Systems Thinking.docx

Systems Approach and Cybernetics

MIS Assignment Prof HK Misra

Group -11 Section-D

Submitted By : Mrityunjay Panday (P39208) Preeti Verma (P39216) Satya Prakash (P39221)

Type of structure organisation The organisation is multinational with divisionalised structure. Each division of the company is replica of organisation. The information flow across the system was highly obstructed. Each division was running independently and there was a corporate culture where people was hesitant to deliver bad news prevailed.

Is it appropriate to apply system thinking? Systems thinking provides a holistic approach to analyse the pattern of behaviour, to seeking underlying interrelationships, which are responsible for the patterns of behaviour and the events. The issue that was reoccurring repeatedly was that the company was taking its decision in spree and a pattern of sluggish sales, intense competition, quality and employee morale was marring the organisation. The organisation worked as a system where its components was working together to meet the objectives. However, the main issue was that they were not taking input from the environment (i.e. market) and were just focused internally. This created a kind of negative entropy, which was not checked and balanced properly. They were taking all the decisions on their own whims and desires.

What is changing? There is a pattern in the change in net income from 2005 (refer Exhibit 2) and various events and interrelationships between them are responsible for this change.

How and Why is it changing? During inception, the company adopted low cost leadership strategy which changed over time due to numerous vehicle platforms and configurations. Each division, brand and region operated independently adding to the further cost and decreased net income. The net income continuously decline starting from the period 2005 until 2008 and it began to achieve a positive figure from 2009. The graph is fluctuating (Refer Graph 1) because at the end of 2006, the new CEO, Mulally joined Ford and took great efforts to cut costs and improve the net income.

Graph 1: BOT Graph This can be understood from the case facts such as the launch of Sync infotainment suite which helped to grow its margin with less investment cost. He also closed considerable manufacturing plants and laid off workers which further added to the reduction in costs which can be seen in the reduction in net losses in 2007. In 2007, he also divested major brands such as JLR, Volvo etc which further reduced its costs. In 2008, despite reducing the platforms, models and configurations the net losses increased compared to the previous year due to the global recession. In 2009, Mulally reduced cost by standardizing the components for

the cars manufactured across the globe. This contributed to the positive net income by 2009. He also reduced the supplier base less than half to 1600 from 3300 which contributed to the major cost cut for the company. In 2010, variations in metals used for the car production was also reduced which led to the cost reduction and increased income.

BOT Graph 5000

Net Income ($ in millions) (Behaviour)

0 2004

2005 -3899

2006

2007

2008

1212

1313

2009

2010

2011

-5081

-5000

-10000

-15000

-11917

-17040

-20000 Years (TIme)

Cause Effect The organisation was facing multidimensional challenges that cannot be seen in isolation from one another. Various causes have led to the effect of decreasing revenue. All these causes are within itself an effect dependent on various other causes. Along with it the reason causing the problem are in itself reason. The whole issues are cyclically linked with each other. Poor need assessment leads to not meeting consumer expectation leading to profit loss, further poor information from customer causes information asymmetry leading to regular quality issue and detachment from brand so lessening profit. Thus none of the problem can be seen in isolation all problem are interlinked with each other causing a greater problem which is reoccurring that is net profit. The fish bone diagram in next page shows such relation all factors are interlinked with each other. Diagram – 01

Too many product variety

Safety Problem

No strategy developed problem reoccurs

Poor designing

High No. of configuration

Uninteresting product to consumer

Complex Product

High varient of technical product launch continuous

USP of simple product discarded.

Consumer deliverable not taken into account

The varitied are highly complicated & sophisticated

Too many configuration of cars and wider variety

Competitor POP & POD was not assessed

High projected growth shown for feel good

Consumer need for fuel efficint vehicle not addressed

Poor Marketing

Cause

Poor Quality

Multiple production line

Poor designing and safety feature

Low safety ratings

Each division Brand running independent

Employee afraid to share bad information

Market information not processed properly

Infromation Assymetry

Loosing Profit

Effect

Complexity :The problem was so complex in the Ford that not any fix solution pre-existed. Also these problem were so intermingled that addressing them in totality was required. There was also no obvious solution to these issues. Any solution if would have turned wrong have collapsed the organisation. There was not a single angle from which the problem needed to be addressed. A wholesome approach keeping in view strategies was needed.

How Mullaly saw the big part :Mullaly took and approached whole problem in holistic manner. From simplifying the production line to reducing the units of production, he took broad strategic decision taking into account worldview. He also reduced information asymmetry and gave a slogan of one ford to reduce information asymmetry and separate working culture across the division. He also took personal care to take into account consumer needs and focused on the Ford strategy of low cost leadership with simple product. Many retrenchment and downsizing was done. The overall strategy was not just holistic in nature but was taken taking into account environmental factor of the industry and also the future strategy.

Entropy There existed high amount of negative entropy prior to Mullay joining the FORD. The safety, quality issues were pervasive. The new product were delivered repeatedly to the market without taking into account consumer needs. The competitors were delivering simplified products and were capturing market of Ford. Only the reactive action was taken in case of any quality issue or any issues in the organization. System was resisting the entropy but corrective action was not taken on time. This was disturbing steady state and equilibrium of the organization. After Mullaly joined he introduced simplified and consumer based product. He personally monitored any changes in the environment a proactive approach was established and the negative entropy was catered on regular and time bound basis. Cybernetics Diagram 02

The Ford was trying to interact with outer environment through different ways and getting feedbacks. But somewhere in the system these feedback were not getting reflecting as input and decision was not taken to input side of the organization causing reoccurrence of the same events that causes ford to bog down.

Competitor: In case of Ford competitor like GM, Toyota and Chrysler played a critical role. With continuous technical advancements, Toyota continued to grow achieving 8 percent increase share. GM was slow to respond to changing environment as compare to Ford, but it is still the greatest carmaker in the earth. All these factors were motivating Ford to work more to perform better in the market. However, they were not taking market feedback correctly and were in a spree to just launch more complex product irrespective of people expectation from Ford.

Customer: Later however when cybernetics was introduced by Mulally, he focused highly on market needs and accordingly developed strategy for simplicity and brought car manufacturing as per customer demand which was missing earlier. In J.D Power and Associates’ annual study Ford made its way into the top ten, which measures customer complaints in the first ninety days of vehicle ownership. In 2010, 80 percent of customer responded in favour of Sync infotainment suit.

Supplier: Ford was trying to help suppliers to stay in business through cross-functional teams because without parts ford will also be out of business. The simplicity approach and commonality in production by Mullaly taking a cue from the feed back reduced number of supplier from 3300 to 1600.

Media: Media also gives lot of feedback from market. In this case Ford won Motor Trend magazine’s 2010 Car of the year and Truck of the year award which indicated that decisions taken by Mulally has resulted into positive results. Inside the organization, there are some mechanism, which are helping in giving feedbacks:

Employer: Balance sheet and different financial statements are clearly directing towards the bad performance of Ford in period of 2007-2009. The other factor such as overestimated sales and then not able to meet them are indicating towards the entropy in organization in that period.

Employee: To maintain the feedback mechanism between employer and employee there are several meetings, which were being conducted like business plan review, key performance metrics review.