Transforming the Enterprise is Transforming the System

Several degrees

There are several degrees of enterprise transformation. Those degrees could be named 'maturity levels' even if this term was largely used by 'standards' the companies were supposed to apply to be better.

Four degrees in changing the corporate system

1. Changing the Organization

The first degree of enterprise transformation is changing the organization. Changing the organization cannot be considered as a real company change because most of the time, it is hiding a more profound change yet to be done. In reality, organization change is very often a way to simulate the change and to address some of the following issues:

• Please the top level management;
• Show that we're doing something about the problems everyone in the company knows about;
• Treat a specific person problem with an organization change (i.e. punish someone or reduce his nuisance power by reorganization the whole thing around him/her);
• Gain time to explain to the company why problems are not solved for a long time (you hadn't the proper organization before and so the problems were there, and now you're putting together the new organization together which explains the continuation of issues).

For sure, reorganization is not the panacea, and for sure it is not a mean that one can use in an isolated manner because, as the company is a system, sole organization change rarely has a deep impact on the way things are done.

The are some counterexamples however which makes reorganization a credible way. When the hierarchy is strong and reorganizing means implicitly to adapt the teams to the new 'management model', then, the reorganization can be successful. In some organizations, some organization trees show strong technical and managerial practices and so, reorganizing under the same director can mean adapt to this strong culture. But, this is more than reorganization, for sure.

In most of the cases, when the reorganization occurs on its own, it is just a way to present differently the teams but not to change the working processes.

2. Changing the job descriptions

A category of managers likes to address the job descriptions as a complementary mean to change the company. This practice can be useful if it is a part of a change management process. But otherwise, this practice is rather confusing. Indeed, it is not easy to go and see your teams and give them unnegotiated new job descriptions that they should 'apply' from day one.

This approach testifies that management understood that the company is a system and that, probably, the corporate change means something at the job description level. Often, the managers using this technique will try to build a kind of global system where the job descriptions are synchronized with the new organization they want to put in place.

The problems can pop up in several situations:

• The job descriptions proposed are a theoretical exercise which is not adapted to the current job of the teams nor to their future; teams will most certainly protests and/or not apply any of the new job description stuff; the result will be the continuation of old practices - and the known fact in teams that management is incompetent (i.e. doesn't understand the teams' daily work);
• The job descriptions are requiring new competences that the teams do not have; without any training, the teams will end up doing what they were used to do in the previous organization - possibly with added bitterness in discovering they could have gained something in the transformation and the occasion was lost;
• The reorganization was triggered by a special issue that is not solved in the 'new organization + job descriptions' proposed; quite often, managers loose their first objective due to fear of top level management ad other personal concerns; teams will wonder why they have to change their daily work while the core issue is not solved; they will end up doing as before, more reluctantly perhaps.

Job descriptions cannot be used as a stand alone tool to solve core issues of the organization. If it is, teams will reject it more or less openly depending on the political context: in some companies, teams will express themselves openly while in others they will nod and do nothing. This can be aggravated by culture specifics.

Very often, if managers are writing job descriptions in a centralized way in the context of a big reorganization, their teams will discover how bad their knowledge is of the daily work. Using job description modification during the reorganization process should imply teams but also should be a part of a larger change management process (a subproject in itself).

3. Changing the processes

Changing the process is a step beyond basic organization change with or without job description changes. This approach aims to change the working practices by analyzing the practices as they are and forecasting what they will be after the change. They generally involve several teams and departments and can even impact a large part of the company.

Process change can lead to real change because it is seen more globally and consider the organization change as its output, not its starting point. However, this task is a real job and needs a lot of preparation, project management, and team work.

Process change has a fundamental different intention than organization or job profile changes: the idea is not to make the structure or the practices evolve "to be better" or "to please the top level management", etc., but to work better as a group whatever the organizations involved in the process. When a change of process is initiated, it can end up proposing non obvious solutions (non obvious reorganization, evolutions of job profiles and required associated trainings, abandoning some activities and focusing on others, etc.).

Back to the Deming conception, there are a huge number of cases where process improvement ideas first come from the teams because the consequences of malfunction are first seen by the teams in their daily work life. The real role of management is to get those crucial inputs and to consider them at a bigger scale in order to determine what can be done to correct the process. Once a modification is identified, the piloting of this modification is a change management process and its effects must be assessed over a large period of time (PDCA can be a good tool for that).

Process change is not securing thing for bad managers because of the following dimensions:

• Process change brings malfunctions in the spotlight; the management may be at stake in this process, especially if they hid some important facts;
• Process change implies a certain dose of bottom-up approach while too often organization or job description approaches are too top-down; the teams are allowed to collaborate (they must absolutely not drive), to incept the changes by spotting the low-level malfunctions that are clues for more important process malfunctions for the management to solve;
• The top-down actions are secondary in the process change: managers are acting after the teams worked; everyone is expected to play his role in a bottom-up top-down loop;
• The organization output is not obvious, especially it is generally not easy to use it for personal or political concerns; consequently, every organization can discover in the process they should work differently.

Process change must be done in a change management process (which should be a project). If it is not, it's not process change but it will turn into useless top-down statements that the process must be changed. Even if trainings are provided, process change can be ineffective if the definition of the new process is not addressing real concerns and malfunctions and was done by managers only to address top level management requirements.

Process change is not yet a systems thinking approach but it widens the perspective compared to simple one shot intervention on organization or job profiles.

4. Changing the System

In the corporate system, all processes are intertwined. Acting over a process may be considered as a 'solution' but may have many side effects. Side effects may be worse that the solution.

Understanding the side effects is a typical task of management. Elements are raised quite often by the teams and the correlation of those elements should lead the management to identify the side effects of some decisions. The fact is: intelligent decisions can lead to disastrous consequences if side effects are neglected.

Consequently, changing the system needs to try to build a global vision of the system and leads to spot the process issues more globally than it is generally done.

Organizational compensation units

Let's take an example. Most companies have 'internal hidden clearing houses'. The non identification of those clearing houses is a huge issue because those organizational units are compensating for other teams malfunctions. Changing a process in those conditions and willing to correct the practices can have massive side effects because the change in process can impact the compensation teams making them not able to compensate anymore.

This can be true even in the case of best practices applications. Indeed, every best practice is not easily applicable because in some companies it can generate very dangerous side effects.

Clearing houses are hard to find in companies because:

• To identify the clearing houses, you have to have a comparison point about how things should be if there were no compensation chamber;
• It is necessary to overcome the fact that malfunctions are generally considered as 'normal' by a large part of teams and management; sometimes, just the top level management considers there is a problem (generally because no one never succeeded in explaining why there was a specific malfunction);
• It is required to sort out the various viewpoints explaining different representations of reality;
• Most often, the considered company understands differently the business vocabulary than the other corporates in the same business; these are semantic distortions hiding the real nature of systemic problems;
• It is important to analyze why the scapegoat organizations are pointed out and why their very existence is convenient for everyone;
• It is required to understand what the company produces really: experts, heroes, politicians, friends, accomplices, etc.

Indeed, it is rather complex to detect compensation entities. When it is done, it is possible to forecast the bad reactions of the system if the compensating entities are touched (on purpose or not) by some kind of process change.

Identifying organizational entities that compensate other deficiencies is one of the beginning of systems thinking approach. For sure, this example is not the only dimension that should be examined but it demonstrates how hidden structures can generate unpredictable side effects that can turn a logical decision into a bigger problem.

Systems Thinking once again

The Fifth Discipline, from Peter Senge, illustrates much more cases and patterns where the organization cannot react to its own problems without taking into account the side effects (which are generally counter effects).

Thinking in systems begins with the formalization of the system behavior, most often with 'concept diagrams'. Those exercises are not easy and it is very uneasy to exploit them in order to create a change policy aware of the side effects and the possible leveraging dimensions.

The doom cycle of French industry

The two main assets of a company

Corporations can enter doom loops if they abandon the protection and enhancement of the two fundamental assets of the company:

• People employability;
• Quality of the production tools.

The erosion can be quite slow and is submitted to reinforcing loops making systems thinking a good tool to analyze the vicious circles that can cause massive impacts in some companies or even complete country markets.

The case of French industry

Let's consider the diagram below:

The issue of a part of French industry

This diagram represents very schematically the problems faced today (and for almost 30 years) by a part of the French industry.

On top of the diagram are the constraints the industry is facing, essentially foreign competition and productivity enhancement in other countries. Those countries are not only Asian countries (as it is often wrongly believed) but European countries (such as Germany, Italy or Spain).

The French industry doom loops are quite complex and melt several forces, illustrating themselves as patterns where unions and management often end up letting go the main assets of the companies: people and production tools.

Breaking people asset

On the left of the diagram, we can see how unions, driven by French anti-business ideology, are building people non-employability. Workers should not evolve, people should not be trained, industry should not modernize because it could put at stake the current jobs. For sure, training cannot be said a bad thing up-front by the unions but the consequences of their actions is always that there is no need for trainings that can create evolutions for workers.

The consequences of such a policy is that workers won't get competences that will enable them to evolve in the market if their company is bound to reduce the staff. The more they see they lack competences, the more they will fight to preserve what they have as if it could never change.

Management is facing the day to day conflicts with unions. To change something in the industry, you have to change at least one thing, to evolve, to enter a virtuous Deming loop. Instead of that, union conflict leads to status quo, preserving what is existing , but putting the whole company at stake.

After some years, management "resigns from their duty" and are, at the end of the day, accomplice with unions in doing nothing and protecting privileges. Management also will loose competences and, more problematic, will lose the focus on the job.


The responsibility of top level management is also important. Seeing that French industry is facing serious structural problems with the unions, the company seeks for external solutions.

Behind the non modernization of people competences lies the non modernization of processes.


Not enhancing processes will lead to progressively increase costs whereas the competition is in a virtuous loop.

Breaking production means

On the right of the diagram, we have the same phenomenon about automation of the industry, automation that can be:

• The core industrial problem (such as in robotized assembly chains);
• Or more a back office problem (often solved by IT to enhance the global productivity and focus people on added-value tasks that cannot be automated). 

The non modernization of production tools can be piloted by unions who have short term perspectives of keeping the jobs as they are. As automation is seen as a job destroyer, automation is refused which leads automatically after a decade to the impossibility of modernizing due to the requirement of having too massive investments.

Modernization of the production tools is a continuous process. If for a decade, no modernization investment is done, the tools are working badly and induced costs can be big. When it is time to "update", companies would better rebuild another factory considering the investments that should be done to compensate years of under-investment. 

Exit loop is drama

In the two cases (destruction of people employability and destruction of production assets), the exit loop is a drama. Before this exit loop is reached, there are multiple loops of consciousness of the problem, fight between the unions and the management, discouragement of the management and bad social agreements which obey to short term approaches only, both for the unions and for the management that, at one time, will be abandoned by the top level management that will decide to invest in lower costs countries.

This diagram illustrates the vicious circles that are present in some of the French industry and how political short term fights can destroy the production assets, being material or humans while, in the present, teh series of fights can appear as being the right way to preserve the old world.

How Systems Thinking can help

System thinking can help identifying the vicious circles that can have multiple side effects that are not immediately visible. Corporate life is no straight path between right now and an objective but rather a series of loops that can be virtuous or vicious and that can melt together in complex - but recurring - series of causes and consequences.