Does Systems Thinking Apply To Small Companies?

W. Edwards Deming (Wikipedia) 

The system. W. Edwards Deming claimed that 95% of the performance of an organisation is based on the system, and only 5% is based on the people. I won’t dare go so far as to contradict Mr. Deming, but as a manager in a small company, I am tempted to look at it from a slightly different angle.

A brilliant employee will never perform in a mediocre system, and a mediocre employee will do a decent job in a brilliant system. But if your company is twenty, ten or maybe just five guys (or girls) – surely, people must matter?

You can not blame the worker for wrongdoing, most defects and quality problems are a result of the system. But if you are five guys sitting in the same room trying to make your company succeed – well, you are the system. The five of you. When Joe screws up and says to the other four guys, “Sorry, I’m a victim of the system!” they will probably look around the room and go “Uh, what system?”

But wait a minute. However small a company, there are someone in management, there are someone in sales, you have a customer department, and you’ve (hopefully) got someone actually producing whatever it is you are attempting to sell. Maybe Joe is both management, sales and customer department, but those roles still exist in the company. So however small, your company is an ecosystem. And if you haven’t given that much thought,  possibly not a very good one.

You may just be ten guys, or just five. That doesn’t really matter. You should already be thinking structure. Processes. Quality. Why didn’t Joe tell Pete about the complaint from their most important customer? Why did Pete forget to test the new software that Mike just hacked together? And why did he hack it together when they all agreed last month that the software needed to be robust and well built?

I can hear you shout: “We can’t afford all that stuff, we’re just a small startup company!” Well, to paraphrase old William Edwards Deming: If you focus on quality, quality increase and costs fall over time. However, if you focus on cost, costs will rise and quality decline over time. Surely, that’s not what you want?

So did I answer my own question? Well, kind of. Even though “people are only 5% of the performance”, in those early days you need people who understand just that. That takes us back to where we started, perhaps having gained somewhat of a paradox along the way:

People are helpless to fight a faulty system, but to build the right system, you need the right people. 



Posted on October 5, 2012, in Management and tagged , , , . Bookmark the permalink. 4 Comments.

  1. In general, I think I agree with the main gist of your article here. It seems perhaps your article is more of an exploration of thought rather than a conclusive statement, in which case, I applaud your effort and am encouraged to hear about your journey.

    As (I think) you are saying, I’m pretty sure the concepts of systems thinking scale all the way down to a single person, a family, a few people, however small the system is. Even if you own your own single-person operation, you yourself operate within a small system full of tools, procedures, policies, and practices even if you’ve never thought about them before. One thing I love about Systems Theory is that it uncovers and describes the intuitive operation of how systems work as a matter of fact rather than imposing a new philosophy in a universe where it doesn’t exist already.

    I have owned two small companies with fewer than 10 people each. And I can say that in my experience, as the business scales from one to two to 5 to 8 people, the system must undergo change in order to accommodate it. To say “the people are the system” is a categorical failure to recognize what the system is and how it affects you, your workers, and your end product.

    Regarding your comment about Joe claiming he’s a victim of the system, I think you’re saying that this thinking only illustrates a lack of understanding of common variation on your system. To which I would say you are correct:

    People are a part of the system. People are not equivalent to the system. People make mistakes, and mistakes can be quality controlled and eliminated (to a certain extent) if the system is managed properly. No system is without some margin of error. The goal of systems management is to craft the system in such a way that common variation is understood to be within a range of statistical control in order to facilitate the need for prediction (management is prediction).

    Joe is not a victim of the system, he is part of the common variation that happens in the system. Joe may have made a mistake, but as Demming says in his “New Economics” book, (paraphrased) there comes a point within a system that is inside statistical control, where pointing out a mistake is not productive and only serves as a distraction to the person who made the mistake. They know they made a mistake, and they should be trusted to self-improve. People live up to your belief in them. If you expect them to improve because you believe the best about them, they will aspire to that.

    On the other hand, if the system itself does not account for the possibility of the mistake, then the system can be improved without focussing on Joe’s mistake at all. We as managers are here to serve and help Joe, not to single out his mistake and make it an example to the rest of the company of how he caused us to make a new policy. For the sake of morale, we must keep the focus on improving the quality of the system rather than allowing focus to degrade to pinpointing Joe’s failures. People tend to thrive in such an environment because they have the freedom to fail and self-improve with a clear conscience (which is something everyone desperately needs).

  2. I appreciate your thoughtful comment, and agree with your points. I think my main point here was that in order to create a working system, you need to have the right people on board from the start – people that are actually aware of the fact that creating (and continously improving) a good system is something they should be concerned with.

    We are currently 10 people, and the last two years we’ve spent a lot of time defining and improving our processes and ways of doing stuff. That includes everything from pre-project / marketing / sales through to development and testing. So now we actually have a system to blame, due to the fact that we had *people* that actively helped implement and define it instead of keep heading down the “cowboy” route. 🙂

    • Yeah, that makes sense. Especially with the core team, I think you’re right that getting good people is critical to success.

      But in the end, all people are flawed, and I think one of Deming’s points is that a good leader can bring out the best in anyone as long as they are willing. But there is a lot to be said about choosing good people with good character. That can make a world of difference.

      One of my favorite philosophies related to Systems Management goes like this: Give me a room full of idiots who know they need to learn, and I will have a better quality of life and product than a room full of self-absorbed geniuses with bad attitudes who have no desire to follow good leadership.

      I think the point there is that, even though it’s expensive, skill can be trained, while chronic attitude or personality conflicts are much more difficult. So to me, having “the right people” translates into “choosing people with good character and attitude”. If they have mad skills, that’s a huge plus.

      But even if we didn’t pick so well (which I’ve felt several times), a good servant leader can win hearts and make friends through sacrifice and consistently enforced healthy boundaries as he crafts his system with involvement from those willing workers, even from those who dissent. Tact and real care from leadership to the employee is just as critical to success as everything else. Employees stay invested in the vision of they have a good relationship with the leader. If the relationship starts to wane, you can almost guarantee that their investment in the vision will follow.

      After all, Deming’s fourth pillar in his “System of Profound Knowledge” that a manager needs to have for success is “a knowledge of human psychology”. I think that’s where this stuff fits in. Get good people. Then understand them, care for them, stay connected with them. The higher you get in the company structure (or as your company grows), the less you know, and the less connected you are with the people. So extra care and effort is required to gather real knowledge, and stay connected.

      Anyway, I better digress, I love Systems Theory, and could go on for hours. Thanks for letting me rant on your blog. 🙂

  3. Interesting reflections, and gives me food for thought, as we are currently in a hiring process / actively looking for new people. Thank you again. 🙂

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