Serving as my Rotary club’s International chair, I was asked if we would want to participate in a project in Latin America. It involved piping drinking water to a small rural community on Bolivia’s Altiplano. The benefits of this relatively small investment to an entire community were not immediately obvious. For example, girls could go to school, and the younger generation might be dissuaded from moving to the big cities where, in all likelihood, a life of poverty and crime would await them.
In order to appreciate the true meaning―purpose―of this project, I needed to perceive this project through the lens of this community’s unique socio-economic circumstances and their centuries-old culture. Traditionally, it’s the task of the girls to fetch water from afar―which would take them several hours twice a day. And, once water would come to the village, girls are free to go to school. With easy access to water, villagers would want to grow green vegetables in a hothouse, which provides better nourishment and improve their overall well-being. In addition, they could earn some money from selling part of their harvest. As a result, their lifestyle would become sustainable, which encourages the younger generation to stay with their families on the Altiplano.
Water pipes are just what they are, water pipes. But their true meaning―their purpose―is derived from their location, application and installation.
Similarly, when you observe a business, what do you see? Do you see separate resources or do you see how those resources are organized into an integrated system, and directed towards the realization of a specific objective? I cannot stress enough the importance of perceiving a business as a singular, unique, integrated, and open system―individual nodes and their connections or interfaces.
Once you recognize the synergistic effects generated through the interconnectedness of a system’s component parts, you cannot fail to understand and appreciate the unique contributions of each individual resource. However, the flip-side of this interconnectedness is an interdependency, allowing each part to play its role.
Unfortunately, many businesses are led by people who fail to see that interconnectedness and interdependency. They only see tools that were acquired to perform certain functions, and they are always on the look-out for alternative solutions that are capable of performing those functions cheaper and faster. This attitude towards business bears the unintentional risk of―unwittingly―eroding specific synergistic effects that differentiate their business from competitors. It is utterly frustrating and painful to experience when a decision maker cuts the scope of a major change project by―unwittingly―eliminating the very properties of the project that would have made the endeavor unique and worthwhile.
The simplicity of expressing everything into money―income, cost, and profit―and aggregating those numbers for every month, quarter or year, is very appealing. After all, now you can set arbitrary targets for different line-items on a Profit & Loss statement, while manipulating the allocation of resources. However, that is how business systems become unglued; you deteriorate or eliminate those aspects that are meaningful for holding the system together, especially when under strain from economic hardships.
Unknown and Unknowable Assets
The capability and capacity of most resources exceed what is minimally required of them for the execution of the specific function―job description or specification―for which they are hired or acquired. To illustrate my point, I met this man in a menial non-managerial position who, in his spare time, volunteered at airshows―including the one for the air force’s open-house. He was in charge of all ground operations, which included aircraft movements, security, and emergency response. You think his employer short-changed himself?
Similarly, when people are made redundant in an effort to polish-up the business’ P&L statement, unknown and unknowable amounts of talent and performance potential are just being thrown away. Think of multi-year work experience including institutional memory, development of customer relationships, the collection of market intelligence, healthy organizational climate including boosting morale, etc. You won’t find these items on any job description or resource specifications list. None of these items are quantifiable in monetary terms and thus do not appear on any financial statement. Henceforth, to conclude these items do not exist and therefor are of no consequence to business performance is a mistake.
The core function of business―exchanging products and services for money―has not changed. And, the prerequisite of a sustainable business model is to give more in USE-value than you take in CASH-value. What has changed over time is the means of producing and delivering USE-value. Just think of specialization, automation / robotization, (information) technology, decentralization / outsourcing, etc. Each of these means were developed and they evolved over time. Implementation of any of these means has had a significant effect on work flow, personnel training, administrative organization, housing, legal frameworks, organization, communication, distribution, security, and ultimately on financing.
Subsequently, we see means for the performance of one function containing features that facilitate the creation of new opportunities for another business function. The internet, of course, is the most obvious example of this phenomenon.
Because of high cost of ever advancing technologies, business functions will have to share these new means of producing and delivering USE-value. As a result, we see the occurrence of tight coupling―the intricately interconnectedness of major business functions that share resources for executing their every-day processes.
Interactive processes combined with tight coupling is a major source of system complexity, which thoroughly confounds most executive leaders, according to IBM’s 2010 global CEO study Capitalizing on Complexity. The IBM study identified creativity as the antidote to being perplexed by complexity, whereas my suggestion is developing one’s understanding of a business as a singular, unique, integrated, and open system. And that idea compelled me to write The Root Cause.