2005 An Afternoon with Russell Ackoff Part 2 of 2

Introduction

In this section, Dave Nave introduces the concept of systems thinking and its contribution to business and society.

• Systems thinking is an approach that manages the interactions between the parts of a company rather than managing the behavior of each part individually.

• The insights from systems thinking are a tremendous contribution to business and society.

Downsizing

In this section, Dave Nave discusses downsizing and its impact on companies.

• Downsizing leads to an increase in stock prices but can have negative consequences for companies in the long run.

• Companies often offer attractive voluntary retirement packages during downsizing, which results in losing competent employees.

• Downsizing is unethical because it goes against a corporation's social function of maintaining or increasing employment.

• Clark Equipment Corporation was on the verge of bankruptcy due to Japanese competition. Instead of downsizing, they hired a new CEO who conducted an immediate study to find out what were causing their problems.

The Function of a Corporation

In this section, Dave Nave explains the function of a corporation and its role in society.

• A corporation's function is to produce and distribute wealth through products, dividends, interest on loans, and compensation for labor.

• Employment is the major way that any corporation distributes wealth.

• In order to perform its social function, corporations must maintain or increase employment.

Maintaining Employment

In this section, the speaker talks about two examples of companies that maintained employment despite facing challenges.

Example 1: Transportation Department

• The salary of commercial carriers was set by the Teamsters whereas his hours were set by a mechanical union that had a much lower salary.

• The manager called meetings with 450 employees and said he couldn't afford to keep them. He showed them how much it would cost to let them go and how much money he could make if he bought the transportation department.

• He went to the banks in South Bend Indiana and asked how much they would lend him for a leveraged buyout. They offered him an amount of money which he added to the cost of letting people go.

• He bought the transportation department and gave his employees a contract for two years at the same price as commercial carriers. Within a year, they became the largest trucking company in central North and Midwest.

Example 2: General Electric

• General Electric was number two in welding equipment business with less than 10% market share.

• They built an automated factory in York Pennsylvania to reduce costs so they could offer welding equipment at a price far below Lincoln's loyal customers' affordability.

• After failing to gain market share, they decided to leave the welding business but offered their new factory for sale at half its value provided that whoever bought it kept their workforce.

• A buyer was found within two months who got a plant at low prices with experienced workers who knew all about running it.

Alternatives To Downsizing

In this section, the speaker talks about alternatives to downsizing.

• Destroy internal monopolies and make them compete for internal units. Mobil Oil had a huge corporate computing center that did all of their corporate computing in-house. They required all corporate computing to be done in-house.

• General Electric could have destroyed its internal monopoly by making its welding equipment business compete with other businesses internally.

Introduction

The former CEO of Mobil Oil, Pavel Arias, asked the speaker to evaluate the value of their computing center. They struggled to conduct experiments and found that the internal customers were not evaluating the performance of the unit.

• Arias showed interesting charts about computing costs against salary costs.

• They designed experiments to evaluate the performance of the computing center but struggled to conduct them.

• Internal customers were not evaluating the performance of the unit.

Process Reengineering

The speaker discusses process reengineering and its flaws.

• 75% of process reengineered processes increased costs.

• 75% of applications have been reported to be unsuccessful.

• Vertical silos are organized in a normal business, but process reengineering suggests horizontal interaction.

• However, taking a slice horizontally is not enough; it's a different kind of part but still part of the whole that needs improvement.

Creativity

The speaker talks about creativity and how it has evolved over time.

• Edward de Bono was an instructor at Cambridge University who introduced creativity as a topic in management circles.

• Creativity had been talked about for years, but nobody was doing anything about it until de Bono came along.

Introduction to Creativity

In this section, the speaker discusses creativity in children and adults. He mentions two authors who wrote about how creativity is killed in children and how it can be resuscitated in adults. The speaker also introduces Debono's three-step process for every creative act.

Creativity in Children and Adults

• Children are naturally creative, but their creativity tends to decline as they grow older.

• Two authors, Jules Henry and Ronald Lange, wrote about how creativity is killed in children.

• Debono found ways of resuscitating creativity in adults through his "creativity enhancing programs."

• Every creative act involves three steps: identifying an assumption that limits alternatives, removing that assumption to increase alternatives, and exploring the domain of increased choice.

Karen's Extra Credit Problem

In this section, the speaker shares a personal story about his daughter's extra credit problem. He describes how he initially dismissed her request for help but later realized its importance. The speaker also explains the difference between a puzzle and a problem.

Dismissing Karen's Request

• The speaker's daughter asked him for help with an extra credit problem.

• The speaker forgot about it until after supper when his daughter reminded him.

• The speaker expressed annoyance at having to stop what he was doing.

Realizing Its Importance

• The speaker tried to solve the problem but couldn't find the solution.

• His daughter became upset and started sobbing next door.

• The speaker realized the importance of the problem to his daughter and made a real effort to help her.

Puzzle vs. Problem

• The speaker asked his daughter if the extra credit was a puzzle or a problem.

• He explained that a puzzle is not necessarily harder than a problem and that puzzles can have many solutions.

The Four Lines Problem

In this section, the speaker talks about a problem his daughter faced in school and how she solved it.

Daughter's Solution

• The speaker's daughter was given a problem that required drawing four lines through nine dots.

• She initially drew two sets of three lines but was told by her teacher to do it with only one line.

• The speaker's daughter then showed her teacher how to do it with one line by folding the paper and drawing a single line.

• Her teacher was embarrassed when the class became interested in the solution and asked the daughter to demonstrate it on an easel.

Lesson Learned

• The experience taught the speaker's daughter an important lesson about finding the answer that is expected rather than just any answer.

• This lesson is also applicable in corporate settings where employees are expected to find solutions that align with their superiors' expectations.

Creativity and Problem Solving

In this section, the speaker talks about how we kill creativity by leading people to provide us with expected answers rather than surprising us. He also discusses the three-step process of creativity and some principles that help in being creative.

Creativity and Killing It

• We kill creativity by leading people to provide us with expected answers rather than surprising us.

• The message we deliver when we ask people to solve a problem is not to surprise us but to give us what we want.

Three-Step Process of Creativity

• The three-step process of creativity involves identifying a limiting assumption, moving it, and exploring the consequences.

Principles for Being Creative

• Deny the facts of the case: Challenge assumptions and look at things from different perspectives.

• Find out what they actually are: Gather data and information before making conclusions or decisions.

• Open up possibilities: By denying assumptions and gathering information, new possibilities can be discovered.

The Importance of Removing Externally Imposed Constraints

In this section, the speaker discusses how removing externally imposed constraints can lead to innovative solutions to problems.

Stewardess Scheduling

• Stewardesses were unhappy about having to spend free time away from home.

• A new scheduling system was designed that increased their time at home by 25% and their flying time by 25%, making them happy.

Air Force Communication Jamming

• The Air Force requested a proposal on how to combat communication jamming using game theory.

• The speaker refused to submit a proposal because it was based on false assumptions about communication and game theory.

• Despite this, they were awarded a three-year contract worth close to a million dollars.

Bare Mining Abrasives

• Bare Mining wanted to know why their profits only went up by 10% despite doubling their sales volume within ten years.

• The problem was that their inventories went up four times, which cancelled out the increased profit.

• By designing a system of prices where the price of abrasives decreased with the amount of notice given by customers, inventories were reduced by 75%.

Unilever Frozen Fish

• Unilever introduced frozen fish in England and had a huge sale promotion for it.

• British women loved the idea of getting fresh-tasting fish conveniently.

The Ingenious Solution to Keep Fish Fresh

In this section, Buckminster Fuller talks about how the taste of frozen fish changes due to muscle deterioration caused by inactivity. He then explains an ingenious solution that was used to keep fish fresh during transportation.

Keeping Fish Fresh

• Frozen fish tastes different because of muscle deterioration caused by inactivity.

• To keep fish active in a crowded tank, a baby shark was put in with them.

• This kept the fish well-exercised and resulted in successful frozen fish transportation.

Role Reversal: Hiring Gang Members as Police Force

In this section, Buckminster Fuller talks about how hiring gang members as a police force helped reduce shoplifting and theft in a shopping area.

Reducing Shoplifting and Theft

• Stores were closing due to prevalent shoplifting by young gang members.

• Gang members were hired as a police force to protect the neighborhood.

• All theft stopped once the gangs were converted into a police force.

Designing Sensible Automobiles

In this section, Buckminster Fuller discusses how designing sensible automobiles can solve many problems related to traffic congestion, fuel efficiency, and cost.

Sensible Automobile Design

• American automobiles have an average occupancy rate of 1.2 people per car.

• An automobile designed for two people traveling at 40 miles per hour can carry maximum density on highways and sell for less than $3,000.

• A car with no motor and just a seat can be attached to the back of this automobile for carrying additional passengers.

• The design of current automobiles is based on wrong assumptions, such as the need for six-passenger cars and fancy bumpers.

• Model T Fords have appreciated more than anything else in our economy.

• Bumpers should all be at the same height and arranged sensibly to prevent damage during collisions.

Designing for the Consumer

In this section, the speaker talks about how companies can become more creative by redesigning products and confronting common assumptions. He gives an example of Honda observing unmarried professional women to understand their needs better.

Redesigning Products

• Companies can become more creative by redesigning products and confronting common assumptions.

Honda's Observation

• Honda observed that an increasing portion of sales was going to unmarried professional women, so they got curious.

• They found out that these women were always carrying a bag with a pair of shoes because they were wearing Nikes or Reeboks without dress shoes in the back.

• To solve this problem, Honda assigned a compartment in the driver's side door to store a pair of shoes.

Improving Productivity through Systems Thinking

In this section, the speaker discusses three types of effects that can have a tremendous impact on productivity within an organization.

Job Descriptions

• A study found that only 23% of what people knew that was relevant to their jobs were they allowed to use due to job descriptions.

• The speaker suggests getting rid of job descriptions and allowing employees to look around and see what needs to be done and do it. This approach is liberating for employees and leads to increased productivity.

Unspoken Rules About Compensation

• There are two unspoken rules about compensation within organizations that are tremendously constraining. The first is that nobody can have a salary that's higher than their boss.

• The second unspoken rule is that people are not allowed to talk about their salaries with each other. This leads to a lack of transparency and can cause resentment among employees.

The Importance of Salary and Status

In this section, the speaker discusses how salary and status are often linked in the workplace, which can lead to inefficiencies and dissatisfaction among employees.

Xerox Story

• Xerox had 30 people when they invented the Xerox machine.

• The designers who created the first Xerox machine were made executive vice presidents but didn't have a single new product in three years.

• When asked why they weren't creating new products, the designers said they couldn't afford to go back to the lab because their salaries as executives were too high.

• The company gave these designers their old salaries back and put them back on the bench. Within six months, they developed two new products.

Problems with Promotions

• In order to promote someone, their status must change, which is inefficient.

• Many managers in the US have only one person reporting to them because of this promotion system.

• This is because managers need to assign someone for their promoted employee to manage so that they can justify a higher salary.

Setting Salaries

• Job descriptions are not an accurate way of setting salaries; instead, you should ask yourself how much you would be willing to pay your subordinate if they were leaving for another job.

• If you would pay them more than what they're currently making, then you've been cheating them. If you would pay them less than what they're currently making, then you should have let them go a long time ago.

Dirty Trick in Universities

• In universities, nobody can make more money than the department chairman.

• The speaker always made sure that there was one member of his faculty who was at a higher salary than he was.

• This allowed him to be the highest-paid professor in the Wharton School.