Sunday 4 October 2015

Leadership in Engineering - Part 3: Systems theory & compensatory feedback effect

Welcome to the third part of my leadership in engineering basics series.

Another skill to master good leadership is learning the principles and laws of the so called systems theory.
In this part, I will show you the impact of the systems theory on our daily thinking, acting, and decision making. In general, systems theory covers several disciplines (social sciences, economy and engineering) and tries to organize things in structural operations with feedback lopes, which help to improve the system.
I guess every one of you got involved in a situation where the laws of systems theory kicked in - either in private or in business.

What is it exactly that makes handling such situations so difficult then? Let’s start by presenting some examples to get familiar w­­­ith such situations.
I want you to be aware of certain phenomena that seem at first glance logic, but are in fact wrong thinking. Here are some examples:

  • Cell phone towers located outside of cities: regions which contain valleys and other geographical difficulties for transporting cell phone signals need more cell phone towers. Where should they be placed? On the main square of the village, or outside? Yes/no? When you have a closer look at villages, they have the cell phone towers always outside. The village representatives think that in this way they can better protect the village inhabitants. Nevertheless, this thinking is wrong. Each mobile need to send the signal and the signal is nothing else than a wave. This wave will be transformed to heat (every one of us knows that the ear gets hot after a few minutes of calling). The mobile and the cell phone tower have a sending/receiving relation. In case of placing the tower outside of the town, the mobile will send more waves to achieve a stronger signal. Therefore, more heat will be generated as well. The solution is to put the tower in the center so that the mobile doesn’t need to send a lot of waves to have a strong connection.
  • Compounded interest on the stock market: the thinking and forecasting of exponential effects is difficult to understand for humans. However, it has a great impact in the long run if you have an interest of 2% p.a. or 5% p.a. on your investment. Most people ignore the exponential effect of the compounded interest or are not even aware of it.

Apart of those 2 examples, here I present the most important 5 laws regarding the impact of the systems theory inspired by Peter Senge’s “The Fifth Discipline: The Art and Practice of the Learning Organization “

1) The solutions from yesterday are the problems of today: The problems which are surrounding us can be often solved by just looking at the solution from the past. Example: A well running business complains about a loss in revenues in the last quarter. Why? Lots of customers used the bonus program which led to this situation. Sometimes, it is hard to identify if a certain solution just pushes the problems into another part of the system, because often the problem solver are not the same as the people who solved it in the first place.
2) As more as you dig in as harder it gets: A lot of companies know the so-called compensatory feedback effect. Example: One of the company’s products loses on attraction and sales decrease. As a counter measurement, aggressive marketing strategies are applied to increase sales again. As a result, the advertisement expenses for the product increase and the sales price decreases. In this way, the company can win back some customers, but the working capital will decrease. Therefore, the company will start a cost reduction program and will start to restructure some departments to cut costs. The quality of services, such as delivering times of the products will decrease. To sum up: As more effort is put to run after customers as more customers the company will lose!

3) The behavior improves, before it gets worse: the before mentioned compensatory feedback effect affects us with a time delay. Example:  There was once a cartoon in the New Yorker: A man is sitting in a chair and is blocked/surrounded by big domino pieces. He kicks the pieces placed right next to him and these start to fall. A chain reaction starts and the domino pieces consecutively fall reaching the other side of the chair, where they hit the man again. This illustrates that though you can make quick improvements to a given situation, the damaging impact of the compensatory feedback effect can hit you very hard in the end!

4) The therapy can be worse than the sickness: For example, a person has a problem at work and starts drinking alcohol to find new motivation again. After some time he/she gets addicted to the alcohol and cannot stop easily anymore. The original problem may have disappeared, but another much bigger has arisen.

5) And the most important one in daily business leadership: Cause and effect are not next to each other in time and space. When we play as children, the problem and solution of a certain thing are next to each other. But when we grow up and become managers, we still have this kind of thinking. We believe that when there are problems in the manufacturing the solution will be as well in the manufacturing. In most cases, it is in another department. We need to understand that cause and effect are not placed next to each other, neither in time, nor in space.

Furthermore, Dan Ariely wrote down in his bestseller ‘The Hidden Forces That Shape Our Decisions (2008)’ about this phenomenon called predictably irrational and presented a lot of good examples as well.
With this third part, I want to close this series for having a basic understanding of leadership with its principles and actions. We will have some more posts, based on this series.




[1] Peter Senge: “The Fifth Discipline: The Art and Practice of the Learning Organization “

[2] Dan Ariely: "The Hidden Forces That Shape Our Decisions"

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