Note: This is the third in a series of posts related to decision-making. The first two posts are here and here. The introduction to the importance of decision-making for leaders is here.
Have you ever turned on a hotel shower to find that the water was too cold, so you turned it up but then it became too hot, and back and forth you went until you eventually got it right? The oscillating temperature was the result of a very simple system that has a delay between an action and its results.
Businesses are unimaginably more complex than a shower control, and the delay between when a leader takes action and when (and where) that action is felt is extremely hard to understand and predict. I first saw the cartoon below in a System Dynamics class taught by John Sterman. As he told it, the CEO sitting on the stool felt his business closing in on him. So he took action that created immediate daylight for himself. Perhaps there was a celebration, maybe even a bonus that went along with the quick results that he produced.
But the longer term consequences are clear. At some point, maybe months or years later, the dominoes will circle back with painful results. There will be efforts to understand what happened but with the passage of time, fewer and fewer will link the crushing outcome with the “heroic” action taken by the CEO. Furthermore, with CEO tenures averaging five to eight years, it is quite possible that the person in the seat will have changed by the time pain is felt.
A wonderful illustration of the consequences that delays have on a business system is the Beer Game. I have watched and participated in this simulation numerous times, and have been astounded every time at how experienced and talented leaders drive inventories in a fairly simple beer distribution system into chaos. The cause: simple time delays.
In a more complex (and very real) example from the auto industry, here is how one manufacturer responded when a sales forecast looked like it would miss the planned target:
Sounds great, right? Although the quarter or year may have worked out well, here is what really happened to the business:
So what to do about this? In the case of the car company, they spent extensive time identifying “causal loops,” which helped them understand how seemingly heroic actions could have devastating consequences in surprisingly numerous parts of the organization, sometimes not for years. They built discipline around understanding (as best they could) the effects of their decisions on the entire business system, and then avoided the seduction of short-term gains they believed would undermine the business, even if not for years.
Perhaps the most interesting aspect about this experience was that every individual involved truly believed they were doing exactly the right thing for the business. Only when examined as a system did it become clear how their collective actions were undermining the enterprise.
In Lean discipline we’re taught to ask “Why?” 5 times. In understanding a system as complex as a business, we need to ask, “And then what will happen?” at least five times if we hope to understand the consequences of our decisions.
Photo: Boston Customs House - November 28, 2009
For over 20 years, I've worked with CEOs and senior leaders both as a consultant and c-suite executive. These articles are culled from some of those experiences.