In last month’s post we looked at the relevance of boundaries in an increasingly boundary-less world. In this post we describe three especially important organizational boundaries from a systems perspective.

What Boundaries Are Important?

Three important choices managers must make from a systems perspective are:

  1. The purpose of the organization or system

  2. The organizational goals, metrics, and incentives designed to support the accomplishment of that purpose

  3. The beliefs and assumptions (or mental models) that best guide the organization to achieve sustainable results

These choices in turn inform other boundaries that an organization must also define, such as its target markets; products and services; and the systems, processes, and roles that facilitate execution.

A clear purpose shapes the identity of an organization. An effective purpose has several characteristics. First, it both ignites people’s aspirations and focuses their energies. Second it is long-term and not easily compromised by more immediate pressures or opportunities. Third, it is often best defined in three ways: as an organizational mission that establishes direction, a shared vision that communicates an ideal future, and a clear set of unwavering values. Research indicates that one of the four characteristic of companies that have lasted for over 100 years (a remarkably small number) is that they hold to the same values over time even as their visions and missions evolve.[1]   

Goals, metrics, and incentives are formal structures that shape people’s actions to achieve the organization’s purpose. They ground organizational direction and individual motivation. From a systems point of view, it is especially important to ensure that these elements are defined in such a way as to optimize the performance of the whole organization. By contrast, most goals, metrics, and incentives are designed to optimize parts of the system under the mistaken assumption that optimizing the parts leads to optimizing the whole. Units that are only motivated to optimize their own performance tend to create localized solutions that unintentionally undermine the effectiveness of other units – a dynamic known as Accidental Adversaries.[2]  Potential collaborations across units fail to materialize as each unit blames others for their own low performance. In order to protect themselves, units rigidify internal boundaries and organization-wide performance declines.

Mental models are important because they help us simplify complexity, guide our actions, and ultimately influence our performance. However, given the true complexity of the world, these mental models are also incomplete and often dangerously out of date and inaccurate. They need to be continuously tested in terms of their utility, i.e. by asking such questions as:

  • “Does thinking this way support us to achieve what we really want?”
  • “If we are not getting the results we want, how do we need to adjust our thinking and actions?”

Three important choices for organizations to make from a systems perspective are their purpose, supporting goals/metrics/and incentives, and underlying beliefs and assumptions. Organizations also need to ensure that boundaries are not only clearly defined but also modified in relation to a continuously changing external environment – the subject of next month’s final post in this series.

[1] The Living Company, Arie De Gues, Longview Publishing, 1997

[2] See for example The Fifth Discipline Fieldbook, Peter Senge, et al, Doubleday, 1994