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Professionals talk so much about being strategic and thinking strategically, yet how well do they understand what that really means? It is not enough for a strategy to be well designed. It must produce results. Thinking strategically about your HR role for the organization means assessing HR’s current state and planning for its future in support of the organization’s future direction in the year ahead. It also means planning ahead for potential obstacles and the HR strategies and action steps to overcome them. For this Discussion, review this week’s Learning Resources, especially the article “Managing Complexity: Systems Thinking as a Catalyst of the Organization Performance,” and think about a workplace situation which you have experienced or have read about, where short-term (or short-sighted) thinking was turned successfully into strategic thinking, or strategic management, to really produce the best outcome. Quick fixes and short-sighted approaches are not always the best outcome in the long run. Write an analysis of what you would have done to turn a case of short-term thinking into strategic thinking and management, and what you would need to do to get others to be willing to follow your lead on this shift in thinking and managing. What obstacles might you anticipate?


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Managing complexity: systems thinking as
a catalyst of the organization performance
Aelita Skaržauskienė
Aelita Skaržauskienė is
Vice-Dean at the Mykolas
Romeris University,
Kaunas, Lithuania.
Purpose – The paper aims to analyse new management practices for addressing complexity,
uncertainty and changes of today’s business landscape. In this context it is critical to understand the role
of intellectual capital and particularly what are the key competencies to be developed in order to deal
with the fluidity of business. Effective decision making and learning in a world of growing dynamic
complexity requires leaders to become systems thinkers – to develop tools to understand the structures
of complex systems. The paper aims to clarify the relationship between systems thinking and
organization performance.
Design/methodology/approach – The methodology of systems thinking is inseparable from the
philosophy of systems thinking, thus, the first part of the paper presents the common theory of systems
and the systems approach to the organization. The paper follows a quantitative research approach.
Firstly, exploratory factor analysis was employed to assess dimensionality of scales. Secondly,
relationships between variables were explored using Spearman’s correlation. Thirdly, multiple linear
regression was run to test the hypothesized model of relationships. Finally, one-way ANOVA was
employed to test the influence of intelligence competence level on mean of organization performance.
Findings – Based on the analysis and synthesis of the scientific literature a conceptual model of the
relationship between cognitive intelligence competencies (such as systems thinking) and organization
performance was developed. The theoretical model was supported by empirical evidence. Correlational
and regression analyses revealed that systems thinking was associated with higher organization
Research limitations/implications – Because of the chosen research approach, the research results
may lack generalizability. The sample of this research was limited only to national level therefore it is not
possible to compare results across different countries. In order to generalize the research findings,
further research should include more companies from different industries. Secondly, the traditional self
assessment method has been used for evaluation of competencies in this paper, but the results could be
supplemented by adding 360-degree feedback or multisource assessment results.
Practical implications – A systems thinking approach allows the realization of various interrelations
and working schemes in the organization and helps to identify regularities of the organizational
development. The application of systems thinking principles cannot guarantee success but may be a
useful means or a permanent form of activity when solving conceptual problems.
Originality/value – Rich insight to the systems thinking approach was provided at the conceptual level
and meaning of systems thinking was developed. The paper discloses the effects of systems thinking on
organization performance and includes implications for the development of systems thinking and other
leadership competencies.
Keywords Intellectual capital, Human capital, Intelligence, Organizational performance,
Complexity theory
Paper type Research paper
Nowadays private and public organizations have to face crisis, change, turbulence, and
high competitive pressure. In this context it is critical to understand the role of intellectual
capital and particularly what are the key intangible and knowledge assets to be developed
DOI 10.1108/13683041011093758
VOL. 14 NO. 4 2010, pp. 49-64, Q Emerald Group Publishing Limited, ISSN 1368-3047
and managed in order to deal with the fluidity of business. The circumstances in which most
businesses today find themselves are complex, dynamic and uncertain (Stacey, 1993). The
complex systems – organizations, markets, etc. – are difficult (sometimes even impossible)
to forecast. The environment in organizations is becoming more complex and changes more
often and suddenly (Tvede, 1997; Stacey, 1993; Goswami, 1993; Tetenbaum, 1998; Laszlo,
2002). The all those processes contribute to formation of new philosophical trends and
initiate attempts to understand complexity of the world. An effect of systems thinking is
relevant in the modern world which generates more information than it is possible to control
and creates interrelations that are difficult to forecast. An the organization is a complicated
‘‘open system’’ it is necessary to consider the environmental influence to the system and the
system influence the environment while planning changes, making decisions and solving
problems inside the organization. Today’s businessmen, managers and leaders need not
only skills to act in an unstable and unpredictable environment but also to understand the
reasons of this.
In the twenty-first century management science faces a dual shift of a paradigm. Due to the
first shift the organization is perceived as a multiple sociocultural unit (different from
mechanistic and biological view), which influences the environment and is influenced by the
environment (the systems conception of the organization). Not only a conception towards
the organization has changed but also an attitude to the method has shifted from analytical
thinking (science, which operated independent variables) to systems or holistic thinking
(science, which operates interrelated variables) (Gharajedaghi, 2006). The second shift, the
method one, helps to better understand the intricacy and complexity of reality. The
understanding of interrelations requires systems thinking as opposed to analytical thinking.
The analytical thinking seeks to simplify complex phenomena while the language of systems
thinking is based on the holism principle, i.e. a perception of the world as a whole (Ackoff,
Recent theories of management stress the significance of holism, intuition and creativeness
and systems conception of the world. Therefore into this conception we should look as into
the way of thinking not just as the discipline or problem-solving methodology. The
management of the organization is an object and space of human creative work. Managing
organization is closely related to the conception: reflection, expertise and thinking. Thinking
includes manipulation of information, formation of concepts and ways of problem solving,
searching for reasons and making decisions. Thinking is necessary for every manager in his
daily activity, therefore, with a sight to the future it is worth considering whether more efforts
should be put to a study of thinking rather than of a substance or matter. One of the ways to
improve the quality of results of an activity is to enhance the quality of thinking: how you think,
is how you act, is how you are (Haines, 1998). The creators of systems thinking methodology
Bertalanffy (1969), Beer (1975), Forrester (1961, 1975), Capra (2002), Senge (1990, 2007),
Ackoff (1999), Haines (1998), Warren (2000), Sterman (2000), James (2003), Gharajedaghi
(2006) apply widely systems thinking principles in management praxis.
The paper aims to clarify the relationship between systems thinking and organization
performance. The relevance of systems thinking as a competence was disclosed in the
complex world. This paper aims to answer the question of how the principles of systems
thinking help to find new productive forms and tools for improving organization performance.
In the first part of the paper, rich insight to the systems thinking approach was provided at
the conceptual level and meaning of systems thinking was developed theoretical insight to
the systems approach towards organization was provided at the conceptual level and
meaning of systems thinking as intelligence competence was developed. In the second
part, based on the analysis and synthesis of the scientific literature a conceptual model of
relationship between intelligence competencies and organization performance was
developed. In the third part, the results of empirical research are presented, which
confirm the statements of theoretical analysis. The theoretical model was supported by
empirical evidence: the impact of systems thinking on organization performance in
Lithuanian enterprises.
The conception of systems thinking
Systems thinking is a concept that contains scientific discoveries and instruments of the past
50 years that enable easier understanding of integrity of phenomena and achievement of the
desired changes. Spruill et al. (2003) on reviewing the theories of the systems thinking draws
conclusions that the major part of the systems thinking theories arise from mathematics,
however, the application of the systems thinking and the related progress can be noticed in a
variety of disciplines starting from medicine to engineering and psychology, political studies
and even art as well. Thus, the systems thinking in the very roots of its historical birth can be
called an integrated science, which enables the perception of reality from many different
points instead of one: the concept of a ‘‘closed circle’’ thinking originates from mathematics,
the principle of homeostasis (a tendency of biologic systems to resist changes and to
maintain a balance) originates from biology while control and communication theories come
from cybernetics.
The main tools of a ‘‘machine age’’ were reductionism, analysis and mechanization, ‘‘system
age’’ requires systems thinking and a holistic perception of the world (Sterman, 2000). From the
classical viewpoint a system is a combination of two or more elements, when every element of
the whole influences a behavior of other elements and the behavior of each element influences
the behavior of the whole (Bertalanffy, 1969; Forrester, 1975). Traditional analysis focuses on
separating the individual pieces of what is being studied; in fact, the word ‘‘analysis’ actually
comes from the root meaning ‘‘to break into constituent parts’’. Systems thinking, in contrast,
focuses on how the thing being studied interacts with the other constituents of the system – a
set of elements that interact to produce behavior – of which it is a part.
A thorough comparison between the traditional and systems thinking is provided by
Richmond (2001) who identified seven critical thinking skills, which play an important role in
improving the quality of our thinking (Table I). Each of these critical thinking skills serves a
different purpose and brings something unique to a systems thinking analysis.
Effective systems methodology lies at the intersection of the following four foundations of
systems thinking (Ackoff, 1999; Gharajedaghi, 2006) (Figure 1):
1. Holistic thinking: focus on the whole, systems logic, process orientation. Seeing the whole
requires understanding structure, function, process and context at the same time. The
Table I Comparison between the traditional and systems thinking
Systems thinking skills
Traditional thinking skills
Dynamic thinking: framing a problem in terms of
pattern of behavior over time
System-as-cause thinking: placing responsibility
for a behavior on internal actors who manage the
policies and plumbing of the system
Forest thinking: believing that, to know
something, one must understand the context of
Operational thinking: concentrating on getting at
causality and understanding how a behavior is
actually generated
Closed-loop thinking: viewing causality as an
ongoing process with the ‘‘effect’’ feeding back
to influence the causes, and the causes affecting
one another
Quantitative thinking: accepting that one can
always quantify, but not always measure
Scientific thinking: recognizing that all models
are working hypotheses that always have limited
Static thinking: focusing on particular events
System-as-effect thinking: viewing behavior
generated by a system as driven by external
Tree-by-tree thinking: believing that really
knowing something means focusing on the
Factors thinking: listing factors that influence or
are correlated with some result
Straight-line thinking: viewing causality as
running one way, with each cause independent
from all other causes
Measurement thinking: searching for perfectly
measured data
Proving-truth thinking: seeking to prove models
to be true by validating with historical data
Source: Richmond (2001)
Figure 1 Four foundations of systems methodology
Holistic Thinking
System Logic
Process Orientation
Structure, function,
process and context
Operational Thinking
Dynamics of
multi-loop feedback
Purposeful socio-cultural
Chaos and
and complexity
Interactive Design
Redefining the future,
critical assessment,
continuous learning,
mental models
Source: Gharajedaghi (2006)
systems approach enables the linking of objects of various types to a single whole, to
organize different forms of activity into one whole. The basis of every successful system is
a successful communication among separate parts. The effective development of the
organization can be achieved when various strategies, strategic planning, team work and
principles of organizational changes are applied. Technical aspects are combined with
the aspects of behavior, personal (personal mastery and intellectual models) with
conceptual ones.
2. Operational thinking (dynamic thinking) refers to the conception of the principles of
systems dynamics, that is, evaluation of the multi-loop feedback systems, identification of
the delay effect and barriers of growth, mapping stock and flow, etc. The conception of
these principles creates an additional value for managing organization: business systems
are seen as interdependent, reasons are searched both inside and outside the
organization, the fact that an effect in one place of the system may cause an effect in
another place causes neither fear nor surprise.
3. Interactivity is a design of the desirable future and a search for its implementation ways
(Ackoff’s ‘‘interactive design’’). Interactive design is both the art of finding differences
among things that seem similar and the science of finding similarities among things that
seem different. To distinct outputs of interactive design are defining problems
(Formulation the Mess), identifying the leverage point and designing solutions
(Idealization). Interactivists, as opposed to those acting reactively or proactively,
mainly pay attention to the problem, its formulation and the search for a solution.
Interactive design is based on the principle of a critical thinking that is defined by these
steps: defining a problem, gathering of information for problem solution, formulation of
hypotheses, checking presumptions and correctness of findings, making a solution.
Interactive design means a necessity of a constant critical assessment, continuous
learning and understanding of mental models.
This dimension of systems thinking is based in intuitive thinking, stimulates creativity and
provides an organization with a conceptual foundation to create a unique competitive
advantage: broadens the thinking area and develops the openness of mind which leads
to an opportunity to use the freedom of experimenting. Basically, this creative process
can produce neither right nor wrong decisions, since the decision-making process
becomes a unique one. The original seeing of the world creates preconditions for original
4. Self-organization: movement toward predefined order. ‘‘Biological systems self-organize
through genetic codes, and social systems self-organize through cultural codes. The
DNA of social systems is their culture’’ (Gharajedaghi, 2006). Self-organizing, purposeful,
socio-cultural systems must be self-evolving in order to be viable. They cannot passively
adapt to their environments but should co-evolve with them and be able to change the
rules of interaction as they evolve over time. ‘‘Capitalism is by nature a form or method of
economic change and not only never is but never can be stationary . . . It is not price
competition within a static set of production methods and organizational forms which
counts but the competition from the new technology, the new type of organization –
competition . . . which strikes not at the margin of the profits and the outputs of the existing
firms but at their foundations and their very lives‘‘ (Schumpeter, 1947). Success comes
from a self-renewing capability to spontaneously create structures and functions that fit
this moment. The ability to continuously match the portfolio of internal competencies with
the portfolio of emerging market opportunities is a foundation of a concept of new
business architecture.
Generally the usage of systems thinking in practice can be defined by Senge: ‘‘it simplifies
life by helping us see the deeper patterns lying behind the events and the details’’ (Senge,
1990). The essence of systems thinking is to:
understand interrelations but not linear cause-effect relations;
see processes of changes but not static states; and
see and understand context.
Any problem must be solved starting from the whole, one component can not be affected
separately from other components. Systems thinking may appear more complex and
multilevel than analytic or reductionist thinking, it helps to detect the order in the complexity
and is more accommodating to human understanding of reality. ‘‘Systems thinking is a
discipline for seeing the ‘structure’ that underlie complex situations, and for discerning high
from low leverage change’’ (Senge, 2007).
Systems thinking approach in the organization science
Contemporary supporters of the conception of systems thinking in organization science
(Sterman, 2000; Haines, 1998; Richmond, 2001; Gharajedaghi, 2006) created a row of
methods and means to develop the systems thinking principles in management. Three
aspects are important for implementation of systems thinking approach in the organization:
1. ‘‘Awareness of systems‘‘. It should be noted that systems thinking theories are widely
spread but they are not universally known and applied in management, since they require
a deeper understanding of systems philosophy. How is it possible to learn thinking
systemic? Ossimitz (2000) answers this question and states that one needs to start from
‘‘awareness of systems’’ – a conscious perception and philosophy of systems. Learning
the systems methodology is very much like learning to play chess. The rules are relatively
simple, but proficiency comes only with practice’’ (Gharajedaghi, 2006).
2. An attitude towards the organization as an open socio-cultural system. Creators of the
systems methodology (Forrester, 1975; Ackoff, 1999; Senge, 1990, 2007) treat
organizations as open socio-cultural systems that are capable of self-organization.
Why is it important to treat the organization as a system in this age of changes (Palaima,
2010)?. The socio-cultural systems are characterized by dynamic complexity that ‘‘arises
from the interactions of the agents over time‘‘(Sterman, 2000). Increasing complexity of
the world requires new tools to interpret patterns and events in the organizations. Systems
thinking is a tool which helps to understand complexity and to see an order in chaos, to
coordinate interrelations and understand choice possibilities.
3. The new role of leader …
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