“And Then a Miracle Occurs …” Engaging the challenge of operationalizing theories of success in digital transformation

Abstract

Businesses face numerous critical challenges and rely on managerial competence to respond successfully to them. These responses are called “theories of success” because they purport to be a recipe for achieving the desired outcome. As the limitations of human cognitive capacity are well documented, there is a need for new ways of thinking that clearly lay out the basis of these theories of success. Systems thinking is one approach that contributes to this in two important ways. First, it clarifies the nature of the causal relationships in the problem context. Second, by presenting a clearly specified model of the theory, communication with other stakeholders is improved, thus increasing the likelihood of a better result. (Keynote addresses at a Plenary Session at The 8th International Multi-Conference on Complexity, Informatics and Cybernetics and its collocated events)

Full text

“And Then a Miracle Occurs …”
Engaging the challenge of operationalizing theories
of success in digital transformation
© Michael von Kutzschenbach, ICETI 2017, Orlando

Source: Kane, G.C., D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley (2015). “Strategy, not Technology, Drives Digital
Transformation: Becoming a Digitally Mature Enterprise.”
http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/
Report from Reality
3/25/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 2

Source: Kane, G.C., D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley (2015). “Strategy, not Technology, Drives Digital
Transformation: Becoming a Digitally Mature Enterprise.”
http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/
Report from Reality
3/25/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 3

Then a Miracle Occurs…
3/25/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 4
“I think you should be more explicit here in step two.”

Daily Business in Digital Transformation
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Most digital transformations involve some kind of formal
analysis
… but are weak on addressing the emergent behavior
inherent in complex, dynamic systems.
How is your
project going?Fine, ... except
for the people.

Managing digital transformations is a complex
endeavor!
The Real Challenge of Digital Transformation
is Not Just Technology…
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Digital transformations lie at intersection of the rational/emotional worlds.

We tend to focus on the ”simple,” technical issues and
ignore the complex, messy ones –which are the most
meaningful.
The Choice
“In the swampy lowland, messy, confusing
problems defy technical solution. The irony of this
situation is that the problems of the high ground
tend to be relatively unimportant to individuals or
society at large, however great their technical
interest may be, while in the swamp lie the
problems of greatest human concern.”
Donald A. Schön
19 September 1930 -13 September 1997
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Source: Donald A. Schön (1987). Educating the Reflective Practitioner

Is there an Approach to Make the
Theory of Success More Explicit?
We think, yes it is.
The tool to becoming
more explicit is applying
feedback systems
thinking to the problem.
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What is a System?
Picture Source: Kauffman, D.L. (1980). Systems One: An Introduction
to Systems Thinking. Minneapolis: Systems Education, Inc.
“A system is an interconnected set of elements that is
coherently organized in a way that achieves something.”
Source: Meadows, H.D. (2008). Thinking in Systems: A Primer
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Feedback Systems Thinking is
Characterized by …
Thinking of the ”big picture.”
Balancing short-term and long-term perspectives.
Recognizing the dynamic, complex and interdependent
nature of systems.
Taking into account both measurable and non-
measurable factors.
Remembering that we are all part of the systems in
which we function, and that we each influence and are
influenced by them.
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Mental Models …
Events
Patterns
Structures
Mental models
Systems
thinking
world
”Real”
world ... influence the
selection and
interpretation of ...
«Reality»
… provide the basis of our theories of success.
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Feedback Systems Thinking moves
from …
Systems and
Structures
What are the
drivers and deep
structures? How
are they related?
Patterns
How do patterns play out
over time and space?
Tasks, Crises
Trends
Events and Symptoms
What is happening now?
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… to making sense of a situation
Systems and Structures
What are the drivers and
deep structures? How are
they related?
Patterns
How do patterns play out
over time and space?
Tasks, Crises
Trends
Events and Symptoms
What is happening now?
Delivery
delay -+
-
Production
capacity
orders Production
capacity
arrivals
Customer
order rate
Production
capacity
Production
rate
Unfilled
orders
Market
share
-
+
+
+
+
+
+
Price
Debt
financing
Investment
expenditures Equity
Debt-Equity
ratio
Equity
financing
Retained
earnings
Dividends
Cash flow from
operations
Supply of
financial
resources
Percent debt
financing
Indicated
financing
Debt
Earnings
+
-
+
+
+
+
+
+
-
-
-
+
+
+
+
-
-
+
+
+
-
-
-This is what an
explicit Theory
of Success
looks like
(goals, drivers,
limitations,
constraints,
relationships, time
delays and dynamics)
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A Feedback Systems Approach
helps in …
Making choices
Learning
Communication

Bounded Rationality and the
Misperceptions of Feedback
Dynamic complexity and
limited information reduce
the potential for learning
and performance by
limiting our knowledge of
the real world.
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Multiple Perspectives
Developing and sharing
a clearly operationalized
theory of success,
communication with
other stakeholders is
improved, thus
increasing the likelihood
of a better result.
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Barriers to Effectively Learning
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Decisions Information
feedback
Strategy, structure,
decision rules Mental
models
Real
World
Unknown structure
Dynamic complexity
Time delays
Impossible experiments
Misperceptions
Unscientific
Biases
Defensiveness
Inability to infer
dynamics from
mental models
Selective
Missing
Biased
Delayed
Ambiguous
Implementation
failure
Game playing
Inconsistency
Short-term
Modified from Sterman, J.D. (1994). “Learning in and about complex systems,”
System Dynamics Review
Vol. 10, Nos. 2-3 (Summer-Fall 1994): pp. 291-330.
Theory of
Success

Virtues of Virtual Worlds and Feedback
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Virtual
world
Decisions Information
feedback
Strategy, structure,
decision rules Mental
models
Real
World
Inability to infer
dynamics from
mental models
Represents operationalized
Theory of Success:
−Known structure
−Variable complexity
−Controlled experiments
Implementation
Game playing
Inconsistency
Short-term
Theory of
Success
Unknown structure
Dynamic complexity
Time delays
Impossible experiments
Misperceptions
Unscientific
Biases
Defensiveness
Selective
Missing
Biased
Delayed
Ambiguous
Modified from Sterman, J.D. (1994). “Learning in and about complex systems,”
System Dynamics Review
Vol. 10, Nos. 2-3 (Summer-Fall 1994): pp. 291-330.

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Advantages of Theory of Success
Modeling
Requires decision makers to improve and complete
their theories of success for digital transformation.
Self-contradictions and ambiguities are discovered
and resolved in the building process.
Once the model is validated and running, formal
experiments reveal the probable outcomes of
decision alternatives.

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Advantages of Theory of Success
Modeling
Sensitivity analysis reveals areas in which genuine
debate is needed.
An operating model can be used to communicate
with people who were not involved in building the
model.
An operating model is always complete, but never
completed.

We all have our Theory of Success
Source: Drucker, P. (1994, p.96). “The Theory of the Business.”
Harvard Business Review
, September-October, pp. 95-104
3/25/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 21
Modeling and thinking in systems help you to
operationalize your mircale in digital transformation –your
theory of success.

Still interested? For more information …
Readings:
FHNW Competence Center:
Technology, Organization & People: http://www.fhnw.ch/business/iwi/competence-
centers/technology-organization-people
Contact:
michael.vonkutzschenbach@fhnw.ch,
T: +41 61 279 17 70; Twitter: @MvKutzschenbach
3/25/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 22
Meadows, H.D. (2008). Thinking in Systems: A Primer. Vermont: Chelsea
Green Publishing.
Morecorft, J D.W. (2015). Strategic Modelling and Business Dynamics: A
feedback systems approach. 2nd edition, West Sussex: John Wiley & Sons Ltd.
Sterman, J.D. (2000). Business Dynamics: Systems Thinking and Modeling for
a Complex World. McGraw Hill.