts Enzyklopädie, • Vester, Frederic: Die Kunst, vernetzt zu denken. Hamburg 2010, 978-3-499-55701-9. Ideen und Werkzeuge für einen neuen Umgang mit Komplexität, Deutsche Verlagsanstalt dtv • Forrester, Jay W.: Industrial Dynamics, The M. I. Wissen, München 1999, 978-3-423-33077-0. T. Press Cambridge (MA) 1961, 262-06003-5.

94 The Consumer Goods Forum End-to-End Value Chain 95

6 System-orientated

Introduction to Management process design and Cybernetics stabilizing feedback mechanisms Index VI Learning Objectives 1. Where can cybernetic Session VI processes help? PAGE 100 a. Bullwhip Effect and e. Co-ordinators In this section… Processes PAGE 101 as Exceptional Solutions PAGE 104 • You will learn how to b. Contribution design processes in an output-orientated way of Business f. (Stabilizing) Processes PAGE 101 Negative Feedback Mechanisms PAGE 105 • You will learn how to avoid “blind” c. Interfaces PAGE 102 effort, errors and redundancy by aligning demand and g. Responsibilities possibility at the interfaces d. The “Viable System”- and Documents PAGE 107 Approach According to Stafford Beer PAGE 103 h. Implementation PAGE 107 • You will learn how to design processes as nature does

• You will be introduced to Questions the significance of feedback mechanisms in processes and for Reflection PAGE 108 you will learn how to establish effective feedback in practice

Summary of Section PAGE 110

Relevant Sources for Further Reading PAGE 111 VI. System-orientated process design and stabilizing feedback mechanisms

The processes bear tremendous unreleased Holistically designed processes can be kept stable potential for financial results and stabilization and agile by real-time feedback mechanisms. a. Bullwhip Effect and Processes

“Low operative performance and the often observed “bullwhip effect” 1. Where can are usually the consequence of processes not interacting well with each other rather than a consequence of market variabilities.” cybernetic Jay Wright Forrester processes help?

Do you sense that the Do you want to ensure that The performance can be considerably improved by a well-aligned dynamic- potential of your staff is resources are deployed even complex interaction of the operative functions along the business process. only partially used? more sustainably than so far? b. Contribution of Business Processes

Do you want to Do you want to see that your Legislation and Guidelines Available Systems considerably reduce the staff finds a rewarding meaning and Applications friction in the interaction in their activities and that Capital Market between your teams? managers give their employees Leadership and a comprehensible orientation? Financing Controlling IT Support Available Technologies Do you want to make sure Logistics Su cient that relevant information Do you want to keep gross margin Logistics Market Su cient Product is regularly absorbed, your organization order intake Management channeled and processed adaptive and punchy? Production Objective in your organization? Available Methods Indicator Eective and Product Parameters HR e cient order Development Management execution Do you want future solutions Labor Market Flow to be holistically set up to Marketing Parameters Purchasing make sure that the corporate Sales Competitive result is optimized? Environment

Sourcing Market External Factors Market

100 The Consumer Goods Forum End-to-End Value Chain 101 VI. System-orientated process design and stabilizing feedback mechanisms

Think and design processes in the stress-field of Install all five core functions of living systems in the processes! expectations and possibilities at the interfaces! d. The “Viable System”-Approach c. Interfaces According to Stafford Beer Interface 1 Interface 2 Core functions of living systems according to Stafford Beer (observed in living beings in the nature):

• Function 1: Value-creating direct • Function 4: Adaptation of the value-creating n-1 n n+1 activities (fulfilment, responsibility) direct activities (“the world of the options”: market research, strategy development, • Function 2: Co-ordination of the value- R&D, organization development, cognition, possibilities expectations possibilities expectations Starting Point creating direct activities (communication, innovation, evolution and creation,

in process step n-1 in process step n in process step n+1 processes, recursion and circularity) sustaining and changing of structures) involved parties involved parties involved parties • Function 3: Optimizing of the value-creating • Function 5: Principle Decisions (governance, direct activities “here and now” (monitoring, policies, intervention in exceptional cases) • Focus your attention on the interfaces • (Internal) customer expectations should be aligned auditing, agility, continuous improvement) along your processes. with the possibilities of (internal) suppliers. Each of these functions should be installed in the processes of organizations. Any delegation of these functions into staff positions usually does not work.

With the “Viable Systems Model” Stafford Beer laid Avoid „waste“ by alignment at the interfaces by thinking and the foundation stone for management cybernetics. designing processes starting from the customer expectations!

Interface The Viable Systems Model (VSM) is a reference Missing performance model for viable systems, derived from Need of n+1 observations in nature and from system thinking Input of n Cybernetics and Management, 1959 Blind performance

Stafford Beer

• Missing performance has to be added later, • Blind performance is not used by anybody often by the subsequent parties along later in the process. Consequence: Useless the process. Consequence: Additional cost and unnecessary work load! cost, delay and fading motivation!

The expectations at the process end (customer expectations) should define the process chain. Therefore, processes should be thought through and designed starting from the end!

102 The Consumer Goods Forum End-to-End Value Chain 103 VI. System-orientated process design and stabilizing feedback mechanisms

Ideally, co-ordination is effected by direct interaction between the operative Pro-actively defined (stabilizing) negative feedback functions; only sometimes, coordinators can help to see “the big picture”. mechanisms help to avoid surprises. e. Co-ordinators as f. (Stabilizing) Negative Exceptional Solutions Feedback Mechanisms

If the processes are still not defined according to Staf- • The earlier mistakes or delays are detected, ford Beer or the organization is not yet ready for them, • Not even the best designed process the lower is the probability that these coordinators at the interfaces can help. runs without mistakes or delay. mistakes or delays have an effect on subsequent process steps and the lower • Problems are usually the result of is the cost of corrective measures. To illustrate this, look at the following examples: deviations which have been recognized either too late or not at all. • Deviations should be made visible and actionable.

1. Management of inventory volume

The management of the inventory is a typical interface topic. Purchasing adds Examples of topics for pro- • Will the relationship between value and effort materials, production and sales withdraw materials and warehousing monitors active “foresight feedbacks”: be within the pre-calculation/budget? and books the ins and outs of the inventory. There is usually no responsibility • Will the pre-conditions (expectations) for • Will there be bottlenecks or unused resources? for the inventory volume/value and for the “quality” or composition of the the next process step be fulfilled? stocked items for operations. The stock is floating and is not optimized. • Will all necessary information and • Will the customer’s expectations – tools be available in time? from today’s view – be fulfilled? 2. Customer Project Management • Are quality issues becoming apparent?

Customer projects should be executed along the process. Nevertheless, competing projects cause priority issues, ideally to be solved by the involved parties. In transition periods coordinators can be helpful to manage critical paths across different projects. Feedback mechanisms, firmly installed in the processes, can help to avoid negative surprises.

3. Coordinated Contract Management set error control value signal variable Contracts with customers are usually signed by sales managers, while contracts with suppliers for fulfilling sales contracts are signed by purchasing managers. w(t) e(t) x(t) Unfortunately, both contracts are often not linked with each other “end-to-end”. n-1 n n+1 Financial damages from customer claims caused by non-conforming material cannot, therefore, often be passed on to suppliers. If sales and purchasing are (still) not aligned, a coordinator is useful to carry out an integrated contract management. (stabilising) negative feedback loop

Negative feedback loops are the essential compo- Install foresight-feedback: “Will this activity be finished nent of control circles. They are necessary to achieve in-time?” to allow for preventative corrective actions. equilibrium states, in particular floating equilibriums, and to lead to stability. Oscillation in negative feedback loops (hysteresis) are no reason to worry, they are a necessary charac- In organizations, networked control circles with neg- teristic of regulation. ative feedback loops should be installed.

104 The Consumer Goods Forum End-to-End Value Chain 105 VI. System-orientated process design and stabilizing feedback mechanisms

In practice, a mix of feedback Make sure that all activities lead to productive results taken up in the options is recommendable. They process. Define the links of the specific process to other processes. do not only reduce costly mistakes, but also foster learning effects. g. Responsibilities and Documents

• Carefully segregate the specific process and interfaces to other processes. Create opportunities • Implement “traffic-lights” • Manage by means of Input Activities Output for feedback! in regular reports defined intermediate • Document the process in a graphic way. Is the order Is thIse t ohred oerrd er objectives (e.g.: in the N N N • Stimulate foresight- • Spread simplified signed off? signseigdn oedff ?off? form of “sprints” (scrum)) Managing DirMecatMnoaragninag iDngir2 eD9cirteocrtor 29 29 • Define each value-creating activity Request to MRger.qR Pueueqrsuct hetsaots Mitnog M r. gPru. rPcuhracshinags ing feedback in meetings “living” Gantt charts to adjust the tsou patpdolj iuaedsrtjs u‘t sh te t shuep spulpieprlsi‘e rs‘ offer(s) togetohfefreo rwf(fseit)rh t( sot)hg teot gheetrh werit wh itthhe t he and measure the results needed in the process. demand carrideersmdeamnda ncadr rciaerrrsiers

• Install Kanban-based • Have managers report Manager PurcMhaMnsianaggnearg Peur rPc3uh0racshinagsing 30 30

• Use peer-reviews Adjusted offeArsdjAudstjeudst oedff eorfsfers feedback along the on Key Performance • Define clear responsibilities for Adjust the suAppdljAiuedsrtjs u‘t shotef tf sehure(p ssp)ulpieprlsi‘e orsf‘f eorf(fse)r(s) of results and Checklist „PuCrchheCachskienlicsgkt“ l„isPtu „rPcuhracshinags“ing“ Manager PurcMhaMnsianaggnearg Peur rPc3uh1racshinagsing 31 31 IT-supported workflow Indicators (KPIs) in each of these activities. Release bindiRnegl Reoaerdsleeea rbsien bdindg ionrgd oerrder Binding orderBinBdindg ionrgd oerrder mutual definition Negotiated oNffergN(oset)giaotteiadt oedff eorf(fse)r(s) without any “opt- short intervals General PurchGaesnGineegrna el rPaul rPcuhracshinags ing of the next steps Conditions ConCdointidointisons out” possibility • Work with results of • Define “specification documents”

such as checklists, standards, Entry of the EntEryn torfy tohfe t he filled-in checklists order ordoerrd er results from previous steps or confirmationconcfoirnmfiarmtioantion from other processes etc. Checklist „PuCrchheCachskienlicsgkt“ l„isPtu „rPcuhracshinags“ing“ Manager PurcMhaMnsianaggnearg Peur rPc3uh2racshinagsing 32 32

Check of the CohrdeCechrk e ocfk tohfe t ohred oerrd er confirmationconcfoirnmfiarmtioantion Order confirmOartdOioerrnd ceorn cfoirnmfiarmtioantion • Define output documents for each Implement a culture where all available resources are Is order Is oIrsd oerrd er DiscrepanciesD bisecDtriwescperaeenpc aiensc ibeest bweetewne en process step (“record documents”). confirmation concfoirnmfiarmtioanti on N N N order confirmoartdiooerrnd ceaornn dcfo irnmfiarmtioanti oand a nd conform to concfonrmfo rtmo to order ordoerrder immediately activated to solve appearing problems order? ordoerrd?er? Manager PurcMhaMnsianaggnearg Peur rPc3uh3racshinagsing 33 33 Adjustment oAf dojAruddsetjmur setmnte onft oorfd oerrd er confirmation cionn dcfoiiarnmlofiagrmtuieoa nti oinn d inia ldoigauloeg ue • Carve out needed decisions. with the suppwliietwrh itthhe t shuep spulpieprlier Investment gIonovdeIn sivstm esetmnte gnoto gdo oisd is correctly ordecorercdreocrrtelyc otlryd oerrdeedred • Make clear who should be Example informed about what. Hold project reviews to activate the learning circle

Make sure that defined processes are really “implemented” in your organization. h. Implementation

• Define Process“ Owners” who are responsible processes “sleep” in a drawer. Improvement for keeping “their” processes up to date. potential will continuously be realized because shortcomings directly hurt. • Edit your processes in suitable workflow software; processes should become executable • Make sure that the resources along the process directly via the IT-supported workflow and the are well sized and flexible enoughto lead information flow will be channeled as defined. simultaneous or overlapping parallel projects through the process (see also: “Right-sizing”). • Prevent the “actual” interaction from differing from the defined processes while the

106 The Consumer Goods Forum End-to-End Value Chain 107 VI. System-orientated process design and stabilizing feedback mechanisms

Questions for Reflection

1 Where do you see 3 To which extent are 4 Which feedback 6 Are the responsible blind performance, the five functions of mechanisms are parties for all activities redundant performance, viable organizations, installed in the along the processes or lacking performance according to processes of your clearly defined? Are along the processes Stafford Beer, really organization? Do they there any deviations of your organization? implemented in the effectively contribute between the processes of your to avoiding surprises? documented processes 2 Which activities carried organization? and the “implemented” out in your organization 5 Are the process owners practice in your do not contribute clearly defined? organization? Why? to your customers’ expectations?

108 The Consumer Goods Forum End-to-End Value Chain 109 VI. System-orientated process design and stabilizing feedback mechanisms

Summary Relevant Sources of Section for Further Reading

• Holistically designed processes can be kept stable • Pro-actively defined (stabilizing) • Argyris, Chris; Schön, Donald A.: Die lernende • Nagel, Kurt: Wertschöpfung, Instrumente, and agile by real-time feedback mechanisms. negative feedback mechanisms help Organisation – Grundlagen, Methode, Praxis, Klett- Analysen und Methoden zur Prozessopti- to avoid negative surprises. Cotta Verlag, Stuttgart 2006, 978-3-608-91890-8. mierung, Holzmann Medien, Bad • The performance can be considerably improved Wörishofen 2014, 978-3-778-30945-2. by well-aligned dynamic-complex interactions • Feedback mechanisms, firmly installed in the • Becker, Jörg; Kugeler, Martin; Rosemann, of the operative functions along the business processes, can help to avoid negative surprises. Michael: Prozessmanagement – Ein • REFA (Hrsg): Industrial Engineering – process within the market conditions. Leitfaden zur prozessorientierten Standardmethoden zur Produktivitätssteigerung • In practice, a mix of feedback options is Organisationsgestaltung, Springer Gabler, und Prozessoptimierung, aus der Fachbuchreihe • Think and design processes in the stress-field of recommendable. They do not only reduce costly Berlin Heidelberg 2012, 978-3-642-33843-4. Unternehmensentwicklung, Carl Hanser expectations and possibilities at the interfaces. mistakes, but also foster learning effects. Verlag, München 2016, 978-344-643062 4. • Gaida, Ingo; Hirzel, Matthias, Kühn, Frank • Avoid “waste” by a thorough alignment at the • Make sure that all activities lead to productive (Hrsg.): Prozessmanagement in der Praxis • Schmidt, Evelin: Unternehmensführung interfaces, thinking and designing processes results taken up in the process. Define the links – Wertschöpfungsketten planen, optimieren und -organisation. Betriebliche Abläufe starting from the customer expectations. of the specific process to other processes. und erfolgreich steuern, Gabler Verlag, erfolgreich gestalten, Holzmann Medien, Wiesbaden 2008, 978-3-8349-0275-7. Bad Wörishofen 2014, 978-3-778-30939-1. • Install all five core functions of living • Make sure that defined processes are really systems (according to Stafford Beer) in the “implemented” in your organization. • Gleick, James: Die Information. • Shannon, Claude E.; Weaver, Warren: processes. Ideally, coordination is effected Geschichte, Theorie, Flut, Redline Verlag The Mathematical Theory of Communication, by direct interaction between the operative München 2011, 978-3-868-81312-8. University of Illinois Press, Urbana functions; only sometimes, coordinators and Chicago 1963, 49-11922. can be installed to optimize the work from “the big picture” perspective.

110 The Consumer Goods Forum End-to-End Value Chain 111 7 How to right-size Introduction to Management resources along the Cybernetics business process Index VII Learning Objectives Overhead and Session VII Direct Force PAGE 102

In this section… General Options PAGE 103 • You will learn how to right-size the overhead of organizations without suffering from shortcomings afterwards Right-Sizing Human Capacity PAGE 104 • You will also learn about the general options for efficient and sustainable direct operations Questions

• You will be introduced to a model for PAGE 105 effectively down-sizing staff without for Reflection losing flexibility and “air to breath” Summary of Section PAGE 106

Relevant Sources for Further Reading PAGE 107 VII. How to right-size resources along the business process

Carefully monitor the development of your Clearly decide whether to avoid, outsource overhead while sizing the direct staff according or scale up activities which currently disturb to the expected business volume. the workflow and are not profitable.

Overhead and General Direct Force Options

Always monitor the Make sure that direct Avoid by Keep by Scaling up overhead development productive workforce Specializing Outsourcing • Draw up a business plan to is well-sourced develop special activities • More complex businesses in a world increasingly • Be creative in order to avoid • Think about outsourcing originating from your own shaped by “VUCA require more coordination. activities which disturb the core activities which are only business process, and • Identify the basic quantitative workflow by re-designing the occasionally necessary offer them to the market • But: Overhead naturally tends to grow demand for direct workforce. portfolio of your own market and which disturb the to scale the volume and as administrative people usually create services or the depth/breadth core in-house workflow. spread the overhead cost. administrative work for each other. • Keep the staff flexible by looking for a of the services – even if you broad skill profile of the people. reduce contribution margin. • Think about “in-plant” factories • Standardize and automate • Cut all activities which do not contribute to the of specialists for activities repetitive activities to fulfilment of customer requirements (see: Session • Add temporary workers who provide which require highly specific increase efficiency. IV: Process design), but keep some skills at the flexible capacity at a calculable cost. resources (e.g.: for print borders of your core business to enable the color processing in the organization to adapt and further develop. packaging industry or for tooling in a mechanical engineering company) Cyclically cut the overhead like • Think about co-operation with competitors (e.g. for steel a hair-dresser! hardening) instead of currently keeping own capacity available.

116 The Consumer Goods Forum End-to-End Value Chain 117 VII. How to right-size resources along the business process

The productivity of your direct staff depends on the quality of the process flow and the effective planning and preparation of the activities.

Right-Sizing Questions Human Capacity for Reflection How to right-size required direct staff 1 Is the overhead in your 2 Does your direct • Measure the workload of each direct • Make sure that the resources along the function (by applying REFA methodology) process are well sized and flexible enough organization really well workforce have to lead simultaneous or overlapping parallel • Try to optimize not only the work method, the projects through the process. (see also dimensioned? What sufficient capacity? tools and auxiliary materials in each function, but Learning Unit VI: “Process design”) would be missing for also the overall workflow and the interfaces to other functions and “labor systems”, a REFA term. • If a personnel reduction is necessary and your customers or 3 Where can you unavoidable, best follow these three steps: for you if you were to find capacity • Standardize and automate repetitive activities. 1. First make offers to people reduce the overhead? and competence • Eliminate bottlenecks in some areas and unused willing to leave voluntarily personnel capacity in other areas by adjusting bottlenecks along the the personnel capacity according to the expected 2. Secondly, make offers to people business process of workload along the process flow. Often it is not a close to retirement reduction which is effective, but a re-allocation. your organization? 3. Then start a selection according Ensure that resources are sized to social criteria in a way that it allows parallel projects to easily run through the process; if it is unavoidable, reduce personnel in a social way.

118 The Consumer Goods Forum End-to-End Value Chain 119 VII. How to right-size resources along the business process

Summary Relevant Sources of Section for Further Reading

• Carefully monitor the development of • Doppler, Klaus; Lauterburg, Christoph: Change • Lippold, Dirk: Aspekte und Dimensionen your overhead while sizing the direct staff Management – Den Unternehmenswandel der Personalfreisetzung, Springer Gabler, according to the expected business volume. gestalten, Campus Verlag, Frankfurt am Wiesbaden 2017, 978-3-658-16493-5. Main 2014, 978-3-593-50047-8. • Clearly decide whether to avoid, outsource • Maier, Philipp J.: Restrukturierungen or scale up activities which currently disturb • Faulhaber, Peter; Grabow, Hans-Joachim: im Arbeitsrecht, Manz Verlag, the workflow and are not profitable. Turnaround-Management in der Praxis – Wien, 978-3-214-01925-9. Umbruchphasen nutzen, neue Stärken • The productivity of your direct staff depends entwickeln, Campus Verlag, Frankfurt/ • Vollmer, Günter R.: Personalmanagement, Teil on the quality of the process flow and New York 2009, 978-3-593-39001-7. 2: Personal führe und entwickeln, Holzmann the effective planning of the activities. Medien, Bad Wörishofen 2018, 978-3-778-31353-4. • Leoprechting, von (Hrsg.): • Ensure that resources are sized in a Unternehmenssanierung – Praxishandbuch way that allows parallel projects to für Unternehmer und Berater, Verlag Neue easily run through the process. Wirtschaftsbriefe, Herne 2010, 978-3-482-57712-3.

• If it is unavoidable, reduce personnel in a social way. That usually also saves money.

120 The Consumer Goods Forum End-to-End Value Chain 121

8 Coping with Introduction to Management dynamic Cybernetics complexity Index VIII Learning Development of Objectives the Basic Session VIII Conditions PAGE 126

In this section… Coping with Complexity PAGE 127

• You will learn what complexity is, in particular dynamic complexity, a. What is c. Knowledge Gaps, and what the drivers for it are Complexity? PAGE 128 Relevance Filters and Nescience PAGE 131 b. What Can We • You will also learn how to best cope with (dynamic) complexity Do When Facing d. Rules of Complexity? PAGE 129 Thumb PAGE 132

• You will get a set of practical rules on how to cope with complexity Questions for Reflection PAGE 134

Summary of Section PAGE 135

Relevant Sources for Further Reading PAGE 136 VIII. Coping with dynamic complexity

In economics, dynamic complexity is increasing. Development of the Basic Conditions

Coping with Advancing Globalization Complexity Global supply chains which are continuously being re-defined

Highly volatile global markets and capital flows

Organizations are operating As a consequence, decisions in increasingly dynamic- taken often do not lead to the Increasing complexity Progressive Cross-linking complex environments. desired results. Deviations • Strong interdependencies are perceived as surprises (cf. Increasing modularization • Effects difficult to capture and to predict the introduction to section 1). Dispersed R&D teams, enabled by Dynamic complexity is the availability of information and not understood by many communication technology managers, who tend to act with These findings feed the High Dynamics mental models of improperly motivation to learn more Industry-wide requirement • Quick changes reduced complexity. about dynamic complexity management process in R&D • High vulnerability forimbalance relevant to the management of organizations.

Increasing Variety

Increasing variety of models and variants, more specific applications

Market-specific legal requirements and guidelines

Shorter model cycles

126 The Consumer Goods Forum End-to-End Value Chain 127 VIII. Coping with dynamic complexity

The behaviour of complex systems cannot Chose an appropriate way of dealing with the given complexity. be described by linear means. b. What Can We Do When a. What is Complexity? Facing Complexity?

Complexity is not necessarily a Accept given complexity; problem you should fight against. do not try to ignore it! Complexity is rather the basis for every evolution – it is the basis of life! Try to recognize the basic Take complexity as a chance! patterns of complex systems.

Keep possibilities for decisions and actions (alternatives)!

Trivial Machine

In complex environments, we should • Unchanged operational “self-status” • Dynamically changing operational “self status” dependent on the past change our approach to solutions. • Unambiguous relationship between input (stimulus, cause) and output (reaction, effect) • The result of the process is not predictable • Predictable process with predictable results • An observer who does not know the mechanism Paradigm with linear- Paradigm with complex of the black box has only very little chance to causal relationships capture the logic of a non-trivial machine relationships • “Keep it Simple” • “Cope with complexity” • Analytical approach (“Taylorizing”) • Synthetic approach (Modularization) • Entities and functional • Relations and capabilities in the focus competences in the focus

While you should accept the level of complexity, you can shape the spread of complexity in your organization!

Adaption of processes, structures Influencing the external Complexity and services to the environment Business model, innovation, price model, Internal networking, decentral cooperations, Mergers & Acquisitions decision structures Simple linear relationship Complex, networked relationship value creating • The movement is predictable • The movement is not predictable Reduction of value destroying Reasonable limiting of the “the non-trivial machine” (acc. Inner complexity internal complexity to Heinz von Foerster) Reduction of unnecessary Behavior rules, clear corporate

Inner Complexity variety of variants, simplification objectives, value-orientated of decision structures incentives, stabilizing circuits value destroying

not influenceable influenceable Companies are complex networked systems! External Complexity

128 The Consumer Goods Forum End-to-End Value Chain 129 VIII. Coping with dynamic complexity

Understand and design the complexity in your The more aware people are of the limits of their knowledge, organization using a practice-proven procedure model. the better their ability to find sustainable solutions tends to be. c. Knowledge Gaps, Relevance Filters and Nescience Sharpen the Analyze the Implement an awarenes of the complexity drivers Design “your” eective complexity eects of complexity in their interaction complexity management

Part of the Methods and Measures knowable • Recognize the effects • Choose a process- • Establish a • Introduce risk of complexity orientated competence team management corporate set-up and introduce a Knowledge Area • Understand complexity cybernetic discourse • Introduce an end- management • Take up significant to-end contract as an important (external and internal) • Do scenario analyses management “Blinding” by wrong perception of “Knowledge gaps” by Decision process success factor complexity drivers and visualize the knowledge, even though the co- aggregating knowledge on the basis of the effects/changes • Provide access to • Capture possibilities of • Assign the resources relevant information herence is unclear and cannot be (inappropriate reduction full information, in a designing complexity bound by these drivers • Promote an (autonomy, “info- known (inferential principle) of complexity, wrong cybernetic discourse understanding for osmosis”, interaction, relevance filters) or by applying the • Develop an • Make a sensitivity the whole process pattern recognition abstraction principle) understanding analysis, showing (data mining), for systemically the reciprocal • Try to design the problem-orientated, meaningful effects between the external complexity, dynamic access to Fundamental “knowability” management complexity drivers if possible knowledge and skills Area of Nescience • Adapt the internal (semantic network)) complexity to the • Offer value-orientated external complexity incentives “Blind spots” • Coaching • Reduce value- • Apply a Balanced (unconscious fading out, demolishing internal Scorecard complexity selective perception, • Sparring • Execute “enzymatic” • Recognition of true nescience consistency principle, management stabilizing principle) • Teamwork • Acceptance, that nescience exists Area of incomplete Knowledge Results • Encouragement to flexibility and adaptability Knowledge gaps • Training • Raising awareness of • Understanding of • Coordinated • Introduction through lack of specific the topic “complexity” cost and benefit complexity profile of complexity information • Collection of of complexity management process • Self-reflection • Sharpened experience • Understanding of business model • Increased flexibility • Awareness of your reciprocal effects and ability to adapt own possibilities of influence • Improved sustainable profitability • Commitment to personal responsibility

130 The Consumer Goods Forum End-to-End Value Chain 131 VIII. Coping with dynamic complexity

Acknowledge complexity as an opportunity.

d. Rules of Thumb Rules of Thumb

Make sure that the degree of your internal complexity Do not try to reduce complexity. at least equals the external complexity.

There is no prediction of uncertainty. Try to recognize the Reduce value-demolishing complexity. interrelations and interactions relevant to decisions.

Accept and welcome uncertainty as a necessary pre-condition for evolution. Increase value-creating complexity.

Intransparency, dynamics, network effects and incompleteness or falseness Make sure that your leadership system precisely captures the essential of the knowledge about the system are the characteristics of situations in complexity drivers – and that it does not become a complexity driver itself. complex systems (Dietrich Dörner: Die Logik des Misslingens, S. 59).

Design complexity by means of cost and benefit Don’t be satisfied with simply recognising the present situation, but aspects, including opportunity cost effects. rather try to recognize in which direction the “picture” is going.

Focus your attention on organizational capabilities and relationships Always tend to decide in a way that the number of possibilities instead of the functional excellence of individuals. is maximized by your decision (Heinz von Foerster).

Acknowledge interdependencies – leave the “island” view. In an interrelated and interacting system, you cannot do just one thing. You always influence more than one thing. Therefore, also consider new problems which might arise from solving existing ones. Design self-regulating processes

Break complex interrelations down to simple relations. Then have a look at the big picture composed of the correlated simple relations (system dynamics approach). You will see the resulting effect of correlating simple relations. Eliminate weak points in the process architecture, e.g.: partially involved elements

In a world of interacting partial systems, you should think in interacting partial systems if you want to be successful. (Dietrich Dörner: Die Logik des Misslingens, p. 13) Incorporate feedback mechanisms to stabilize the processes.

Adapt the internal complexity and the complexity of the leadership system to the (often given) external complexity. Create robust product structures, using the modularization potential.

Check whether you can influence and shape the external complexity by co- Optimize the complexity for your relevant economic environment. operations, by contracts and/or by your business model or innovation.

132 The Consumer Goods Forum End-to-End Value Chain 133 VIII. Coping with dynamic complexity

Questions Summary for Reflection of Section

1 How do you assess 3 What are the essential • In economics, dynamic complexity is increasing. • Understand and design the complexity in your organization using a practice- the degree of dynamic complexity drivers? • We face complexity in many work situations. proven procedure model. complexity of the • Dynamic complexity is not understood • The more aware people are of the limits of environment in which 4 Which complexity by many managers. Improperly reduced their knowledge, the better their ability to complexity often leads to undesired surprises. find sustainable solutions tends to be. your organization drivers can you is active? influence? • The behavior of complex systems cannot • Acknowledge complexity as an opportunity. be described by linear means. • Act in a system-oriented manner. 2 How well do you • Chose an appropriate way of dealing 5 How are you preparing with the given complexity. • Set your sights high. reliably know the your organization to • In complex environments, we should • Develop a permanent ability developments? Which master complexity? change our approach to solutions. to change and adapt. developments do you • While you should accept the level of think you only ‘know’? complexity, you can shape the spread Which developments of complexity in your organization. don’t you know?

134 The Consumer Goods Forum End-to-End Value Chain 135 VIII. Coping with dynamic complexity

Relevant Sources for Further Reading

• Borgert, Stephanie: Die Irrtümer der • Sailer, Ulrich: Management – Komplexität Komplexität – Warum wir ein neues verstehen: Systemisches Denken, Management brauchen, Gabal Verlag, Business Modeling, Handlungsfelder Offenbach 2015, 978-3-869-36661-6. nachhaltigen Erfolgs, Schäffer-Poeschel, Stuttgart 2012, 978-3-791-03177-4. • Denk, Robert; Pfneissl, Thomas: Komplexitätsmanagement, Linde Verlag, • Vester, Frederic: Die Kunst vernetzt zu denken – Wien 2009, 978-3-714-30163-2. Ideen und Werkzeuge für einen neuen Umgang mit Komplexität, Deutsche Verlagsanstalt • Dörner, Dietrich: Die Logik des Misslingens. DVA, München 2002, 978-3-423-33077-0. Strategisches Denken in komplexen Situationen, Rowohlt Taschenbuchverlag, Hamburg 1992, 978-3-499-61578-8.

• Lindemann, Udo; Maurer, Maik; Braun, Thomas: Structural Complexity Management – An Approach for the Field of Product Design, Springer Verlag, Berlin/ Heidelberg 2009, 978-3-540-87888-9.

136 The Consumer Goods Forum End-to-End Value Chain 137

9 Best-practice Introduction to Management leadership in Cybernetics cybernetic organizations Index IX Learning Objectives Why cybernetics is a topic Session IX for leadership PAGE 142 a. Productive Social h. Leadership In this section… System PAGE 143 With Ambiguity PAGE 147 b. The “Power Illusion” PAGE 143 i. Requirements Shift PAGE 148 • You will recognize the need for different leadership in VUCA c. Cybernetic Leadership PAGE 144 j. Basic Leadership Skills PAGE 149 environments (volatile, uncertain, complex, ambiguous) d. Summary PAGE 145 k. VUCA Leadership Skills PAGE 151 e. Leadership with l. Change Management Volatility PAGE 146 under VUCA Conditions You will see the differences • (acc. to Kurt Lewin) PAGE 154 between traditional and f. Leadership with cybernetic-oriented leadership Uncertaintly PAGE 146 m. Organizational Change Management PAGE 155 g. Leadership with • You will take away precise Complexity PAGE 147 recommendations for successful leadership under VUCA conditions Questions • You will learn in particular how to implement change management for Reflection PAGE 156 under VUCA conditions

Summary of Section PAGE 158

Relevant Sources for Further Reading PAGE 159 IX. Best-practice leadership in cybernetic organizations

Hans Ulrich consistently applied cybernetic principles to the leadership of companies. a. Productive Social System

Hans Ulrich introduced the concept of a company as a productive social system. Why He raised the question of the leadership in such an institution: This leadership cannot be derived from the single entities, but cybernetics only from the interaction between the different entities. is a topic for Hans Ulrich leadership

In section II we saw that the technology, the networking, Stop believing that you can solve the problems because you are in the organizational capability the information flood and management position. Try to understand and to use your system. for cybernetic behavior the development speed is strongly depends on the increasing. As a consequence, b. The “Power Illusion” management’s mindset. the complexity is increasing Managers are paid for results. The sad fact is that a single person can never have the overview of the whole as well, and simultaneously, picture in order to take good decisions alone. the amount of uncertainty and Leadership is the most ambiguity is increasing (VUCA). challenging function in our “The image of the world around us which we carry out in our head is just a model. world as it makes things work Nobody in his head imagines all the world, government or country. He has only or not (Fredmund Malik). VUCA implies a changing selected concepts and relationships between them, and uses those to represent leadership style. In this section, the real system.” we will highlight the different “People are only role players in a system. They act within the system, even though Driven by globalization requirements concerning they believe that they are managing it. This is not a popular idea for those who and by the availability of leadership under “VUCA believe that they are real “men of action.” internet-based applications conditions” and work out of communications practical recommendations. “Who really wants to change the system should understand the system.”

Jay Wright Forrester

142 The Consumer Goods Forum End-to-End Value Chain 143 IX. Best-practice leadership in cybernetic organizations

Leaders need to start thinking in Complex tasks in complex environments terms of cybernetic behavior. require managers with special skills. c. Cybernetic Leadership d. Summary

First of all, as a leader you should learn to understand the “degree of VUCA” that is shaping your business. You should recognize and accept the complexity and be aware of potential exponential developments and tipping points. Traditional Behavior Cybernetic Behaviour

• Growth maxim • Stability maxim You should learn to think in probabilities instead of in uncertainty. You should know complexity-appropriate leadership methods and • Taking influence on environment • Symbiotic adaption to the environment you should know how to organize self-regulating interaction.

• “Lean” thinking in closed organizations • Thinking in plurality and in complements

• Focus on individual capabilities • Focus on the effective “surface As a leader you should recognize the existence of “nescience” (to be distinguished and functional excellence behavior” of the whole organization from not sufficient knowledge)and accept this; you should substitute uncertainty by the group intelligence involving all relevant stakeholders and by an open • Attention to linear cause-effect • Comprehension of complex networked and constructive discourse and choose an iterative path to solutions. relationships and to structures relationships and focus on processes

• Economizing in “one-way roads” • Economizing in effective cycles from the source to the trough With high volatility, evaluate experiences with first implemented steps (“agile working”) higher than a complete plan without “proof of concept”.

The significance of the leadership quality increases with the uncertainty. Provide orientation and – at the same time – room for creativity – and adaptability by principles, not by (limiting) rules.

The higher the degree of uncertaintly is, the more important good and open communication becomes.

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VUCA imposes new, additional requirements on leadership. With increasing (dynamic) complexity you Information, findings and knowledge become more volatile. should initiate self-regulating teams. e. Leadership with Volatility g. Leadership with Complexity

Life and business tend to happen with an increasing As a pre-condition you must understand the infor- In a complex-networked world, leadership should be As a leader you should recognize early signal for im- frequency. The exponentially increasing speed is mation flows and make sure that they contribute to carried out in a networking form. Top-down leader- portant changes and make sure that these changes driven by the faster availability of larger amounts of stable and robust operations. ship does not cope with the dynamic complexity. are considered in the proceedings. information. Do not intervene (apart from in exceptional situ- Consequently, complex environments require leader- As an experienced leader you know that it is easi- As a leader you should be aware that you cannot ations); rather encourage your team to act inde- ship with the aim of self-regulating teams. The suc- er to move within the natural stream that against cope with this information flood by a top-down man- pendently in critical cases by sharpening and im- cess factors for such leadership are the capability to the stream. Therefore, you create awareness in your agement approach. Rather try to understand the proving the processes. I call this kind of leadership initiate self-regulation and to contribute experiences team that the future natural stream should constant- spirit of your organization. The better you succeed in “enzymatic leadership”: Your cybernetic leadership from complex environments. ly be monitored. channeling the information flows within the teams input enables improvements without you getting ab- – instead of being drowned, the more successful you sorbed – like an enzyme. The leadership task consists of involving all relevant will become. interests and perspectives in your challenge and es- tablishing a constructive discourse.

In uncertain environments, try to think in probabilities and hedge different possible outcomes by simultaneous initiatives. Consider “ambiguity” as a key for the solution. f. Leadership with Uncertaintly h. Leadership With Ambiguity

Dynamic-complex environments are characterized by activities simultaneously. The activities should be In VUCA environments, it becomes more challenging In situations with ambiguity, leaders will be more suc- high evolution dynamics; they are also distinguished monitored by the teams in an ongoing stage-gate to make good decisions. Be aware of the following: cessful if they take the opportunity to integrate several by disruptive changes. process. At each stage decisions about continuining What can rationally be decided, is already decided. perspectives and interests in the search for solutions. or ceasing the initiatives should be taken. Decisions are needed in cases where no clear sig- An approach that is designed and hence support- As a leader in a dynamic-complex environment you nals are given for a distinct way. ed by all involved parties will be implemented in a should acknowledge the nature of the uncertainty The additional cost of the parallel initiatives should be natural way and become sustainable. A supported and think in probabilities. You should be capable of understood as a premium for an insurance prevent- In business, the “one single truth” is often not avail- trade-off is a better option than a solution drafted on developing and implementing appropriate strate- ing your business from failure rather than as waste. able. However, several – at first glance opposing – an isolated drawing board that will have to be imple- gies and tactics with your teams. Leaders operating in uncertain environments should perspectives to the same matter help to disclose ap- mented and kept alive under pressure. canvass for their shareholders’ understanding. proaches to solutions which were previously hidden. To reach your objectives despite of the uncertainty, you should allow and promote several competing

146 The Consumer Goods Forum End-to-End Value Chain 147 IX. Best-practice leadership in cybernetic organizations

The extent of VUCA requirements on leadership strongly depends Complex tasks in complex environments on the business environment and the task to be carried out. require managers with special skills. i. Requirements Shift j. Basic Leadership Skills

Under normal conditions...

You are capable of leading challenges in a non-VUCA environment Example Traditional Requirements on requirements leadership in VUCA in a successful way fulfilling the agreed time-line and the agreed on leadership environments cost frame by appreciating the performance and treating people Innovation demand fairly and attentively with a situational leadership style

You can organize and manage technical skills without Dynamics of the industry necessarily possessing them yourself and the markets

You understand the business, including its strategic aspects No. of relevant perspectives to be considered You are able to lead an organization in line with compliance

Evolution dynamics You understand “diversity” and are capable of inter-cultural of relevant technologies communication and multi-lingual leadership

Poor accuracy of the You lead projects with a focus on their benefit definition of the task

You understand the performance level and the limits of the “new media”

Unreliable business environment You can develop strong relationships with your business stakeholders and with your teams Extension Low High

Profile a more traditional project You are used to working in a lean way and to avoiding unnecessary effort Profile of VUCA-aected project

Basic Leadership Skills

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Self-regulation needs a starting impulse from top Under VUCA conditions, you should observe carefully, management. Are you personally ready for cybernetics? think in probabilities and proceed iteratively. k. VUCA Leadership Skills “Everybody in the company

should act as a manager – in Under VUCA conditions... their expert role and regardless On the basis of a solid methodical skills set, you can think freshly as of their hierarchical level!” well as keeping an open mind towards methods and result

“If everybody is a manager, You possess a certain “hyper-awareness”: You continually search for information, you have a good power of observation and a pronounced attentiveness for changes. self-regulation arises; a circular You especially look out for exponential progressions and possible tipping points interaction is implemented in which everybody steadily You have the willingness and the ability to analyze existing data with applications of Artificial Intelligence and to identify patterns supporting influences everybody in the rational decision making instead of deciding based on experience interest of the company.” Heinz von Foerster You trust in the power of the interaction within and among your teams: You know that they act as managers for the benefit of your organization better than you ever could

You show intellectual modesty: You do not hesitate to involve acknowledged experts with their specific knowledge

You lead by means of “visionary pictures” of the target situation and fostering and supporting a creative, iterative approach, oriented towards moving targets

The willingness, the attitude and the ability to involve all interests and perspectives relevant to the outcome and to concurrently work on mutually linked tasks to avoid “island solutions” and to find self-supporting solutions (the willingness and the capability of holistic and simultaneous approaches)

The willingness and the ability to seek for open and constructive discourses independent of hierarchy (“Delphi circles”)

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Dynamic-complex environments require leadership that enables You should lead hands-on, based on cybernetics principles. and supports an agile, opportunity-driven approach.

Comprehension of the essential cybernetic principles You lead your teams in a way that the team members understand the basic idea, but you do not operatively intervene

Knowledge of the essential game-theoretical approaches to better anticipate third-parties‘ decisions You have the convincing power in the eyes of the shareholders to explain to them the required heuristic approach and the thinking in possibilities and probabilities

Experience with the introduction of regulation mechanisms in organizations (installation of effective feedback loops) also involving the relevant environment The disposition to lead: You have got the disposition to perform as a leader in VUCA environments, the willingness to take responsibility and the courage to take decisions in uncertainty VUCA-orientated handling of targets: Decentral contributions to the result keeping in mind “mission” and “purpose“ (subsidiary principle) instead of top- down; on-the-run evaluation of contributions and agile re-adjustments by means The possibility to lead: You are capable of creating the pre-conditions for of short-term action-plans (here and now!), staying as flexible as possible your unconditional responsibility and to call in the required authority

You strive to create or maintaining alternative options for action (variety) The ability to lead: You have “leadership genes”, are skilled in leadership to be called on in the case of changes (hedging scenarios) and have already collected leadership experience in VUCA environments

• You can lead interdisciplinary teams with quite diverse members

You are used to hands-on management, “living cases” instead of • You attentively listen, observe, inform, visualize and communicate writing detailed concepts to be subsequently implemented • You take the role as the “enabler” and bridge- builder instead of the “man of action”

• You become effective by influence instead of by applying hierarchical power You are known for quickly starting with the implementation (speed beats perfection!) • You recognize “nescience” (to be distinguished from insufficient knowledge) and handle it openly and constructively

• You tap into the groups’ intelligence and use the You justify your decisions and your actions by means of their resulting internal complexity as a stabilizer direct and indirect effects circular-causal( thinking) • You leading in a lean way: Deploy capacity for the search for solutions; keep administration and reporting at a minimum level You make sure that solutions are applied adaptably to keep them open for further development VUCA Leadership Skills

You have a pronounced ambition to learn

You are capable of managing (not avoiding) risks

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Leadership in VUCA environments requires change management. Leadership in VUCA environments requires change management. After a change, do not “freeze“ completely, but keep your After a change, do not “freeze“ completely, but keep your organization agile and adaptable at a higher level. organization agile and adaptable at a higher level. l. Change Management under VUCA m. Organizational Change Management Conditions (acc. to Kurt Lewin)

Elements of organizational learning “De-freezing” “Moving” “Re-freezing” by dashing down with the momentum while staying flexible Organizational forgetting of behavioral patterns

• Create a discrepancy • Exploit the momentum • Documentation  and experience (Problem/ freed up by dissolving implementation of target situation) no longer required the agreed option mechanisms • Raise responsibility • Review the Learning: Organizational • Encourage own effectiveness: knowledge and organizational • Destroy inconvenient capabilities initiatives: Make Will fine-tuning or routines and dissolve affected people to corrective measuresbe non-appropriate involved people! necessary? structures  Organizational memory • Common developing • Simultaneous of behavioral patterns • Overcome the and prioritizing of improvement of the perception of loss by alternative solutions adaptability to enable good communicative the organization monitoring of • Formal decisions to more easily find the changes on future processes Organizational storing of new solutions when knowledge and capabilities and structures new problems occur (double-move)

Pre-conditions for organizational learning: • Constructive discourse

• Tolerance, especially failure tolerance • Knowledge management

• Open co-existence of diverse opinions • Organizational self-reflexion (Audits)

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Questions for Reflection

1 How well developed 3 How are patterns for 6 Consider to what 8 How well developed are the willingness future developments extent there is an is the desire to learn and the abilities to derived from open and constructive in your organization? take on leadership observations and discourse taking place in your organization? included in the decision- in your organization. 9 Do managers in Are managers allowed making process? your organization to take on leadership 7 How successfully consider themselves tasks with the 4 Is your management are possibilities for to be “doers” or appropriate authority? aware of potential alternative action rather “enablers” “Tipping Points”? recognized and and “supporters”? 2 How well developed developed? is the mindfulness in 5 Do you usually have your organization? an iterative approach (Trial and Error) in your organization instead of following a fixed plan?

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Summary Relevant Sources of Section for Further Reading

• Stop believing that you can solve the problems • Under VUCA conditions, you should • Argyris, Chris; Schön, Donald A.: Die lernende • Panetta, Daniel: Hochsensibilität und Leadership because you are in a management position. carefully observe, think in probabilities Organisation – Grundlagen, Methode, Praxis, Klett- – Subjektive Führungstheorien hochsensibler Try to understand and to use your system. and proceed iteratively. Cotta Verlag, Stuttgart 2006, 978-3-608-91890-8. Führungskräfte, Springer Fachmedien, Wiesbaden 2017, 978-3-658-16354-9. • Leaders need to change their paradigm • Dynamic-complex environments require • Beck, Don Edward; Cowan, Christopher in terms of cybernetic behavior. leadership that enables and supports an C.: Spiral Dynamics – Leadership, Werte • Pöppel, Ernst; Wagner, Beatrice: Von agile, opportunity-driven approach. und Wandel: Eine Landkarte für Business, Natur aus kreativ – Die Potenziale • Complex tasks in complex environments Gesellschaft und Politik im 21. Jahrhundert, des Gehirns entfalten, Hanser Verlag, require managers with special skills. VUCA • You should lead hands-on, based inspire!, Kamphausen 2007, 978-3-899-01107-4 München 2012, 978-3-446-43212-3. imposes new, additional requirements on cybernetics principles. on leadership. Information, findings and • Bryan Lowell L.; Joyce, Claudia I.: Mobilizing • Scherer, Jiri; Brügger, Chris: knowledge become more volatile. • You need (i) the disposition, (ii) the possibility and Minds – Creating Wealth from Talent in the Kreativitätstechniken, Gabal Verlag, (iii) the ability to lead in changing environments. 21st-century Organization, McCraw-Hill, New Offenbach 2012, 978-3-897-49736-8. »» In uncertain environments, try to think in York et al. 2007, 978-0-071-49082-5. probabilities and hedge different possible • Leadership in VUCA environments • Surowiecki, James: Die Weisheit der Vielen – outcomes by simultaneous initiatives. requires change management. Do not • Hofert, Svenja: Das agile Mindset, Warum Grupen klüger sind als Einzelne, Goldmann “freeze”, but keep your organization Mitarbeiter entwickeln, Zukunft der Arbeit Verlag, München 2007, 978-3-442-15446-3. »» With increasing (dynamic) complexity you agile and adaptable at a higher level. gestalten, Springer Gabler Fachmedien, should initiate self-regulating teams. Wiesbaden 2018, 978-3-658-19446-8 • Thomas, Mark: The Zombie Economy – • Instead of just administering a given Leadership in times of uncertainty, PA Consulting, »» Consider “ambiguity” as a business, you take up the challenge to • Luhmann, Niklas: Vertrauen, Verlag Lucius London 2009. Watts, Geof: Scrum Mastery – From key for the solution. drive organizational change towards & Lucius, Stuttgart 2000, 3-828-52185-7. good to great servant leadership, Inspect & Adapt adaptability, agility and innovation. Ltd., Cheltenham (Glos) 2013, 978-0-957-58740-3. • The extent of VUCA requirements imposed on • Malik, Fredmund: Strategie des Managements leadership strongly depends on the business komplexer Systeme – Ein Beitrag zur Management- • Weick, Karl E.; Sutcliffe, Kathleen M.: Das environment and the task to be carried out. Kybernetik evolutionärer Systeme, Haupt Verlag, Unerwartete managen. Wie Unternehmen aus Bern/Stuttgart/Wien 2006, 978-3-258-07116-9. Extremsituationen lernen, Schäffer-Poeschel, Stuttgart 2010, 978-3-791-02968-9. • Merbecks, Andreas; Stegemann, Uwe; Frommeyer, Jesko: Intelligentes • Wickham, Philip A.: Strategic Entrepreneurship, Risikomanagement – Das Unvorhersehbare Prentice Hall, Harlow 1998, 978-0-273-70642-7. meistern, Redline Wirtschaft, Frankfurt am Main 2004, 3-832-30964-0.

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10 Integrated IT Introduction to Management workflow Cybernetics applications Index X Learning IT Applications Objectives for Networked Session X Thinking PAGE 167

In this section… Questions • You will understand for Reflection AGEP 168 why the IT applications supporting the processes should be fully integrated Summary of Section PAGE 169 • You will take away the necessary requirements for an integrated “IT landscape” Relevant Sources • You will learn how to for Further Reading PAGE 169 succeed in integrating your IT applications X. Integrated IT workflow applications

The IT applications should best The quality and fit of company- support the coordinated processes specific IT solutions significantly and reflect the process quality. contribute to the corporate success.

The software applications Operative efficiency, IT applications should Consider cloud-based should best support the transparency, real- be flexible to adapt to access to ERP applications: defined processes. time and “single truth” changing processes. Even Service on demand may offer (Oracle claim) are key. though ERP vendors have flexibility and scalability usually implemented a lot to your organization. The IT should best link the of industry experience in Your IT should be able to single processes and entities Process-oriented, well their applications, processes breathe with the situational of the company or the value channeled reporting (task- should never be slaves of corporate challenges. network with each other, related information push the ERP, but should rather supporting the collaboration service) is required. define the kind of support to in distributed teams. be provided by IT-based ERP. The information system which supports the To optimize the whole management decision- By means of the IT-supported business activity, especially Consider the opportunity of making process should workflow, feedback co-ordination tasks around improving your corporate guide the management’s mechanisms (sign-offs, manifold interfaces like flexibility by means of IT. attention to the most relevant traffic light signals) should a “360° view on project business parameters for be provided to users during management including each respective situation process interfaces. settlement and billing” and Keep your IT capable of easy by means of a dynamically “stock optimization” should be release updates without any fed information cockpit. supported by IT applications. need for interface adaptations IT should provide users with an integrated view of the whole process, showing Try to capture and monitor the interdependencies and the system’s cost by IT. possible effects of measures.

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Ideally, the IT applications Appropriate applications are commercially are fully integrated. available. The challenge is to find IT specialists with cybernetic understanding.. IT Applications for Networked Thinking Avoid IT “point solutions” and For an integration platform silo cultures; the handling architecture, appropriate of interface problems which layers are, according to might arise can become the IEEE, “business”, “user challenging and expensive. interface”, “integration”, “services”, and “data” (acc. to the International Rather select one suitable Conference on Information integrated ERP system. By Technology Systems and working with an integrated Innovation (ICITSI), 2018). system you can minimize IT as Enabler and Supporter of the system “Corporation” data checks and preparation tasks for analyses – saving Avoid disruptions between time, cost and effort. different systems, e.g. Current IT Support Exploiting New Possibilities a production planning and an ERP system. Integrated IT systems • Technical maintenence of services • IT support of the business processes support process stability. (content server, communication server, (project-related involvement of third A unique database helps ERP, network infrastructure, desktop parties, maintaining the data security) prevent departments computers, shared infrastructure (printers, Strive for data integration from facsimile, scanners etc., software) • IT contribution to improve the innovation from working side-by- capability (collaboration applications) machine data logging to data side without coordinated • Software updating (versions) and assessment and reporting. information. Centrally hardware updating (performance, • Enabling a cybernetic set-up managed data avoids data replacement for aging) supporting decision-making incongruity and mismatch. (visualization of interdependencies) • Adaptation and extension of capacities • IT infrastructure for cybernetically • User training designed controlling instruments (Balanced Scorecard, monitoring the system’s cost)

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Questions Summary for Reflection of Section

1 How positively do 4 How well can your IT • The IT applications should best • Ideally, the IT applications are fully integrated. support the coordinated processes your employees adapt to changes in and reflect the process quality. • IT should dynamically provide the most assess the IT support your organization or relevant management information • The IT applications should be flexible for each individual situation. of the processes? business environment? to adapt to changing processes.

2 Does IT initiate strategic 5 Is your IT really and/or operative integrated? Where need for action? might there be any IT “island solutions”? 3 Are system costs in Relevant Sources your organization recorded and evaluated for Further Reading by IT systems?

• Hetzler, Sebastian: Real-Time-Control. Für • Priantari, Rini; Kurniawan, Novianto Budi: das Meistern von Komplexität, Campus Verlag, 2018 International Conference on Information Frankfurt am Main 2010, 978-3-593-39205-9. Technology Systems and Innovation (ICITSI), IEEE 2018. Bandung-Padang, Indonesia, • Lang, Michael; Amberg, Michael (Hrsg.): DOI 10.1109/ICITSI.2018.8696013. Dynamisches IT-Management – So steigern Sie die Agilität, Flexibilität und Innovationskraft Ihrer IT, Symposion Publishing, Düsseldorf 2012, 978-3-863-29431-1.

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11 Measuring Introduction to Management cybernetic Cybernetics excellence Index XI Learning Objectives Classic Key Performance Session XI Indicators (KPIs) PAGE 174 Aggregation in a KPI Internal Errors and In this section… System PAGE 175 Reworking PAGE 180 Understanding Complex Tolerance Exceedance, • You will learn which informative Systems PAGE 177 Commercial Loss PAGE 181 value you can expect from traditional KPI systems …Versus Integration PAGE 177 Preventative Measures, Total System Cost PAGE 181 Integrated Leadership Concept PAGE 178 Operational Risk Self- • You will be introduced to an overview of risks and opportunities Assessment PAGE 182 Quality Cost Record PAGE 179

• You will be introduced to the nature of cybernetics- Questions oriented reporting systems for Reflection PAGE 183 • You will gain practice-proven means for an effective risk management Summary of Section PAGE 184

Relevant Sources for Further Reading PAGE 185 XI. Measuring cybernetic excellence

Performance KPIs are pure indicators KPI systems aggregate performance indicators and are often optimized without without optimizing the interactions between considering their mutual relationships. the performance-creating areas Aggregation in a KPI System

Dupont KPI system

Classic Key Return on Investment (ROI) Performance Indicators (KPIs) Capital-turnover Profitability of the Turnover

Turnover Total Capital EBT Turnover

Fixed Assets Working Variable Gross Capital Margin Fixed Costs

Stock Receivables Cash Turnover Variable Costs

A KPI system does not It does not optimize the total coordinate and thus does result, but only “shows” it not optimize the activities

It leaves unsolved interest conflicts

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The more we focus on details the Analyze complex systems by observing the system’s less we understand the big picture. behaviour and influence it by aligning the key variables. ANALYSIS VERSUS Understanding HOLISTIC APPROACH Complex Systems AND INTEGRATION

• Address your analysis towards the whole system

• Observe variables that can easily be captured

To understand the behaviour of • Try to recognize changes, fluctuation, trends, complex systems, any approach that is leaps, thresholds and reversions of trends limited to partial areas is not suitable. • Try to understand the relationships between the observed changes and the constellation of the variables

• Carefully adjust and bundle these variables ? Abraham Lincoln • Often, the meaning is only recognized from a certain distance. The behaviour of complex systems can only be understood with a holistic view. • Success does not depend on the analysis of each detail, but rather on the …Versus Integration comprehension of the big picture. • Companies are characterized by their “surface Example: Intention of a cat ? behaviour”, not by their partial functions. A cat’s intention to jump cannot be derived from the analy- sis of its single cells.

Only the observation of the cat as whole, combined with personal experience, allows the conclusion that the cat is intending to jump. Integrative Approach, Recognition of patterns from as opposed to the holistic view, even though analytic approach it might be “out of focus

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Under VUCA conditions, special In quality management, cost is recorded controlling methods and instruments as the total of the cost of failure and are useful to lead companies. the cost of preventative measures. Integrated Leadership Quality Cost Record Concept

Qualitätskostenentwicklung Stand 2008 Stand 2009 Ziel 2010 in Unternehmen xyz [EUR] [%] [EUR] [%] [EUR] [%]

A Interner Ausschuss 1.528.667 66,1 1.449.167 61,4 1.223.333 51,0 Concept Instruments Effect Materialwert des Ausschusses 500.000 21,6 425.000 18,0 400.000 16,7 Transformationskosten des Ausschusses 400.000 17,3 340.000 14,4 320.000 13,3 Kapitalkosten für zusätzl. 6.667 0,3 5.667 0,2 5.333 0,2 Corporate foresight Scenario technique, Strategic flexibility Lagerhaltung durch Ausschuß Abfallwirtschaft 10.000 0,4 8.500 0,4 8.000 0,3 Analysis of strategic risks and adaptability Doppeltarbeit, Nacharbeit 20.000 0,9 20.000 0,8 20.000 0,8 falsche oder ineffiziente Planung 136.000 5,9 180.000 7,6 150.000 6,3 Blindleistung 80.000 3,5 40.000 1,7 40.000 1,7 Trouble shooting 76.000 3,3 80.000 3,4 80.000 3,3 mangelhafte Informationskanalisierung 300.000 13,0 350.000 14,8 200.000 8,3 Innovation management Creativity techniques, Capability of developing B Kundenreklamationen 163.000 7,0 210.000 8,9 305.000 12,7 process Initiative portfolio and adapting Gutschriften an Kunden 90.000 3,9 160.000 6,8 150.000 6,3 Verwaltungsaufwand, Personal 40.000 1,7 40.000 1,7 40.000 1,7 Kundenbesuche 3.000 0,1 10.000 0,4 15.000 0,6 Materialsanierung 30.000 1,3 0 0,0 100.000 4,2 Anwalt-/Gerichtsverfahrenskosten 0 0,0 0 0,0 0 0,0 Holistic approach to Business process modeling, Process stability entgangener Gewinn 0 0,0 0 0,0 0 0,0 Imageverlust 0 0,0 0 0,0 0 0,0 business processes Capturing and molding while improving the Vertrauensverlust, Auftragsverlust, 0 0,0 0 0,0 0 0,0 effect networks, operational efficiency, accepted and Kundenverlust

risk self-assessment enforceable solutions C Toleranzüberschreitung 212.000 9,2 255.000 10,8 185.000 7,7 (ORSA) process Beschichtungsdicke 0 0,0 0 0,0 0 0,0 Materialstärke 0 0,0 0 0,0 0 0,0 Überlappungsmaß 0 0,0 0 0,0 0 0,0 Sicherheitsüberproduktion 5.000 0,2 5.000 0,2 5.000 0,2 Complexity management Internalization of risks, Cybernetically meaningful überhöhte Materialqualität 0 0,0 70.000 3,0 50.000 2,1 balanced scorecard decision-making, überhöhte Verarbeitungsqualität 0 0,0 0 0,0 0 0,0 Überqualifikation von Personal 45.000 1,9 0 0,0 0 0,0 concept, beyond follow-up of measures, Überqualifikation von Maschinen 162.000 7,0 150.000 6,4 130.000 5,4 budgeting approach multi-dimensional view Personalüberschuss 0 0,0 30.000 1,3 0 0,0 regarding results D Qualitätssicherung und Vorbeugung 410.200 17,7 445.000 18,9 685.000 29,6 Personal in Q-Sicherung 275.000 11,9 250.000 10,6 280.000 11,7 Corporate policies Corporate mission state- Orientation, providing Kontroll- und Meßgeräte der Q-Kontrolle 0 0,0 60.000 2,5 60.000 2,5 Kontroll- und Regelgeräte in Produktion 0 0,0 30.000 1,3 0 0,0 ment, leadership statement meaning Personalschulung, Q-Zirkel, Methoden 5.000 0,2 5.000 0,2 30.000 1,3 EDV-Einsatz zur Datenerfassung 0 0,0 0 0,0 160.000 6,7 und -auswertung Arbeitsabläufe und Arbeitsanweisungen 130.200 5,6 100.000 4,2 25.000 1,0 Standardisierung 0 0,0 0 0,0 0 0,0 Cybernetic leadership Self-organization, cybernetic Making use of the personal Teamarbeit 0 0,0 0 0,0 10.000 0,4 externe Beratung 0 0,0 0 0,0 70.000 2,9 approach discourse, recursively potential of employees rechtzeitige Information und 0 0,0 0 0,0 40.000 1,7 designed structures, trust and development of flüssige Kommunikation Lieferantenaudits 0 0,0 0 0,0 10.000 0,4 as the basis of business, the organizational self- triggering of intrinsic regulation capabilities Summe der Qualitätskosten [EUR] 2.313.867 100,0 2.359.167 100,0 2.398.333 100,0 motivation factors and dynamics Umsatz [EUR] 12.060.000 10.700.000 12.000.000 Qualitätskosten bezogen 19 22 20 auf den Umsatz [%]

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Internal errors and reworking are only a part of the system cost. First, internal errors and resulting rework, tolerance The objective is the optimization of the total system cost. exceedance and commercial loss should be registered. Internal Errors and Reworking Tolerance Exceedance, Commercial Loss

B Tolerance exceedance (avoidable reserve), due to systemic deficits Cost of arbitrary relations (unnecessary complexity) Cost of avoidable diversity (e. g.: assortment, options), missing modularization Cost of overdrawn reporting routines Cost of complicated decision structures Cost of unnecessarily complex information systems Cost of avoidable material reserve, due to missing specs or process reliability

Cost of avoidable over-production, due to missing process reliability or professionality Cost of avoidable material quality, due to missing experience or professionality Cost of avoidable over-qualification of personnel System Cost Cost of avoidable overspecification of machines or equipment Cost of avoidable personnel, due to exeggerated flexibility or amendable planning

C Commercial loss with customers and with suppliers due to syszemic deficiency Objective Plan Price reductions, due to justified claims/comlaints Last Year Present Next Year Credit vouchers to customers, due to justified claims/complaints Year Cost of customer visits needed die to claims/complaints Cost of lawyers and court proceedings, caused by disputable performance [kEUR] [%] [kEUR] [%] [kEUR] [%] Missed out margin, die to lost orders A Internal blunder and rework because of systemic deficiency 0 0 0 0 0 0 Cost of consequences, due to missing end-to-end contracts Material cost of waste, due to systemic deficiency Cost of insufficient involvement of suppliers in the Transformation cost of waste, due to systemic definiency definition of contracts with customers Capital cost of avoidable stock-keeping, due to missing alignment Cost of parallelly carried out work, due to missing alignment Cost of rework, caused by systemic deficiency Cost of “blind performance, due to not sufficiently defned processes and objectives Cost of the implementation of illusive solutions (symtom treatment) Then, well-coordinated preventative measures should be defined and imple- Troubleshooting cost related to systemic deficiencies mented to reduce the cost of failure and to optimize the total system cost. Cost of missed out operative performance, due to a motivation deficit Cost of individual capabilities and ideas Cost of too little variety (incapability of homeostasis) Preventative Measures, Total System Cost Cost of missing networking (incapability of emergence) Subsequential cost of an inappropriate reduction of the complexity D Effort for preventative measurements for systemic meaningful proceeding Cost of organizational incapability to spontaneously recognize patterns Cost of functional qualification measurements Cost of training in cybernetics principles Cost of missing feedback mechanisms Cost of system analysis Cost of missing orientation in potential effects Cost of designing and implementing end-to-end processes Cost of inside-out planning (missing orientation in scenarios) Cost of designing and implementing stabilizing feedback mechanisms Subsequential cost of missing hedging measurements Cost of adequate process-oriented re-allocation of personnel resources Cost of not having recognized the systems (markets, organizations) behaviour Cost of adequate process-oriented machinery and equipment Cost of avoidable internal meetings Cost of integrating of information systems Cost of end-to-end contracts with customers/suppliers Cost of re-scheduling orders (additional setup times, delays) that is usually not reflected in the post-calc. Cost of deriving and communicating clear objectives Cost of developing and implementing value-oriented incentives

Total system cost 0 0 0 0 0 0

Organizational turnover

System cost, referred to the turnover [%]

180 The Consumer Goods Forum End-to-End Value Chain 181 XI. Measuring cybernetic excellence

By means of strategic and operational risk self-assessment, all risk becomes evident and an effective risk management will be possible. Operational Risk Self-Assessment Questions for Reflection • Address your analysis towards the whole system

• Observe variables that can easily be captured The probability of the risks and • Try to recognize changes, fluctuation, trends, 1 How are performance 4 How are system costs the associated costs should leaps, thresholds and trend-reversions be quantified by everyone. and success measured determined? What • Try to understand the relationships between the observed changes and in your organization? measures are derived the constellation of the variables from the evaluations? • Carefully adjust and bundle these variables 2 Is enough attention paid to the ‘big picture’ or is 5 How are strategic the focus on details? and operative risks registered in your 3 How is the quality organization? How

The self-assessment can be structured (standard report) of interface are they dealt with? communication evaluated? …according to the involved …or according to process entities (e.g. sales, phases (e.g. acquisition, engineering, production order confirmation, order planning, finance and others) execution, settlement)

The single inputs should be aggregated for top management. The risk reporting should be updated in monthly cycles, involving all functions.

182 The Consumer Goods Forum End-to-End Value Chain 183 XI. Measuring cybernetic excellence

Summary Relevant Sources of Section for Further Reading

• Performance KPIs are pure indicators • With regards to the recording and • Auer, Ludwig von: Ökonometrie – Eine • Senger, Harro von: Supraplanung. Unerkannte and are often optimized without optimizing of quality cost, the system cost Einführung, Springer Gabler Fachmedien, Denkhorizonte aus dem Reich der Mitte, Carl considering their mutual relationships. can be managed. The objective is the Wiesbaden 2016, 978-3-366-247868-4. Hanser Verlag, München 2008, 978-3-413-65-8. optimization of the total system cost. • KPI systems only aggregate performance • Hetzler, Sebastian: Real-Time-Control. Für • Terje, Aven; Zio, Enrico: Knowledge in Risk indicators without optimizing the interactions • First, internal errors and the resulting das Meistern von Komplexität, Campus Verlag, Assessment and Management, John Wiley & between the performance-creating areas. reworking, tolerance exceedance and Frankfurt am Main 2010, 978-3-593-39205-9. Sons, Chichester 2017, 978-1-119-31788-3. commercial loss caused by a lack of • The more we focus on details, the less cybernetic quality should be registered. • Kaplan, Robert S.; Norton, David P.: • Weick, Karl E.; Sutcliffe, Kathleen M.: Das we understand the big picture. Balanced Scorecard, Schäffer-Poeschel Unerwartete Managen. Wie Unternehmen aus • Then, well-coordinated preventative Verlag, Stuttgart 1997, 3-791-01203-7. Extremsituationen lernen, Schäffer-Poeschel • Therefore, analyze complex systems by measures should be defined and Verlag, Stuttgart 2010, 978-3-731-02968-9. observing the system’s behaviour and implemented to reduce the cost of failure • Malik, Fredmund: Führen, Leisten, Leben, Campus influence it by coordinating the key variables. and to optimize the total system cost. Verlag, Frankfurt am Main 2006, 978-3-593-38231-9. The behaviour of complex systems can This bundle usually consists of process only be understood with a holistic view. optimization, training and leadership.

• Under VUCA conditions, selected • By means of a strategic and an operational risk controlling methods and instruments self-assessment, all risk becomes evident and are useful to lead companies. an effective risk management will be possible.

184 The Consumer Goods Forum End-to-End Value Chain 185

12 The cybernetic

Introduction to Management consulting Cybernetics approach Index XII Learning a. The Nature of f. Cybernetic Decision- Objectives Cybernetic Making PAGE 194 Consulting PAGE 190 Session XII e. Organizational b. Pre-Conditions for Learning Process PAGE 194 In this section… Successful Cybernetic Consulting PAGE 191 g. Sustainability of a PAGE 195 • You will learn that a Change Project cybernetic consulting c. Self-Conception process only succeeds when of Cybernetic h. Consultants with the pre-conditions for a Cybernetic Background cybernetic working-mode are Consulting PAGE 191 created in the organization. and Approach PAGE 196 d. Proceeding in the Project PAGE 192 i. References PAGE 197 • You will learn how a cybernetic consulting process is executed and what the expectations should be. Questions for Reflection PAGE 198

Summary of Section PAGE 199

Relevant Sources for Further Reading PAGE 200 XII. The cybernetic consulting approach

A consultant should deliver input and ensure the To be successful, a consultant should ensure the customer and organization develops cybernetic behaviour by itself. the organization’s management support cybernetic behaviour. a. The Nature of b. Pre-Conditions for Successful Cybernetic Consulting Cybernetic Consulting

The consultant should ensure The consultant should also “Cybernetic consulting” the customer wants to achieve ensure management is both cybernetic behaviour within ready and capable of ‘systems is ambiguous – and it the organization, as the thinking’ (see learning session consultant clearly understands IV). The customer should be must be ambiguous: the advantages compared prepared to carry out changes to classic behaviour. at management level.

Task

The consultant should initiate and establish The consulting process should be designed cybernetic behaviour in the organization. cybernetically, enabling the organization to start self-regulating processes. The consultant should initiate the process to organizational self- regulation with industry background and methodological input. Consultant’s Responsibility c. Self-Conception of

The consultant is measured by the The consultant should aim to Cybernetic Consulting results the organization achieves. get the organization to develop cybernetic capabilities. I do not support the often-cited systemic approach where consultants should not supply any solution-related input, but only Customer Expectation trigger the customer‘s ability to bring up questions and solutions with the help of question techniques and active listening.

The consultant should transmit and The consultant should coach implement methods to the organization. and support customers. I am convinced a consultant must also supply industry competence to the projects to equip the organization with professional grounding that allows for cybernetic initiatives.

190 The Consumer Goods Forum End-to-End Value Chain 191 XII. The cybernetic consulting approach

Management is an important aspect to be analysed A good consultant becomes effective in an “enzymatic” way when cybernetic projects are carried out. to ensure there is a sustainable benefit from their support. d. Proceeding in the Project The competence of a consultant can be recognised ceeding “enzymatic management”. Only this way can in the way support is delivered. A pragmatic, prob- the consultant achieve stability that is independent lem-oriented approach has proven to be of value, of their personal presence – becoming sustainable. rather than lecturing methods. A good cybernetics consultant The consultant will show Critical to success is that agreed measures are im- will act on the quality of the managers they are not only Despite all operative support, the consultant should plemented in a disciplined way. The consultant often interactions at the interfaces observers, but parts of the not get involved in the daily business, but rather cannot avoid calling for a binding commitment until the between the organization and Management should become effective without becoming “a part of their involved parties notice the benefit of the measures. system. product” – like an enzyme. Therefore, I call this pro- its environment. (cf. Part VI). become an element to be analysed and questioned (Second Order Cybernetics, The consutant will stimulate according to Heinz von the adaptability and viability Foerster). Clients‘ systems of the organization. can only do what is within Many organizations control their possibilities. Projects are To push the readiness to change, the intrinsic the daily business based destined to end if management factors of those involved should be triggered. on basic conditions, but does not cooperate. An important pre-condition for the readiness to change is for those involved to understand what is the benefit they do not perceive expected from the measures. Start harvesting “low-hanging fruits” and issues with large levers simultaneously. environmental changes (observation skills, self- reflection) and they are The readiness to change is a function of… unable to react adequately (readiness and capability Dissatisfaction The expected Attractiveness to change). A good with the present benefit = x of the objective x Viability consultant will foster situation the comprehension of recursive-circular behaviour. • displeasure • does it make sense? • realistic? A good consultant will foster the comprehension of • loss of motivation • advantages

recursive-circular behavior. • problem awareness

! > Eort for the involved parties

• financial • time • labour • loss of free space

192 The Consumer Goods Forum End-to-End Value Chain 193 XII. The cybernetic consulting approach

In cybernetically-led organizations decisions are prepared, weighed A cybernetics project is sustainable when it is ensured up, taken, accepted and supported on a working basis. that once the project ends, adaptability is achieved. f. Cybernetic Decision-Making g. Sustainability of a Change Project

1 2 3 4 Decision Weighing Initialization Resolution Preparation up Decision “De-freezing” “Moving” “Re-freezing”

• Problem awareness • Identification and • Elaboration of • Decision-making • Problem definition involvement of all arguments and • Commitment to and segregation relevant parties positions the decision • Generate a • Make use of the • Documentation and e.g. Definition of • Information • Discourse and e.g. Investment discrepancy momentum being implementation of investment need processing and weighing up of sign-off feeling (problem/ liberated by dissolving the decided option aggregation all perspectives target situation) well-rehearsed and alternatives • Verify the e.g. Investment mechanisms alternatives e.g. Investment • Achieve responsibility effectiveness: calculation • Encourage individual are fine-tuning or • Smash useless initiative: People corrections necessary? Willingness to make decisions (by a single person) routines and dissolve Pre-conditions for should feel involved Capability to make decisions (by a single person) employees to decide: useless structures • Simultaneously Possibility to make decisions (to be granted by management) • Develop and prioritize increase the capability • Overcome loss approaches to to change and to perception by good solutions together adapt to enable the communication organization to find about the change • Formal decision- Cybernetic management is about changing from the administration of a new solutions if new making about given business to managing current adaptability, agility and innovation. difficulties appear future processes e. Organizational Learning Process and structures

Organizational forgetting of patterns

Acquirement of usable knowledge and organizational capabilities Introduced measures have to be further monitored Organizational and accompanied in the stabilization phase. remembering of patterns “After organizational changes, a reaction in Organizational storage of knowledge and capabilities the direction of former patterns is probable,

Pre-conditions for organizational learning: • Constructive discourse if the pressure of the change declines.” • Tolerance, especially fault tolerance • Knowledge management • Open co-existence of different • Organizational self-reflection (Audits) (Becker, Horst; Langosch, Ingo: Produktivität und Menschlichkeit – Organizationsentwicklung views and opinions und ihre Anwendung in der Praxis, de Gruyter Verlag, Oldenburg, 2002, p. 57)

194 The Consumer Goods Forum End-to-End Value Chain 195 XII. The cybernetic consulting approach

Cybernetics has evidently not arrived everywhere in practice – perhaps References on the side of the client and the consultant are because of lack of skills or customer acceptance – or it is called something indicators for the project success to be expected. else for marketing and communication purposes (complementary consulting). i. References h. Consultants with Cybernetic Background and Approach The purchase or sale of a consulting project cannot Consulting projects take shape while they are being Where can you find consultants who help the change to cybernetic work? be compared with the purchase or sale of an indus- implemented. The result cannot be fully described be- trial investment asset. fore a project starts. Cybernetics consulting projects Although cybernetics offers effective levers for noticeable in particular have to be carried out with the on-going improvements, there are only a few consultants who promote The latter can be completely specified ex ante. development in mind in order to meet the require- themselves as applying cybernetics methods. What is the reason? Generally, comparable investment assets are already ments in terms of adaptability and to reach the aim of installed in other companies where customers can “injecting” organizations with the ability to develop. scrutinize the benefit.

Hypothesis 1 Hypothesis 2 Hypothesis 3

Despite the available Cybernetics has already Cybernetics “does not theory, cybernetics has become a usual toolset sell”. What sells are Pre-conditions for organizational learning: • Constructive discourse not yet arrived in broad that is no longer placed result improvements, consulting practice in the foreground – new customers, per- • Tolerance, especially fault tolerance • Knowledge management because it is not under- similar to “e-business”, sonnel reduction etc. stood and/or “it is burn- which has become just Commercially oriented • Open co-existence of different • Organizational self-reflection (Audits) ing in the daily business” another facet of normal consultants are aware views and opinions of customers who do not business. of this and sell these find the patience “to get topics. Some consultants on the bike, instead of apply the principles of continuing to push it”. cybernetics to achieve results, but they do not call it “cybernetics”, at best they call it “comple- mentary consulting”.

196 The Consumer Goods Forum End-to-End Value Chain 197 XII. The cybernetic consulting approach

Questions Summary for Reflection of Section

1 How do you ensure your 4 How do you ensure • A cybernetics consultant should both deliver • Cybernetic management is about input and ensure the organization is able to changing from the administration of project is cybernetic, projects in your develop cybernetic behaviour on its own. a given business to managing current adaptability, agility and innovation. that it can further organization not only • To be successful, a consultant should ensure the develop and that it deliver immediate customer and the organization’s management • A cybernetics project is sustainable when after ‘survives’ without results, but that these want and support cybernetic behaviour. a project ends, adaptability is achieved. external intervention? are sustainable? • The consultant should initiate the process to • Introduced measures have to be organizational self-regulation with industry further monitored and accompanied background and methodological input. in the stabilization phase. 2 5 How do you ensure Can you provide • Management is an important item to be analyzed • Cybernetics has evidently not reached management examples of projects when cybernetic projects are carried out. everywhere in consulting practice – perhaps because of a lack of skills or customer continuously questions that delivered better • A good consultant becomes effective acceptance – or it is called something else for its actions and that it capability to change? in an “enzymatic” way to ensure a marketing and communication purposes. sustainable benefit of their support. considers itself a part • References from client and consultant of the system – and 6 • To push the readiness to change, intrinsic factors are indicators of the expectations What measures do of everyone involved should be triggered. for the success of the project. possibly a part of the you consider to system’s problem? • In cybernetically-led organizations, decisions • There are only a few consultants foster capability of are prepared, weighed up, taken, accepted who understand the principles of organizational learning? and supported on a working basis. cybernetics and apply them successfully in their consulting practice. 3 Do you feel well when decisions are taken at the lower levels of your organization?

198 The Consumer Goods Forum End-to-End Value Chain 199 I. Why we need Management Cybernetics

Relevant Sources for Further Reading

• Argyris, Chris; Schön, Donald A.: Die • Kotter, John P.: Leading Change, Franz lernende Organization – Grundlagen, Vahlen, Starnberg 2011, 978-3-80063-789-8. Methode, Praxis, Klett-Cotta Verlag, Stuttgart 2006, 978-3-608-91890-8. • Laloux, Frederic: Reinventing Organizations, Vahlen, München 2016, 978-3-80065-285-3. • Axelos (Hrsg.): Erfolgreiche Projekte managen mit Prince 2, 2. Aufl., The Stationary Office • Sutherland, Jeff: Doing twice the (TSO) Norwich (UK) 2019, 978-0-11331-550-5. things in half the time, Random House, London 2014, 978-1-84794-108-4. • Ellebracht, Heiner: Systemische Unternehmensberatung, 5. Aufl., Springer • Timinger, Holger: Modernes Projektmanagement: Gabler, Wiesbaden 2018, 978-3-658-214765-3. Mit traditionellem, agilem und hybridem Vorgehen zum Erfolg, Wiley-VCH, • Königswieser, Roswitha: Systemische Weinheim 2017, 978-3-52753-048-9. Unternehmensberatung, Die wirksamsten Theorien, Modelle, Konzepte für die Praxis, Schäffer-Poeschel, Stuttgart 2013, 978-3-79103-290-0.

200 The Consumer Goods Forum End-to-End Value Chain 201 13 Summary

Introduction to Management Cybernetics XIII. Summary

Organizations are systems, and systems seek for survival. Survival Management attitudes are crucial for survival in complex-dynamic in dynamic-complex environments requires adaptation. environments. Organize an open strategic and operative discourse.

The objective of any Organization’s should be The sustainability of In dynamic-complex organization is to survive, and provided with the necessary organizations strongly depends environments, the complexity thus, they are constantly tools to become self-regulated. on management’s awareness of your organization is the in search for a sustainable for reciprocal effects and basis for survival. Increase financial result. their leadership attitude. the degree of possibilities The task for management Therefore, always start with the for action (variance). is to initiate self-regulation management readiness for a Management cybernetics and maintain it by ensuring cybernetic approach. Specially offers methods toachieve enough information and focusing on management’s Use the competence of your organizational stability energy are added. capability and willingness staff incybernetic discourses in dynamic-complex to understand the system. to reach well-aligned and environments. sharpened solutions. To improve the resiliance of your organization, build a Stop believing you can It is important to realize we cybernetic management set- solve problems because In a world characterized are a part of our world and we up and identify and operate you are in a management by uncertainty, your ‘Inner cannot ‘outsmart’ it without the effective flow parameters. position. Try to understand Form’ becomes increasingly suffering the consequences. and use your system. relevant for orientation and good decision-making.

Organizations led by a cybernetics approach develop sustainability against disturbance and disruption. They always find new dynamic stabilities.

204 The Consumer Goods Forum End-to-End Value Chain 205 XIII. Summary

Seek for a market-oriented strategy and ensure it is executed. Establish a ‘System Thinking’, aligning processes at interfaces and with staff. Stay alert and attentive to environmental changes.

A demand-oriented strategy Ensure weak signals are ‘System Thinking’ sensitizes Picture and design is always the first step to perceived by your organization, our minds to the relevance of processes in the stress- embed your organization opportunities are capitalized interrelations and interactions, field ofexpectations and in markets. Focus on and risk is actively managed and improves our effectiveness possibilities at the interfaces. solutions for customers. rather than being avoided. in complex-dynamic systems.

Avoid ‘waste’ by carrying out Feed your business with Establish a strategy-driven Computer-supported system a thorough alignment at descriptions of ‘future spaces’ innovation process, involving dynamics have successfully interface-level, designing with highly probable and the whole organization. been applied to meaningful processes starting from consistent parameter values complex topics and have customer expectations. by means of a corporate led to significant insights. foresight dialogue. Be attentive to changes in strategic partnerships. Install all five core Careful observation and Processes bear tremendous functions of living systems Use cross-border relationships game theory help operate unreleased potential in the processes. to increase the intellectual rationally in a dynamic system. for financial results capital by sharing it. and stabilization. Cybernetics-oriented processes By means of a strategic allow for organizational ‘right- Include the ‘blue oceans’ and an operational risk Performance can considerably sizing’, but should be done approach in your self-assessment, all risk be improved by well- carefully, creating value considerations, equipping becomes evident and effective aligned dynamic-complex without losing flexibility. your organization with management will be possible. interactions between the an ‘osmotic skin’ and a operational functions and continuous open discourse. the business processes.

206 The Consumer Goods Forum End-to-End Value Chain 207 XIII. Summary

Accept complexity, understand it and cope with it. Under VUCA conditions, attentively observe, think probabilities and proceed iteratively. Manage the systems cost.

Overall complexity cannot Self-regulation requires Under VUCA conditions, IT should dynamically be reduced, but there are an initial drive from you should attentively provide the most relevant effective means to cope with it. top-management. observe, think probabilities management information. and iteratively proceed.

While the level of complexity Complex tasks in complex Under VUCA conditions, should be accepted, the environments require Rather than only managing special controlling and distribution of internal and managers with special skills. a particular business, you methods instruments are external complexity can VUCA sets new, additional take up the challenge to useful to lead companies. be distributed throughout requirements towards the drive the organizational The system cost should the organization. leadership. Information, change towards adaptability, be managed. findings and cognition agility and innovation. become more volatile. First, internal blunder Understand and design and resulting rework, complexity in your In uncertain environments, The IT applications should best tolerance exceedance and organization using a practice- try to think about support the aligned processes commercial loss caused proven procedure model. probabilities and protect and reflect the process quality. by a lack of cybernetic different possible quality should be gathered. outcomes by completing The more conscious people simultaneous initiatives. The IT applications should Then, well-dosed are regarding the limits be flexible to adapt to preventative measurements of their knowledge, the With increasing dynamic changing processes. should be defined and better the capability to find complexity self-regulating implemented to reduce sustainable solutions. teams should be created. the cost of failure and Ideally, the IT applications to optimize the total Consider ambiguity as are fully integrated. system cost. This bundle a key to the solution. usually consists of process optimization, training and leadership.

208 The Consumer Goods Forum End-to-End Value Chain 209 XIII. Summary

Extract of the Summary

1 Organizations are 3 Seek for a market- 4 Establish ‘System 6 Under VUCA conditions, systems, and systems oriented strategy Thinking’, align your attentively observe, seek for survival. and ensure it is processes, specially at think probabilities Survival in dynamic- executed. Embed interface-level. System and proceed complex environments your organization Dynamics method iteratively. Manage requires adaptation. in the market. Stay can help identify and the systems cost. Adaption depends alert and attentive to understand patterns on feedback. environmental changes. in system behaviour. 7 In a world characterized by uncertainty, your 2 Management attitude 5 Accept complexity, ‘inner form’ becomes is crucial for survival understand it and increasingly relevant in complex-dynamic cope with it. for decision-making. environments. Organize an open strategic and operative discourse.

210 The Consumer Goods Forum End-to-End Value Chain 211 I. Why we need Management Cybernetics About The Consumer Goods Forum The Consumer Goods Forum (“CGF”) is a global, parity-based industry network that is driven by its members to encourage the global adoption of practices and standards that serves the consumer goods industry worldwide. It brings together the CEOs and senior management of some 400 retailers, manufacturers, service providers, and other stakeholders across 70 countries, and it reflects the diversity of the industry in geography, size, product category and format. Its member companies have combined sales of EUR 3.5 trillion and directly employ nearly 10 million people, with a further 90 million related jobs estimated along the value chain. It is governed by its Board of Directors, which comprises more than 50 manufacturer and retailer CEOs.

For more information, please visit: www.theconsumergoodsforum.com

About Dr. Boysen Management + Consulting Dr. Boysen Management + Consulting, led by Dr. Werner Boysen, is a first-class management consultancy specializing in the performance improvement of medium-sized industrial companies.

Dr. Werner Boysen is an industrial engineer and holds a PHD in economics. With his broad industry expertise and his practice-proven skills, Dr. Boysen helps his clients to improve their operational professionality.

For more information on his latest book, “45 Perspectives on Cybernetics”, please contact: [email protected] (available in german)

Dr. Werner Boysen Ruediger Hagedorn, Cybernetics Learning End-to-End Value Chain Series Author Director The Consumer Goods Forum

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