Chapter 3 Critical Thinking for Managers

Management 1e Learning Objectives  Explain how managers use a systems approach to critical thinking to achieve results  Illustrate how systems diagrams are used to show cause-and-effect relationships  Show how systems balance and reinforce their behavior over time  Analyze systems discrepancies to determine a manager’s intervention  Diagram the eight most common systems archetypes that managers can expect to encounter - 2

Management 1e 3- 3 How Managers Apply Critical Thinking to Make a Difference (p. 58)  Systems approach to critical thinking Managers visualize “the interconnected set of elements that is coherently organized in a way that achieves something” Organization perceived as a whole consisting of a set of interrelated parts  Manager must understand the importance of each part and how it contributes to the organization

Management 1e 3- 4 How Managers Apply Critical Thinking to Make a Difference (cont.)  System thinking (p. 59) Peter Senge – The Fifth Discipline Five disciplines include:  Personal mastery  Mental models  Building a shared vision  Team learning  System thinking Organizations should become learning organizations

Management 1e 3- 5 Seeing Systems with Diagrams (p. 60)  Stocks and flow diagrams Stocks – material or information that has accumulated over time Flows – physical or informational forces that increase or decrease stocks  Inflow – increases stocks  Outflow – decreases stocks Placeholder – empty cloud  indicates that the source of inflow and deposit of outflow are not known or not being considered

Management 1e 3- 6  Stocks and flow diagrams (cont.) Seeing Systems with Diagrams (cont.) Figure 3.1 Figure 3.2

Management 1e 3- 7  Behavior over time diagrams – visual tool that allows managers to see the change in measurements across a span of time (p. 61) Systems are dynamic Seeing Systems with Diagrams (cont.) Figure 3.3

Management 1e 3- 8 Seeing Systems with Diagrams (cont.) Figure 3.4 Assumptions Started with $0 Made $3,000/mo., June, July, and August Expenses = $1,500/mo  Behavior over time diagram (example, p. 61)

Management 1e 3- 9  System change (example, p. 62) Delay – time a force, internal or external, takes to have an effect on system behavior Seeing Systems with Diagrams (cont.) Figure 3.5 Assumptions Earn $1,500/mo. during the semester Maintain account balance of $750/mo. starting November 15 th

Management 1e Systems Behaviors and Feedback Loops (p. 63)  Feedback loop Reactionary force that cause fluctuations in behavior  Balancing loop (‘B’) Reactionary force the seeks stabilization toward a stock level equilibrium, typically a goal or desired state Figure 3.6

Management 1e Systems Behaviors and Feedback Loops (cont.)  Reinforcing loop (‘R’) Self-multiplying reactionary force that amplifies change in a stock level Figure 3.6

Management 1e  Balancing behavior (p. 64, example 1) Systems Behaviors and Feedback Loops (cont.) Figure 3.7 Assumptions Have $9,000 by end of August, take 2 week trip in July Have $4,500 in bank During trip, $1,500 less income, $1,500 of expenses Must increase bank account by $6,000 Must work double shifts to have needed cash

Management 1e  Balancing behavior (p. 64, example 2) Discrepancy – difference between an inflow or outflow sum of flow, relative to an equilibrium or desired state Systems Behaviors and Feedback Loops (cont.) Figure 3.8 Assumptions Discrepancy would occur if project required 59 hours of work one week

Management 1e Systems Behaviors and Feedback Loops (cont.)  Runaway or reinforcing loop (p. 65) Feedback becomes self-multiplying or amplifying to the level of stock Can produce positive or negative self-multiplying effects  Exponential growth or decay Stock increases or decreases relative to its size, wherein the stock is self-multiplying Interest is a runaway loop that leads to exponential growth or decay

Management 1e Systems Behaviors and Feedback Loops (cont.)  Exponential growth of 10% (example) 0% to 60% - Percentage Growth $0 - $2,500,00 – Dollars of Interest Growth Figure 3.9

Management 1e Systems Behaviors and Feedback Loops (cont.)  Exponential decay of 10% (example) 0% to 60% - Percentage Decay (Negative Growth) $0 - $6,000 – Loss in Dollars (Negative Growth) Figure 3.10

Management 1e Analyzing Systems and Knowing What to Change (p. 66)  Causal loop diagrams (p. 67) Map the structure of a system and show how the components of a system interact with each other Facilitate visualization of discrepancies Provide a systemic view of behavior

Management 1e Analyzing Systems and Knowing What to Change (p. 66) Figure 3.11  Causal loop diagrams Amazon’s energy budget system (example)

Management 1e Analyzing Systems and Knowing What to Change (cont.)  Building a culture of change (p. 67) Understand the company’s mission Comprehend the purpose of its subsystems Acknowledge the imbalance or discrepancies that feedback loops are imposing on the subsystem’s purpose Design a plan to achieve balance Communicate to all employees a subsystem’s purpose and discrepancies

Management 1e Common Systems Patterns (p. 68)  System archetypes Common patterns of complex problems that managers encounter  1. Limits to growth (p. 69) An internal or external force restricts the ability to expand a service or product offering Growth process comes up against a balancing process

Management 1e Common Systems Patterns (cont.) Helen’s Story Addition of new team Confusion, failure to meet orders Value differ- ences lead to inter-team friction  1. Limits to growth (cont.) Figure 3.12

Management 1e Common Systems Patterns (cont.)  2. Shifting the burden (p. 70) Managers use short-term fixes that over the long-term worsen the situation due to unwanted side effects Underlying problem seems too time-consuming, difficult, or costly to address fully Similar to “Fixes that Fail”

Management 1e Common Systems Patterns (cont.)  2. Shifting the burden Tony’s Story Employees unaware of how to use the new system and special needs of new customers Outside sales team Figure 3.13

Management 1e Common Systems Patterns (cont.)  3. Eroding goals (p. 71) A shifting the burden concept where a short-term solution is put in place, leading to the erosion of a long-term goal Accept goal-slipping process and allow performance standards to lower Corrective action is not taken

Management 1e Common Systems Patterns (cont.)  3. Eroding goals Seline’s Story Dip in economy makes IT system seem like an unnecessary expense Begin manual entry of patient diagnoses Loss of patient records and general confusion Figure 3.14

Management 1e Common Systems Patterns (cont.)  4. Escalation (p. 73) Competing interests eventually take irrational actions against one another, resulting in a lose-lose situation Aggressive competition leads to “one-upmanship” Can be avoided if managers look for ways for both parties to achieve their goals

Management 1e Common Systems Patterns (cont.)  4. Escalation Jamal’s Story Jamal lowers prices Competitor lowers prices Blow to Jamal’s bottom line Blow to competitor’s bottom line Figure 3.15

Management 1e Common Systems Patterns (cont.)  5. Success to the successful (p. 74) Two activities compete for the same resources One activity becomes more successful, depriving the other of support and resources Key is to strike a balance between the two activities

Management 1e Common Systems Patterns (cont.)  5. Success to the successful Marielle & Rachael’s Story Marielle’s handling of fire Marielle’s promotion, more rewarding assignments Rachael given menial tasks Rachael’s suggestions ignored Figure 3.16

Management 1e Common Systems Patterns (cont.)  6. Tragedy of the commons (p. 75) Use of a common limited resource purely for one’s own gain without concern for the resource’s availability Multiple efforts compete for the same resources, where self-interest overrides a collective solution Limited common resources eventually are diminished or eradicated altogether

Management 1e _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ Common Systems Patterns (cont.)  6. Tragedy of the commons Figure 3.17 Max’s Story Oil supplier Cost of oil supply Decreased oil supply Increased customer satisfaction Increased customer satisfaction Max makes own oil Competitor makes own oil Cost of oil supply

Management 1e _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ Common Systems Patterns (cont.)  7. Fixes that fail (p. 76) Reliance on a “quick fix” solves problem in the short term, but does not solve the problem over the long term Longer-lasting effects derived from solutions focused on the long term

Management 1e _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ Common Systems Patterns (cont.)  7. Fixes that fail Jane’s Story Expenses of sales department Fire ‘trouble- makers’ in sales department Decline in sales revenue; Hire new salespeople Figure 3.18

Management 1e _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ _____ ______ _______ ____ Common Systems Patterns (cont.)  8. Growth and underinvestment (p. 77) Conserving resources can lead to underinvestment with consequent slide in performance Companies that underinvest remain in their current state, leading to stagnation and unfulfilled goals Underinvestment is just as risky as overinvestment

Management 1e Common Systems Patterns (cont.)  8. Growth and underinvestment Peter’s Story Expand the hotel Need to close the hotel Service quality suffers Closed hotel Upgraded facilities; complimentary lunch Figure 3.19

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