Bbnet35systemtheorybasicsslideshare 1227544468197373 9

International Center for Outperformance

System Theory Basics

“Modern Outperformcers do not only act differently, but they mostly think differently

than their competitors. They do not follow the recommended “Best practices”, but
orientate on the “Best thinking” of their talents. This intellectual reorientation
distinguishes themselves from their competitors. Their (break even) performance
is only possibly by their talents, which generate it. Not to humanistic attitude,
but the economic necessity, they have chosen a development which makes
individual ability a source of competitiveness.”

“There are no patent recipes [for outperformance]. By “painting after numbers” no van Gogh
occurs.”

Wohland/Wiemeyer: “Denkwerkzeuge der Höchstleister”, p. 13 & 15, italics added,
own translation into English

System Theory Basics: Agenda

●
Ashby's-Law
●
“Peach” model
●
Definitions
●
Overview of the “thinking tools” incl. definition
●
Explanations of single “thinking tools”
●
Similarities and differences between the “thinking tools” and Beyond Budgeting
●
Resources

Please note that terms in italics refer to the specific language of the System Theory and are explained in
short in the chapter “Definitions”

Ashby's-Law

The law of Ashby states that both system and the environment should have the same level of
complexity in order that the system survives.

To conclude: if the complexity of the external market environment rises, the internal complexity of the
organization has also to rise.

The complexity difference between the market and the organization is recognized as market
pressure. Only organizations with enough internal complexity generate market pressure
and are dynamic robust to the market pressure of the competitors.

From the System Theory's point of view “Transformation” of tayloristic organizations means to increase the
internal complexity to the level of the external market complexity. Complexity cannot increased by
traditional planning, budgeting, steering, or control, but only with living human capabilities like
creativity, initiative or intuition.

The “peach” model

To describe the “collapse” of Taylorism in dynamic and complex markets, the “peach” model can be also

used. This model is based on the General System theory based upon Niklas Luhmann, whose modern
representatives are Gerhard Wohland and Matthias Wiemeyer.

In dull markets (1st picture), in which Taylorism is the leading management model, impulses are transferred
directly from the periphery to the center of the organization. Within the center these impulses are
transferred into steering signals (work directions, budgets, planning, KPI systems, Precess descriptions
etc.). Afterwards the information is passed back to the periphery, where now the reaction to the impulse is
carried out by the periphery.

In complex and dynamic markets (2nd picture) the information derived from the impulses at the periphery
are different from the steering mechanism from the center (directions, budgets) and more up-to-date, the
periphery has a knowledge advance compared to the center. Due to this information difference between the
periphery and the center the steering mechanism from the center “collapse” and are no longer guilty.
Instead the periphery uses their knowledge advance and makes decisions without the center (leadership).

The organization does not proverbially “collapse” but the organization usually creates more and more
centralized functions e.g. Chief Ethics Officers, Chief Innovation Officers etc. or process managers, or
quality managers or policies.

The “peach” model

With reference to the “peach” model is is important to add that the model itself is not related to
centralization/decentralization and therefore in dynamic markets the center and the periphery are not
linked to decentralization. Within dynamic markets parts of the market-based and dynamic-based tasks
from the center are now self-managed by the periphery. Usually in tayloristic organizations the center
tries to fix the steering whereas modern outperformers focus instead on innovation, leadership and
strategy in the center and the periphery takes on day-to-day business (complete functions are separated
this way into the periphery and the center, s. also “thinking tools” “Symmetrization” and “Problem
Transformation”).

As an example, the function controlling would include an investment planning for a new plant as
innovation of the center and an operative planning of a plant would be day-to-day business within the
periphery.

The “peach” I: Dull markets

s
ld er
o
reh
S ha
Decision

Center

Stimulus
t Periphery
r ke
Ma

Response

Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p.25

The “peach” II: Dynamic and complex markets

Decision
s
er
Decision
h old
e
ar
Sh Decision

Center

Decision
Stimulus Decision
t Periphery
r ke
Ma
Decision
Steering mechanisms from the
Response center collapse with increasing
complexity and dynamic

Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p.25

Definitions

●
Center / Periphery: Every organization has to cope with the market pressure and the shareholder pressure.
Within in dull markets, both affect the center. (s. also “peach” model). Within dynamic markets, the center

is the collection of functions that are affected by shareholder pressure, periphery is the collection of
functions which are affected by market pressure. Within dynamic markets, the periphery are own centers
of competence besides the center.
●
Market: the market is the system internal environment for the subsystems suppliers and customers. The
market itself is a social system and exists only of communication, which is in this context the exchange
of scarce goods and services.
●
Market Pressure: is created by organization's that are better than their competitors. Only organizations
with enough internal complexity generate market pressure and are dynamic robust to the market
pressure of the competitors.
●
Steering / Leadership: Steering is the linking of center and periphery in dull markets. Steering are itself
directions with a knowledge difference, usually (e.g. in Taylorism) the steering unit has the knowledge
advance compared to the unit which is steered. Typical elements of steering are budgeting, planning,
incentives, KPI systems, process descriptions and work directions. Leadership is the linking between
center and periphery in dynamic markets. Due to the collapse of the steering in dynamic markets, steering
has to be added with leadership (which actually means that decisions have to be made at the periphery
due to the knowledge advance of the periphery and that the periphery self-manges itself). Leadership also
means constructive disturbance of the self-management at the periphery.
●
Management: is the unit to distinguish between steering and leadership.
●
Operations: are the smallest parts or atoms of a system. They could be chained together and than create a
system.

Definitions
●
Innovation: is an adaptation (or the try) to a changing environment.
●
System: Systems are created if similar operations are linked together as a chain. Every system is divided

into the system and its environment. Each system does exist as long as it can distinguish itself between
system and environment. The single operations of the systems are only internally, external operations
belong to the environment and are not part of the system. A social system's operations is communication,
examples for social systems are a conversation, the economy, organizations and enterprises. Referred to
organizations, the organizations is the system and the market is the system's environment.
●
Environment: s. System
●
Complexity: s. complex
●
Complex / Complicated: Complexity is an attribute of the system. If not everything can be linked
together, than a system is complex. Complex systems can only exist, if they chose their operations by
decision. Due to the fact that there could be decisions differently be met, they are determined by
surprise and several systems are a chain of surprises. Opposite to complexity complication is not an
attribute of the system but a relationship between awareness and “something”, is always relative
and a measurement of uncertainty of an observer and disappears after a learning process.
●
Trivial: has got the same meaning as complicated.
●
Reference: If a system reacts on an impulse from the environment, which is for organizations the market,
this is called an external reference. Within low-dynamic environments, the center often translates the
external impulse into an internal reference which are for example KPI systems or quality management
handbooks, and used within the organization for value creation. If dynamics of the environment increases,
references translated by the center are too slow and instead the periphery has to translates the references
in real time

Definitions

●
Duality: The expression duality refers to the duality between complex / dynamic and complicate / formal
parts. If dynamic is low the little dynamic part is not considerable (this is the core of tayloristic

organizations). As dynamic grows, so do also its dynamic parts (usually lots of problems than appear and
can't be described due to lacking language). In general both parts (dynamic and formal) depend on each
other and cannot exist without themselves.

The Integration
behind
the Distinction
complicate complex
formal ”World“ dynamic
dead living
Steering Management Leadership
Knowledge Competence Ability
Behavior Culture Values
Data Communication Information
Rule Process Principle
Structure Decision
Method (Problem)tool Idea
..... .... ....

Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 124; BBTN13, slide 5

Definitions

●
Dynamic / Dynamics: is originated within Physics and describes the measurement of velocity and the
extent of change in the forces on a body. But dynamic also appears within economic markets as a

result of constriction.

The primary root for constriction of markets is globalization (geographically constriction due to expansion
of local markets abroad). A good metaphor for this constriction of markets is the growing population of
a fungi culture within a petri dish: as the population covers the complete petri dish the space gets narrow
and toxic and fast growing fungi take over. They expand quickly due to constriction. Assigned to economic
markets, this means that in today's market conditions dynamic is more important that size or costs.

Begin Expansion Constriction

Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 22

Definitions
– Taylorism: According to the System Theory Taylorism is not the devision of labor and hierarchy,
but the reduction of an organization's level of complexity to the low complexity's level of dull mass marke
it is the preferred outperformance for dull mass markets. (s. also Ashby's-law and the following chart)

man Complexity

living
Dull mass
Manufacture Market constriction
/ Outperformance markets emerge
due to globalization Dynamic organizations
create market pressure

IT rises Market pressure

Taylorism Traditional organizations
are effected by
market pressure

dead
1900 1950 2006 t

Manufacture Tayloristic Industry Modern Organization


Definitions

●
Outperformance / Outperformcers: is not “High-Performance”, but a break even performance in a
specific environment. In dynamic markets outperformers create the market pressure by using

outperformance in the value creation. Within in the value creation values and ability are the foundation
for outperformance. Usually outperformance is reached, when the complexity of the environment and
the organization are similar. True outperformance is characterized by the following three points:

– Periphery and center are linked by not by steering, but by leadership (s. peach model)
– The labor devision between periphery and center is divided into day-to-day business and
innovation (s. symmetrization)
– Periphery and center use symmetric interfaces (s. symmetrization)

Performance

Outperformance

C(i): internal complexity
C(e): external complexity
1


Definitions
●
Knowledge / Ability: To ability is often implicit learn learning also referred to. Ability describes itself the
ability to react problem-oriented; it requires a talent and further needs training. Contrary knowledge
consists of statements which will not be denied, further knowledge is complicated.

●
Control: is the measurement of distrust and takes places if work is not within the interest of the
organization. With reference to dynamic markets it is too laborious and time-consuming.
●
Rules / Principle: Rules are a cause relationship of “if ... then” which means if there is a specific
situation, the rules clearly state the action without requiring a decision. Contrary a principle is always guilty
without any requirements. When a principle is applied no action takes place at once but a
decision is required before an action takes place. Because people can make a wrong decision a
principle always implies a responsibility by the person who made the decision.
●
Dead / Living: Dead systems are for instance computers or machines whereas living systems are
humans. But humans could also act dead e.g. in a tayloristic organization. The living is finally
responsible to create market pressure in today's highly complex markets, because only living things can
cope with the daily surprises of high dynamics e.g. with creativity, talent, intuition and decision making.
●
Data / Information: Data are formal structures and only they can be saved, transported und processed
by computers. Contrary information are an event within the consciousness and cannot therefore
be transported, processed or saved.
●
Behavior / Value: Behavior is like the front stage of the organization's culture. Behavior is usually
determined by rules or fostered using incentives or punishment Contrary values are like the back stage of
an organization's culture and form the emotional elements of the memory of a single person or an entire
organization. Values reduce the complexity of the communication and therefore enable the increase of
specific complexity; further values do not ensure a specific behavior.

Overview of the “thinking tools”

A “thinking tool” or in short “tool” is a thinking pattern of an outperformance organization
researched and described by Gerhard Wohland and Matthias Wiemeyer.

●
The “thinking tools” of the outperformers all aim to increase the dynamic part of a problem (s. duality),
they are no substitute for conventional approaches and make up about 10% of a consultancy project from
comperdi GmbH (world's main management consultancy for the thinking tools, www.comperdi.de)
●
They are all based on the General System Theory described on the slides before
●
They are all except Beyond Budgeting created and researched by Gerhard Wohland and Matthias
Wiemeyer
●
Please get in contact directly with Mr. Wohland (gerhard.wohland@benmark.net) for detailed information
in English (s. below for six descriptions), German speaking readers can get explanations here:
http://comperdi.de/de/kompetenz/hoechstleister/Hoechstleister.html or more detailed in the book
“Denkwerkzeuge der Höchstleister” (engl. “Thinking tools of the outperformers”, the book and further
publications from Mr. Wohland and Mr. Wiemeyer are only available in German)
●
They can be split into four parts:


General Function-based
thinking tools thinking tools
(incl. Beyond Budgeting)

Industry-based Supporting
thinking tools thinking tools


General Thinking tools

●
Culture-Observation / Kultur-Beobachtung
●
Problem-Transformation
●
Dual Process-Design / Duale Prozess-Gestaltung
●
Strategy-Development / Strategieentwcklung
●
Dual Value Creation / Duale Wertschöpfung
●
Federative Organization / Förderative Organisation
●
Federative Topic Leadership / Förderative Fachführung
●
Interest Management / Interessenmanagmenet


Function-based thinking tools

●
Symmetrizing of interfaces / Symmetrisierung von Schnittstellen
●
Beyond Budgeting
●
Transmethodical Projectmanagement / Transmethodisches Projektmanagement
●
Damage prevention and restoration / Havarieprävention und -sanierung


Industry-based thinking tools

●
Industrialization within the Assurance Industry / Industrialisierung in der Assekuranz
●
Dual Value Creation / Duale Wertschöpfung
●
Organizational Development in the pubic sector / Organisationsentwicklung im öffentlichen Bereich


Supporting thinking tools

●
De-democtratization / Ent-Demokratisierung ●
Master/Student Relationship / Meister/Schüler
Verhältnis
●
Entsorgung von Gammel-Tatsachen
●
Master-loges / Meister-Logen
●
Castrated Workshops / kastrierte Workshops
●
Morale Desinfection / Moral-desinfektion
●
Ko-Management ●
Meeting handcraft / Sitzung-Handarbeit
●
Competence Management ●
Symbolic Action / Symbolische Art
●
Constructive irritation / Konstruktive irritation
●
Talent-Fostering / Talent-Förderung
●
Affliction Work / Trauerarbeit
●
Lab / Labor
●
Chained Interviews / Verkettete Interviews
●
Local Competece / Lokale Kompetez ●
Relationships within complexity / Verwandschaft im
Komplexen

Explanations of single “thinking tools”

1. Symmetrization

2. Dual Process Development

3. Problem Transformation

4. Culture Observation

5. Strategy development

6. Economic Outsourcing

Symmetrization
Symmetrization of interfaces is the most important “thinking tool” to create an dynamic robust
organization that generates market pressure. Key to understand “symmetrization” is that there is no
distinction between central and decentral, but a new devision of labor between the periphery and the

center which depends on the separation between innovation and day-to-day business. Core the this
“thinking tool” is to the symmetrization of the asymmetric linking of center of periphery (the steering
which is collapsed before). External symmetrization uses outsourcing, whereas internal symmetrization
uses the distinction between innovation and day-to-day business. Within the internal symmetrization day-
to-day business is reintegrated into the value creation and the periphery; the linking between innovation
and day-to-day business is done by projects.

Asymmetric internal interface Symmetric internal interface

Central service Central service Leadership
Symmetri-
Innovation zation Innovation

Day-to-day business
Steering Project
center service service
service
service right

periphery
Day-to-day business
value creation
value creation

customer customer


Dual Process Development
A process is a chronological sequence of operations, which are linked to a shared problem and which are
divided into two single groups and represent this way the duality of the process. The first group of
operations are those which are repeated each time (they are the structure) and due to this fact are fixed

within a process description that depends on rules. The second group are operations which built a
reaction to surprise and therefore cannot be fixed within a process description but usually handled
individually by people using principles. If dynamics are low, there a few surprises, which will be solved
with a common sense or viewed as a higher interference. Usually in low dynamics new processes are
initiated afterwards a surprise. If dynamics are high, there are more surprises and fewer repetition takes
place. In high dynamics the original process description is not altered (only the structure of the process
gets smaller and therefore the process description is shorter, too), but as surprise shows up, decisions
based on principles are required for action. In this way the rules (process descriptions) are replaced by
principles and people capable of making decisions.

Low dynamics High dynamics
Problem-solving technology:
People with ideas
d e p le
su ion
e
ris
i
ing

cis
inc

rp
li v
pr

ion

1 2 3 4 5
re
tu

tit
ad

uc

pe
le
de
ru
s tr

re

Problem-solving technology:
”Process“-description

Low-dynamic High-dynamic
problem problem
Source: BBTN13, slide 11

Problem Transformation
A problem is an impulse on a system, which cannot be ignored by the system and therefore has to be coped
with. Problems are dual: a method can be used to solve similar problems, an idea can be used to solve new
ones. An arising problem can only be transformed, if its single parts are divided into complicated and

complex parts, usually by functions which is represented in the following chart (the second chart shows also
the devision between complicated using methods and complex using the “thinking tools”).

complicated, Project
Management methods are used Management
Ste to solve problems ng
eri
e

e ri
ur

ng te
/S
ct

/L
ru

ea ip
sh
st

IT de er Qualifi-
Couple rsh a d dg e
d / Ne ip Le bility / Knowle cation
utral A
V
complex alue
a tion creat
/ Op timiz ve Be ing /
Para
i t te
edu ction erat rm sitic
Sales
Costs R ed en
t /S
/ F Ideas are used to
tic solve problems tee
ris rin
aylo g Knowledge
T
Organization Management



Problem


Static Dynamic
Static
components components

Methods and
Thinking tools
Standards

Solution Solution

Final solution


Culture Observation
Culture is the unit of distinction between behavior and values, which both exist side-by-side and not one
after another. Neither from the values can be the behavior concluded nor from the behavior can be the
values concluded. Within tayloristic organizations in low dynamics, a behavior-based culture is adequate,

but with increasing dynamics values, and the corresponding value-based culture cannot be ignored.
Behavior in tayloristic organizations is governed through steering e.g. directions, arguments, rules,
incentives, punishment and threat; values are usually derived from society. In high dynamics the quality of
the value-based culture is a critical success factor; the value-based culture itself consists of ideas, insight,
role models and experiences.

Behavior-based culture Value-based culture
(tayloristic-dull/slow) (post-tayloristic/dynamic)

Behavior (doing) Values (thinking)
Consists
What you can see What‘s behind
of:
and change by decision. and cannot be changed by decision.

Governed Steering (complicated) Leadership (complex)
through: Extrinsic motivation to behavior Intrinsic motivation to thinking

can be changed can only be observed

Source: Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007, p. 169; BBTN13, slide 13

Strategy development
If the way towards a Target can be determined in advance, a plan, which describes in detail and obligatory
for all further actions, is adequate. Contrary a strategy, which is not fixed, is required if the way can only
be found after departure. During a strategy there is at first an empty strategy space between Actual and

Target. Within this strategy space decisions can be met and action can be carried out, before asking
question before. In this way strategy is an requirement for flexible organizations; a requirement for a link
between central leadership and decentral autonomy. Further strategy is created by leaving out things.

5
4 Target
(Targets)
2
1
6
e
Actual
y spac
(Current
Strateg
Status) 3
Possible ways

Strategy adverse way


Economic Outsourcing

From the System Theory's point of point the aim of outsourcing in not to achieve economies of scale and to

cut costs, but to adapt to high dynamics. Outsourcing is a means to reduce manufacturing levels and plays
an important role to “transform” tayloristic organizations. Only organizations that focus on single parts, can
compete in high dynamics; these parts refer to the core competence, everything else can be outsourced.
When offerings are also available from suppliers, they are referred to as shell competence and do not
contribute to the competitiveness of an organization due to the fact that the offering is freely available for
others on the supplier market. To distinguish between core and shell competence both internal and external
references are used and four cases are possible. They are shown in the following chart and explained
afterwards in short.

supplier market
(external reference)
existing missing

1 3 Buy core
Buy shell
(“Santa Clause“
Business we buy it! (outsourcing)
interface)
intention
(internal
reference) we make it 4 2
Make shell
ourselves! Make core
(waste/muda)

Source: BBTN13, slide 15

Economic Outsourcing

Case 1 and 2 are in harmony, in case 3 and 4 there are conflicts.

Case 1 is the ideal case for the own production of core competences. The organization can distinguish
itself from the competitors because the offering is not available on another market.

Case 2 is the ideal case for outsourcing, costs are cut and quality and flexibility are increased
automatically.

Case 3 is in conflict with internal and external distinction between core competences. There are three
possibilities: A the competence will be bought from a supplier that has no competitors and can set
prices and quality, B the outsourcing is assured by creating a market, C Partnership with supplier
instead of outsourcing.

A “Santa Clause” interface is created if the steering of a asymmetric interface collapses: within
tayloristic organization performance generation and consumption a linked by an asymmetric interface
with steering, after the collapse of the steering performance generation is overloaded and
interference makes the problem even worse.

Case 4 There are two possibilities: A costs are higher than the costs of the supplier and waste is
generated (often as a result of a collapsed steering when the internal supplier is operating without
market pressure), B the organization has the same performance as the supplier or is even better and
therefore has to offer the product/service on a market e.g. to expand to new markets.

Similarities and differences between the
“thinking tools” and Beyond Budgeting

Similarities:

●
The world has changed: complexity and dynamic increased.
●
Taylorism fails within highly complex and highly dynamic markets.
●
Both use the “peach model” to explain the collapse of Taylorism (the peach model was originally taken
over from Mr. Wohland and Mr. Wiemeyer by the Beyond-Budgeting-Community.

Differences:
●
The System Theory refers to “market pressure” whereas Beyond Budgeting refers to “market pull”.
●
Within the System Theory functions are separated into complicated and complex parts whereas functions
no longer exist within a devolved network structure.
●
Within a devolved network structure no center exists, further innovation is part of every employee's job
within the Beyond-Budgeting-Model and not the center's.
●
From the System Theory's point of view Beyond Budgeting is a “Thinking Tool” among others whereas
Beyond Budgeting considers itself to be a leadership model (or management model).
●
The meaning of several System Theory expressions are not similar within the Beyond-Budgeting-Model.

Resources
Online Resources:

●
XING Beyond Budgeting Forum
Video: “Führen mit flexiblen Zielen”, accessed 22th July 2008: http://www.youtube.com/watch?v=iE3xfKAJ9EE

●

●
BBTN13 - Dynamic Robust Problem Solving, accessed 13th August 2008 through www.bbtn.org
●
Comperdi GmbH Homepage: www.comperdi.de, accessed 14th August 2008, single webpages
include:
http://www.comperdi.de/de/kompetenz/hoechstleister/Hoechstleister.html
http://www.comperdi.de/de/kompetenz/hoechstleister/allgemeine_werkzeuge/uebersicht_allgemeine_werkzeuge/allgemeine_W
erkzeuge_1.html
http://www.comperdi.de/de/kompetenz/hoechstleister/allgemeine_werkzeuge/uebersicht_allgemeine_werkzeuge/allgemeine_W
erkzeuge_1.html
http://www.comperdi.de/de/kompetenz/hoechstleister/branchenbezogene_werkzeuge/uebersicht_branchenbezogene_werkzeug
e/uebersicht_branchenbezogene_Werkzeuge.html
http://www.comperdi.de/de/kompetenz/hoechstleister/hilfswerkzeuge/uebersicht_hilfswerkzeuge/uebersicht_Hilfswerkzeuge.ht
ml

Books:

●
Pflaeging, Niels: “Führen mit flexiblen Zielen. Beyond Budgeting in der Praxis.”, Campus, 2006
●
Wohland, Gerhard; Wiemeyer, Matthias: “Denkwerkzeuge der Höchstleister”, Murmann 2007
(main resource)
●
Senge, Peter: “The fifth discipline. The art and practice of the learning organization.”, DoubleDay 2006

Copyright & Terms of use

License:

This paper except the front cover picture and the logos is licensed under a Creative Commons BY-SA License.
Credit: "International Center for Outperformance (http://intco.org)" within the reference list

Recommended Quotation:

ICO35 – System Theory Basics, accessed on xx.xx.xxxxx through http://intco.org

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