Holistic (reductionist) vs Systemic approach of organizations and its impact in goals and metrics


We were talking a lot about the importance of considering companies as what they are, systems. Years of an holistic (Reductionist) approach of organizations generated a huge negative impact. The holistic approach, the scientific attempt to provide explanation of complex things in terms of ever smaller entities, says that if you have a company (system) and you separate it into its parts, then you improve each of its parts and put them back together you will have a better company (or system). The result of this thought was:

1. Independence between departments: If we think that we can have a better whole if we improve its parts then is logic that each area (Marketing, Finance, Logistics, etc) works towards its own improvement. The problem is how do you know what does improving mean if you don’t know what the company needs from you. Let’s put it this way, in a simplistic but graphic example, if the marketing department invest more and better its budget and generates more demand for a product, but the product is not available, then the result is just an increase in costs. Then it a hooray! for the marketing department that “hurts” the company as a whole. Weird? Yes, but real.

2. Departments that sets objectives that do not contribute to the overall (corporative) objetive: Based on the previous idea, if what cares is what every department does, then every department will set their own objective as an isolated area or a system. Nobody in a company should feel they “accomplish their mission” if the company as a whole was not successful.

3. Career oriented against business oriented: If what is important is individual performance instead of corporative performance, then everyone will want to demonstrate that they have performed above average. Even if that was against the organization performance as a whole.

4. Inferences allowed: Since people don’t see companies as a whole but a set of isolated departments becomes very hard to understand the causes of bad or scarce results. The lack of a systemic view (and information) creates a fertile ground for disproportionate inferences. “If no information, all the answers are correct”.

5. Complexity in understanding the origen of a negative result: Since all the areas are “measuring” themselves in an isolated way, in general there’s no systemic analysis (how department A is impacting in B, C, D). That’s why when something goes wrong it’s difficult to identify which resource from which area is preventing the company to accomplish its results.

That’s why is very important to move from a Holistic to a systemic approach of organizations. The systemic approach base it’s analysis in the interactions between the parts. In understanding what role is playing each area and person in the accomplishment of the chased result. Then, find the resource of constraint capacity and invest the scarce resources just in its improvement. Then, start over.

Once we understand this, we can develop an information system from Top down. First it’s very important defining the main objetive of the company. Which is normally earning money, today (EBITDA) and in the future (Purchasing Intention). Is not “simplifying people’s life” or “make woman more beautiful”. In my opinion, that’s the strategy. “In order to make money, we will generate products that simplifies people’s life, and since people want that their life get more simpler, they will be hable to pay money for that”. Right?

Once we know that objetive, we have to define what’s the role of each area on helping the company getting that objetive? Let’s say:

1. Marketing: Its objetive is generating demand for the company products. Not improving the “brand awareness”.

2. Technology: Its objetive is generating a platforms that improve user experience. Simplifying the purchase to the potencial clients. Their objective is not generating cutting edge technologies, or implementing more and more platforms.

3. Clients support/services: Its objective is improving people’s engagement so they will buy more (up sale) or new products (cross sale).

4. Operations: Its objetive is generating products that people like and are willing to pay for them, over and over again. Not making cool products, or the “best products”.

If the marketing department generates a campaign without interacting with Operations it could happen that clients won’t have products to buy. Or, if they don’t communicate with finance it could happen that they don’t have the budget to invest in advertising.

So first step in designing an information system is knowing how that system works as a whole.

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