Chapter 7: The Principle of Leverage Senge, Chapter 7 THE FIFTH DISCIPLINE

Seeing the Forest and the Trees SENGE: Chapter 8 The Fifth Discipline

CHAPTER 8: The Saga of Jimmy Carter Immersed himself in detail Quality of decision making? We need ways to know what is important and what is not important, what variables to focus on, and which ones to ignore 1 June 2002

The Saga of Peoples Air A totally different airline Founded in 1980 to provide low-cost, high-quality airline service to travelers in the Eastern U.S. Grew to nation’s 5th largest carrier Brought in a host of innovative human resource policies In 1986 lost $133M in first six months, and was taken over by Texas Air 1 June 2002

What brought PEOPLES down?? Many explanations Some blame Burr’s “soft” people-oriented management policies Some blamed the unions Others blamed the use of Americans’ Sabre Reservation system Load management could offer a limited number of low-cost seats while others were “full coach” 1 June 2002

What variables to blame? Fleet variables Human resource variables Competitive factors Financial variables Policy Levers 1 June 2002

Fleet variables Planes Capacity of aircraft Routes Scheduled flights Competitor routes Service hours per plane per day Fuel efficiency 1 June 2002

Human resources Productivity Experience Service personnel Aircraft personnel Maintenance personnel Hiring Training Turnover Morale Productivity Experience Team management Job rotation Stock ownership Temporaries 1 June 2002

Competitive Factors Market size Market segments Reputation Service quality Competitor service quality Fares “load Management” Competitor fares 1 June 2002

Financial variables Stock price Growth rate Debt Interest Rate Revenues Profit Cost of plane operations Cost of service operations Cost of marketing Wages Stock price Growth rate Debt Interest Rate 1 June 2002

Policy Levers Buying planes Hiring people Pricing Marketing expenditures Service scope 1 June 2002

Enormous detail complexity We could build a model that contained all of this detail Or we could use the systems archetypes to disentangle this parable of complexity 1 June 2002

What do we have in terms of loops? A growth loop certainly (reinforcing) The airline, unlike WonderTech was investing in its capital equipment infrastructure It was buying planes to accommodate the growth A balancing loop 1 June 2002

What archetypes? LIMITS TO GROWTH SHIFTING THE BURDEN Erodiing goals (standards) The combination of these produces a third archetype The Growth and Underinvestment Archetype This was first seen in the WonderTech Scenario 1 June 2002

The Simplified Structure--p. 133 1 June 2002

The Simulation Structure--Reinforcing Loop 1 June 2002

The Simulation Structure--Balancing Loop one 1 June 2002

The Simulation 1 June 2002

Copyright C 2002 by James R. Burns All rights reserved world-wide. CLEAR Project Steering Committee members have a right to use these slides in their presentations. However, they do not have the right to remove this copyright or to remove the “prepared by….” footnote that appears at the bottom of each slide. 1 June 2002 Prepared by James R. Burns Prepared by James R. Burns