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A manifesto for model-based management
Article Type: Guest editorial From: Kybernetes, Volume 39, Issue 9/10
The importance of models in support of managers is still widely underestimated. An argument frequently heard imputes that change and complexity in our time are so ubiquitous and mighty that models do not provide adequate orientation. We argue the contrary: the more and the faster things change, the greater the need for good models becomes, and we can prove it (Conant-Ashby-Theorem, contribution 1). The more that people in organizations are confronting complexity, the more will their performance depend on the quality of the models underlying their activity: more than ever do they need orientation, and that is what good models can provide.
For many, this insight is new; until now, research has dedicated little effort to the topic of model-based management. While the term has been used earlier, by and large it has been confined to the limited context of computer systems.
In this special issue of Kybernetes, we pursue the goal of setting the topic in the context of general management with an emphasis on the systemic, generalist, integrative stance, while obtaining views of different functions or disciplines from the specialist. With Ulrich (2001), we conceive of management as the design, governance and development of productive social systems.
In other words, our purpose is to establish model-based management as a crucial issue for organizations and their members. Our approach is to take a systems perspective on the state-of-the-art, eliciting insights that may be relevant for any kind of organization, private or public, profit or non-profit, large or small, regardless of the kind of business they are in.
The 14 contributions which constitute this special issue cover a wide spectrum of takes on the central topic. First, they reach from theoretical considerations to methodological contributions to accounts of applications in the practical domain. Second, the papers are rooted in different schools of the systems approach, with an emphasis on two strands, organizational cybernetics and system dynamics. These are complementary, as we have shown elsewhere (Schwaninger and Pérez Ríos, 2008). Third, the contributors are both academics and practitioners. They come from Europe, North and South America, and their backgrounds include management, entrepreneurship, finance, public policy, information science, consulting and systems research. How can all of this diversity be brought under one roof in such a way as to amount to more than a mere accumulation of different papers? We believe that this team of authors and editors has produced a coherent set of propositions which transcend narrow disciplinary boundaries, together forming an integral statement by which model-based management is introduced as an important organizational issue. This “statement” also makes the point that the topic under study can be tackled effectively with theories and methods grounded in the system approach.
It is precisely the system-theoretic framework that has provided a common code to all members of our team, namely, system theory with the formal gears of organizational cybernetics and system dynamics. This common code enabled a coordination of the individual efforts by the authors. Even though the different proponents rely on their distinct disciplinary “language games” (Wittgenstein, 1953), it is the shared frame of reference that connects these different “worlds”, therewith producing coherence among the individual contributions. That symphonic quality is what distinguishes a transdisciplinary venture from a merely interdisciplinary project.
The 14 papers that constitute the special issue fall into three categories:
The first group of contributions deals with the theoretical underpinnings of the topic under study – model-based management – and sets out the parameters of model-based theory building:
The chapter “Model-based management (MBM): a vital prerequisite for organizational viability” by Markus Schwaninger sets the stage. The concept of model-based management in organizations is introduced and conceptualized. Based on the Conant-Ashby-Theorem, the need for high-quality models is substantiated (Conant and Ashby, 1981). The author elaborates on the relevance of different types of models for management and proposes a research agenda for the new topic of model-based management.
Henry Birdseye Weil’s “Why markets make mistakes” provides a first take on model-based theory building. In an extraordinarily lucid analysis, the author examines the dangerously simplifying assumptions often made by decision makers when they use simplistic mental models that fail to anticipate the counterintuitive behavior of complex systems. The resulting business decisions are disastrous not only for individual companies but even for whole industries. Properly read, Weil’s anatomy of failure turns out to be a blueprint for achieving better models of market behavior.
Organizational change is ubiquitous, but not much is known about its inner workings. Peter M. Milling and Nicole S. Zimmermann, in their contribution “Modeling drivers of organizational change”, open this black box. They present an elegant model of the New York Stock Exchange, demonstrating that different drivers of change have to be seen in their interaction. They show that parameters influence loop dominance, placing causal loops and even whole model sectors out of action. The chapter’s focus on feedback relationships and the emergence of behavior brings precious insights to the fore.
In many fields, the body of knowledge generated by management research is highly fragmented. Attempts at synthesis have shown mixed results, at best. Switbert Miczka and Andreas Größler, in their piece “Merger dynamics: using system dynamics for the conceptual integration of a fragmented knowledge base”, use the system dynamics methodology to show a way of structurally integrating diverse partial theories, including the contradictory results of certain empirical studies. Using the example of post-merger integration processes, they offer an approach to synthesis that is more effective than the traditional ones. Finally, they provide a way of testing well-established theories, thereby attending to an urgent need.
The last paper of the theory-related part is Nelson L. Lammoglia, Camilo Olaya, Jorge Villalobos, Juan P. Calderón, Juan A. Valdivia and Roberto Zarama “Heuristic-based management (I): variation”. These authors bring in evolutionary thinking, which they link to theories of complex systems. They propose a heuristic-based management of self-organizing systems, asserting that a process of variation of pairs of models and actions maximizes the chances of improving a system’s performance in open environments. In sum, a heuristic is provided by which the self-organization of a social system can be fostered and made more effective through variation.The second group of contributions deals with methodological issues. These chapters focus on organizational diagnosis and design, as well as on ways for improving models for management:
In “Models of organizational cybernetics for diagnosis and design”, José Pérez Ríos introduces a framework that enables managers of public and private organizations to cope with the complexities confronted. Beyond a general demarcation of the territory, Pérez Ríos attends to the need of managers for a structured process that can channel their efforts at dealing with complexity. A guide is provided which helps managers in diagnosing and designing their organizations, on the basis of Beer’s (1984) viable system model (VSM). That model excels in orientating practitioners by means of its conceptual-theoretical power, a factor which makes the author’s blueprint particularly valuable.
A step further in the direction of a design for model-based management is made by Sebastian Hetzler in his “Brain-supporting environments for decision making in complex systems”. At last, Stafford Beer’s concept of the decision room, which in the meantime has become classic, is taken up. A design for brain-supporting environments is presented, by which requisite variety (in the sense of Ross Ashby) can be achieved in decision making through the use of “cognitive tools”, by which individual and group decision making can be debiased and effectively supported (Ashby, 1956).
Ralf-Eckhard Türke’s “Role and contribution of formal models to governing: a heuristic” investigates the link between models and the results produced by a system. Based on a look at the fundamental principles underlying social activities, the logical role of models in social governing is analyzed. From there, a heuristic is elaborated, by which the specific contribution of a formal model, as well as its limitations, can be assessed in advance. The methodological rigor of this contribution is remarkable; it makes possible a solid evaluation of a model’s fitness to a specific situation.
If models are so important, how can those models be sorted out in a way that those which are inadequate may be dispensed with? And how can these inadequacies be abolished? The chapter “Using a system dynamics approach for identifying and removing management model inadequacy” by Kristjan Ambroz and Alda Derencin gives an answer to these questions. An insightful survey of the persistence of inappropriate management models is given, and hypotheses about the potential contribution of system dynamics to a higher adequacy of management models are proposed. Despite the two well-documented case studies in this paper, we are including it in this methodology section rather than in the applications part because the authors arrive at an important methodological conclusion, elaborating on its implications in a detailed way: the limitations of models with narrow scope vis-à-vis the strengths of broader models, which are orientated by an overall organizational framework. The reader of this chapter can learn a lot about important methodological choices in the modeling process, in particular the selection of model boundary.In the third set of contributions, applications of the concepts and methods of model-based management are presented. These papers are relatively concrete about the practical settings to which they refer. In this way, the authors, all of whom are experienced practitioners and academics, provide a solid platform for sharing their findings with readers:
Martin Pfiffner, in his contribution “Five experiences with the viable system model”, brings in the perspective of a consultant. He is aware of an increasing interest in alternative organizational models amongst CEOs, and suggests using Stafford Beer’s VSM as such an alternative. He makes this case with regard to a number of examples. The author refers to more than 100 VSM consulting and schooling projects, which he and his colleagues have conducted at the Malik Management Zentrum St Gallen over the past seven years. It is a pity that these multiple applications are not explored scientifically, which makes Pfiffner’s call for more application research plausible.
The chapter by Benjamin Gmür, Andreas Bartelt and Ramon Kissling refer to an “Organization from a systemic perspective – application of the viable system model to the Swiss Youth Hostel Association”. In this case study, the authors goe about reconstructing the organizational diagnosis and the ensuing implications for structural redesign. The strength of this case is in its concreteness: the claim of the VSM’s diagnostic power is brought to life. In addition, the clear logic leading from diagnosis to design enhances the understanding of model-based management with an emphasis on organizational structure.
In the next case study, Eric Wolstenholme, David Monk and David Todd elaborate on “Dynamic cost benefit analysis for mental health reform”. Taking the case of mental health treatment in the UK, the authors compare a conventional cost-benefit analysis with the development and use of a system dynamics model. The latter approach has led to surprising conclusions by showing the path toward greater effectiveness. This contribution is highly advanced and innovative, indeed, a showcase application of model-based management. The study has provided decision support to a large investment on which implementation has already begun.
Stefan Michal Wasilewski then contributes the perspective of entrepreneurship in the private sector: “Model-based management in start-ups: a retrospective on the role of models in building new financial businesses”. Extremely knowledgeable in entrepreneurship, the author aims “to share honest insights” into how one management team established new businesses and products using model-based management. The three cases he presents are embedded in enlightening reflections which make them excellent vehicles for learning.
Camilo Olaya has applied system dynamics to “Model-based lawmaking”, with reference to “The curious case of the Colombian criminal justice system”. The case of the reform of the Colombian criminal process is skillfully used to demonstrate the significance and necessity of computer simulation modeling for supporting system design and lawmaking processes. From there, the author provides links to both the theory and the methodology sections. This way Olaya fulfills an important function, namely that of closing the loops between practical applications, methodology and theory.
When one considers the entire array of these chapters, it becomes clear that they comprise a unity despite the variety of contributions. The purpose of this special edition – to introduce model-based management as a crucial issue for organizations and their members – has indeed fulfilled the function of better coordinating both the authors and editors. However, it is the shared system-theoretic frame of reference itself which in the end has enabled the efforts of 22 different brains and pens to cohere.
The contributors make up an international band, and the editors also drew on members of the international scholarly community for the review process. We are delighted to present this special edition, and we thank all those who cooperated in bringing it about.
A token of our very special gratitude goes to Professor Brian H. Rudall, the Editor-in-Chief of Kybernetes. It was he who had the idea of producing this special edition, and who created the space for its realization. Thank you, Brian; we hope that you like the result!
Markus Schwaninger, José Pérez RíosGuest Editors
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