Building the SoL Sustainability Consortium:

Emerging Applications of System Dynamics regarding

Language, Leadership, and Decision Making

2000 International Conference of the System Dynamics Society

Bergen, Norway

July 30, 2000

Peter M. Senge

Abstract

I believe that building enterprises that operate in greater harmony with larger social and ecological systems requires collaborative innovation. Only by working together can enterprises challenge and change unsustainable, taken-for-granted assumptions and ways of operating. At the core of these unsustainable practices are non-systemic ways of thinking and acting.

In building the SoL Sustainability Consortium, system dynamics is being employed on three levels: (1) as a basic language to establish consensus notions about sustainability, (2) as a component methodology in developing leadership skills; and (3) as a modeling discipline to improve decision-making. The three levels reinforce one another. For example, stocks and flows establish an intuitive foundation for defining what does and does not constitute strategies for sustainability, and enable people from very different organizations, professions and nationalities to communicate. This, then, clarifies the conceptual, inquiry, and envisioning skills needed for effective leadership. These skills, in turn, can only be nurtured through ongoing practical application in settings that matter.

Introduction

There exists a growing awareness of the need for radical change and innovation in the organizational domain in response to the challenge of sustainability (Hawken, 1993; 1998; Schmidheiny, 1992; Frankel, 1998; Shrivastava, 1995). Business leaders are responding to the challenge, from acknowledging the role of industry in global climate change (Browne, 1997) to undertaking new practices such as investment in renewable energy sources (Herkstroter, 1997). Manufacturers such as Interface (Anderson 2000) are pioneering new business models based on reconceiving product as service (Giarini & Stahel, 1993). Others are endeavoring to implement industrial ecology and life cycle product strategies, moving toward practices which mimic the cyclic and synergistic processes of our natural environment (Ehrenfeld, 1998), often through the use of reduced amounts of or greener materials (Bernadini & Galli, 1993).

Scholars working on sustainability generally agree that it must be approached as a systemic issue with attention to multiple systems, including social-organizational, biological and physical, etc. (Starik & Rand, 1995). Further, sustainability scholars suggest that we invoke a type of learning that moves us away from conceptual analysis focused on details about ever smaller parts of the world to a holistic model that promotes competent understanding and action based on a grasp of “the whole” (Ehrenfeld, Conceicao, Heitor, & Vieira, 2000).

The challenge of course is how to initiate and sustain such learning processes. “Grasping the whole” requires dealing with high levels of behavioral and dynamic complexity: how do large diverse groups of people come to shared understanding of complex subjects so that they can effectively coordinate their actions?

Behavioral complexity arises when diverse agents have decision making power, people with different and often conflicting values, mental models, and goals. In such situations, seeking common strategies is typically undermined by behavioral defensiveness and games playing (Argyris, 1990) and people "confer(ing) immutability on value assumptions and ideological considerations” (King 1993) – what King identifies as "wicked" problems.

Dynamic complexity arises in problem settings where cause and effect are distant in time and space, where many interdependent factors interact to generate problem symptoms, often with long time delays or across large distances. In such settings, even knowledgeable actors committed to long-term improvement typically misdiagnose the causes of problems and pursue strategies that at best ameliorate symptoms in the short run, while often creating worse problems in the longer term (Bakken, 1993; Carroll et al., 1998; Einhorn & Hogarth, 1986, Sterman, 1989). Ackoff (1974) labeled problems that cannot be solved by addressing component problems in isolation as “messes.” Sustainability presents a classic context of problems characterized by both high dynamic complexity and high behavioral complexity, what we have called elsewhere “wicked messes” (Roth & Senge 1995).

Experiences over the past decade with first the MIT Organizational Learning Center and now the Society for Organizational Learning (SoL) suggest that fostering collaboration across many organizations may hold a key to sustaining learning around wicked messes (Senge 1993, Schein 1995). The evolution of more sustainable enterprises ultimately requires changes in assumptions, personal and interpersonal behaviors, organizational practices, and formal and informal processes and structures (Bradbury and Clair, 1999; Ehrenfeld, 1998). We believe that such learning can best be generated in communities of practice (Brown & Duguid, 1991, Wenger 1999) drawn from a network of interpersonal relationships of requisite breadth and depth. More specifically, such "community action research" (Scharmer & Senge, 2000) can enable the development of:

(1) personal relationships and networks that can sustain change through the inevitable ups and downs in individual organizations;

(2) longer-term and deeper inquiry than is possible in individual organizations overwhelmed by day-to-day pressures;

(3) collaborative capacity building, such as through shared educational programs, learning tools and processes;

(4) collaborative experiments with new learning approaches; and

(5) a systemic perspective emerging from facing common dilemmas and dynamics in different organizational settings.

Inspired by these ideas, in 1999, a group of SoL member companies, consultants and researchers came together to form the SoL Sustainability Consortium. The collaborative effort is just in its infancy. Nonetheless, it represents a promising approach to building knowledge for fundamental change, a promise validated by a recent grant from the US National Science Foundation to observe, assess, and offer ways to improve the overall process (Bradbury et.al., 2000). What follows is the basic framework that has served to guide developing the consortium, as well as several examples of the role system dynamics is playing in the consortium’s development.

Creating the Collaborative

The Sustainability Consortium was initiated through invitations from BP-Amoco and Interface (a leading manufacturer of commercial carpeting). The aim was to accelerate change, rather than argue about environmentalism. Consequently, companies were invited to join only if they viewed, or were coming to view, sustainability as a cornerstone of their long-term strategy (Carstedt, Lauer, Schley, & Senge, 1999). By the end of the year, Detroit-Edison, Ford, Harley-Davidson, Nike, Northeast Utilities, Shell International, Visteon, The World Bank, and Xerox were participating.

Our work with the Sustainability Consortium is guided by a framework that has been evolving in response to insights from research and practice about learning communities (Senge et.al., 1994). The framework draws on literatures from interdisciplinary fields of organizational change, development and learning, predicated on a structuration (e.g., Giddens, 1984; Orlikowski, 1996) rather than a punctuated (Weick & Quinn, 1999) approach to organizational change. This framework distinguishes between a deep learning cycle -- involving new skills and capabilities, new practices and sensibilities, and new beliefs and deep assumptions -- and the context or environment needed to initiate, nurture and sustain that cycle (Fig. 1). A key assumption that underlies this distinction is that, while new capabilities, practices and assumptions (the circle in Fig. 1) is what ultimately matters, such deep learning is impossible to directly effect. Instead, practical strategies involve establishing requisite guiding ideas, infrastructures, and tools and methods (the triangle in Fig. 1), for example through specific projects and other collaborative activities.

FIGURE 1 A Framework for Nurturing Learning Communities

Guiding ideas, or cognitive schemata or mental models, are those which allow common sense-making and coordinated action to occur (Bartunek 1993; Bartunek & Moch, 1994). Successful intra- or inter-company coordination of action requires diverse actors to develop ways of fostering shared understanding. Conversely, lack of clarity about guiding ideas can create continuing misunderstandings and frustration. Concepts about sustainability fall along a spectrum (Hart, 1997) from waste reduction to concern for the interrelated ideas of environmental, economic and human-social justice. In recent years, multiple sustainability frameworks have been advanced, including World Business Council for Sustainable Development (WBCSD), Coalition for Environmentally Responsible Economies (CERES),The Natural Step (TNS), Natural Capitalism, ISO14000, Gunter Pauli's Zero Emissions Research Initiative (ZERI), Factor X, Wakenagel's Ecological Footprinting, Life Cycle Analysis, and various approaches to TQEM (total quality environmental management). While potentially complementary, these different frameworks and the organizations that support them can also create competing interests. For this reason, one of the first projects undertaken by the consortium involved integrating sustainability frameworks, as shown below.

Principles, methods and tools enable work on practical issues and capacity building. Of particular importance in developing a holistic approach to sustainability are dialogue and methods of collaborative inquiry and systems thinking. Principles based on a holistic approach to sustainability (Starik & Rand, 1995) are rooted in an understanding of sustainability as a product of interdependent biological, social,technological and organizational systems, e.g., the “system conditions of sustainability” incorporated into the TNS approach (Robert, Daly, Hawken & Holmberg, 1997). Projects within the consortium are employing a wide variety of methods and tools -- for example, system dynamics approaches to conceptualization and analysis of systemic causes of current behavior (Sterman, 1989; Senge, 1990; Sterman 2000), various approaches to deepening reflection and awareness in conversations (Argyris, Putnam & Smith, 1985; Isaacs, 1999) and examining language as a method of organizational coordination (Ford & Ford, 1995).

Infrastructures concern organizing resources to aid the work of the consortium members. For example, it is crucial to start with the right people. In particular, we sought to start the Consortium with both senior executives and staff and local line leaders with a successful track record in past organizational learning efforts. These were people who had succeeded in accomplishing significant practical outcomes, while simultaneously innovating in creating more open, inquiry-oriented, and trusting work environments. The personal integrity, depth of commitment, and practical know-how of this initial group created, in effect, an initial infrastructure endowment, inspiring confidence in future possibilities and aiding in securing future resources. Second, ongoing action-oriented and related research projects give rise to the next stage in infrastructures to plan and staff, and coordinate among the project activities. These project activities are coordinated through consortium coordinators and increasingly through the SoL website. Lastly, semi-annual meetings, hosted by member companies, bring consortium members together face to face to reflect on accomplishments and challenges, renew their relationships and spark new rounds of imagining future projects.

The Consortium may be thought of as a learning laboratory in which guiding ideas are surfaced and tested by the Consortium members through their choice of principles, tools and methods. We conceive of the deep learning cycle as shaping actions primarily taken within individual organizations. In order for such actions to feed back and strengthen the overall Consortium, they, and the results to which they give rise, must be made public within the larger group, subject to public assessment, collective reflection and sense making. We have noted above the importance of having present corporate leaders who evoke trust and emulation. This can, in turn, lead to new guiding ideas and new investments to develop method and tools shared within the entire Consortium. The Consortium becomes a locus for shared knowing and collective action, while it is simultaneously developing a network of engaged and learning-oriented organizational leaders.

Fostering Shared Learning and Collaboration

System dynamics as Language

The language of stocks and flows is proving to be a useful starting point for developing shared understanding of sustainability among the consortium members. Many have extensive experience with various sustainability frameworks and are concerned that “the array of sustainability frameworks can be bewildering for firms seeking to develop shared images of where they want to go and basic strategic concepts to guide decisions” (Bulkin et. al., 2000). Consortium members wanted to have a way to talk in “non-sectarian” terms that served to better integrate different points of view.

The following two diagrams (Figure 2 and 3), developed in collaboration with the Rocky Mountain Institute (a research and consulting organization that specializes in sustainability), shows the basic flow of natural materials through the industrial system, as they are today and as they must be in a sustainable economy (Senge et al.,1999) In the traditional industrial system (Figure 2), all manufacture of goods depends on material resource inputs, either resources extracted from biotic (living) or abiotic sources. Manufacturing processes produce by-products in addition to intended product output, which become waste such as industrial effluents. Products produced become products in use. While in use they also generate waste by-products, such as auto emissions. Eventually, when their useful lifetime is over, they can become a third source of waste through disposal. Lastly, all sources of waste accumulate until they biologically degrade and are assimilated back into natural resources – which for some forms of waste today takes thousands of years. Until then, their presence can affect the regeneration of biotic resources (such as the pollution of fisheries or acid rain affecting forests).

FIGURE 3 Flow of Material through Sustainable Industrial System

In the simplest sense, sustainability means

(1) that the stocks of natural resources, both biotic and abiotic, must not be depleted beyond their rates of regeneration (effectively zero for abiotic resources), and

(2) that all sources of waste generation, from production, use and discard, must be driven toward zero.

In order to do this, the industrial system needs to become more “circular” as opposed to linear – that is, products and production processes need to re-circulate into future products, or be immediately biodegradable (“compostables”). This leads to two flows which are largely missing from traditional industrial system: natural nutrients and “technical nutrients” (McDonough and Braungart 1998).

This simple stock flow diagrams encompass many of the key concepts of different sustainability frameworks. For example, the first three of The Natural Step’s “four system conditions” (Robert et. al., 1997) establish equilibrium conditions regarding the stocks of natural resources and waste: (1) zero extraction of abiotic resources, (2) eliminating generation of waste products that accumulate in the biosphere, and (3) preserve the regenerative cycles of nature (the fourth system condition concerns social equity). The four strategies of Natural Capitalism (Hawken, Lovins & Lovins, 1999) focus more on flows within the industrial system: (1) radical resource productivity (increase ratio of product produced relative to resources extracted, and thereby reduce manufacturing waste), (2) ecological re-design to “close production and product loops” (further reducing manufacturing waste, as well as waste from use and disposal), (3) “product as service” business models (which encourage producers to take back products when their productive lifetime is over), and (4) investment in natural capital to increase biotic resources.

The simple stock flow diagram has also served to clarify some contentious issues, such as the adequacy of current corporate efforts at “eco-efficiency.” For example, if the ratio of product produced to natural resource input improves, resource extraction is reduced initially. But waste generation may continue to rise, especially waste from use and from discard. Moreover, total extraction may even increase over time. This could happen, for example, if improved eco-efficiency leads profits to increase, which in turn get invested in more growth in production. In other words, if production rises more rapidly than resource productivity, we could have a more eco-efficient economy that extracts and pollutes more. This insight confirmed what many have felt: that eco-efficiency, championed by organizations like WBCSD, is a dangerously oversimplified strategy. It can be a useful element of a broader sustainability strategy but, by itself, does not move reliably towards sustainability.

In the coming months, we will track the effects of this initial work on integrating sustainability frameworks with the help of the NSF funding. For example, to what extent do diagrams like those shown above become “boundary objects” that show up in different companies’ own internal documents and strategic conversations? How does the systems language evolve over time as it is used within the consortium members? How does it blend with and augment other managerial frameworks for sustainability?

System Dynamics and Leadership Development

Several of the companies in the consortium have incorporate system dynamics tools and methods into an overall effort to enhance systems thinking skills for leadership. In many ways this work builds on core activities within the SoL community and beyond for many years (Senge 1986, 1990b). Several companies have created their own introductory courses in systems thinking, and many have integrated system dynamics tools, especially conceptualization tools, into internal consulting activities. In particular, system archetypes like shifting the burden, limits to growth and tragedy of the commons have become common vocabulary in leadership development (Senge et.al. 1994).

Such application of system dynamics tools goes beyond the rudiments off a common language to establish common leadership principles, norms for dealing with different recurring situations. For example, shifting the burden alerts people to the trade-offs between symptomatic quick fixes versus more systemic solutions. Limits to growth shows the leverage in understanding the balancing processes that are slowing a growth processes, rather than to continue blindly “pushing on the growth levers” (Senge, et.al. 1999) Tragedy of the commons helps people see those settings where many actors, each following their own perceived self interest, can create outcomes where everyone loses. Over time, seeing these archetypal patterns recur in particular settings can also lead to managerial principles for those settings. For example, product development engineers may see the generic tendency toward tragedies of the commons when different functional experts each pursue their aims independent of one another. This can lead to compromising common resource upon which all depend, such as different loads on a common battery in a new car (Roth and Kleiner 2000). In turn, this can lead to new management practices, like identifying “commons” in any new development effort.

More recently, new leadership development efforts are beginning to integrate system dynamics and related learning tools with principles of sustainability. For example, Nike’s “Sustainable Business Transformation Project” has brought together diverse product designers, product managers and marketers in a nine-month exploration of new business thinking. In addition to developing familiarity with learning tools, The Natural Step and Natural Capitalism, they have focused on new product ideas like recyclable athletic apparel, glues that can come unglued for product take back, and environmentally benign dyes (see Schley and Lauer, 2000 for a brief description).

Similar leadership development activities are underway at Ford and BP. In the future, these programs may become more entwined, as executives from the different companies work together on collaborative action projects and HR specialists from the different companies likewise collaborate. From a research perspective, the prime questions that concern us are how new leadership development thinking and practices that start in one company migrate to others, and how broader leadership communities that interconnect people in different companies emerge.

System Dynamics and Investment Decision Making

Utilities in the US face extraordinary challenges adapting to deregulation in energy generation and an ambiguous market environment regarding sustainable or “green” power. The vast majority of electricity continues to come from coal-fired power plants, with considerable new investment in gas-fired plants. In the utility industry, the prevailing mindset is that future competition will be primarily based on price, and that typical US consumers exhibit little preference for environmentally sound generation. In this setting, what sort of opportunities exist for utilities to be more proactive about sustainability?

In a new project with DTE (Detroit Edison), directed by Don Seville, system dynamics is providing a conceptual underpinning for scenario planning with the management team.

The first goal of this process is to get executives to reflect on their assumptions through developing alternative stories of how the industry might unfold. Underlying each story are key assumptions, which can be highlighted more easily when different stories are contrasted. Then, different possible scenarios can be arrayed around the differing assumptions they embody. Such methods have been used for many years by artful scenario facilitators (Wack 1985, Schwartz 1991, Senge et.al, 1994,p 275-278). The aim is not to predict the future but to get managers thinking more imaginatively about the implications of different facets of the present reality.

By combining scenario thinking with system dynamics, it is possible to integrate isolated assumptions into more fully developed conceptual models, to test alternative scenarios, and to discover potentially important dynamic insights. For example, a scenario that entails strong growth of new, more sustainable generation technologies can be elaborated to identify the different reinforcing and balancing processes that might generate or limit this growth. Advocates for traditional generation, in turn, must offer countering models for either why the growth snowball effects will not develop, or how specific balancing processes will come into play. Regardless of one’s point of view, the process forces competing sets of assumptions to become more clear. This can also allow assumptions to be reviewed periodically, as new evidence and experience becomes available. Simulation models are also being developed. When different scenarios are simulated, we expect more surprises and hopefully more insights.

For example, the shorter delays associated with building capacity in “distributed technologies” like fuel cells may offer new strategic options. It is not uncommon for traditional facilities like coal-fired and the newer gas-fired generation facilities to take more than a decade to cite and build. By contrast, building new fuel cell generation capacity could happen quickly. As power generation markets become more competitive, they may also become more volatile, perhaps like markets such as real estate which also have long lead times. Under such circumstances, having alternative power generation capacity that can be brought on line, or taken off line, more quickly could prove to be a significant competitive advantage, both from a cash flow and risk management perspective (Ford 1999). On the other hand, volatility and uncertainty often lead firms to favor investments in more tried and true technologies. This will be an important set of issues to explore.

The pilot project with DTE may evolve into a joint project with Northeast Utilities (NU), another consortium member. NU faces some similarities and some differences in their marketplace, and we hope that approaches that can help utilities in general may emerge. Lastly, utilities’ investment decision making is analogous to investment decisions that must be made in other industries facing similar options of new more environmentally sound technologies. We will want to explore, as part of our research, whether and how the tools and ideas developed within the utilities context migrate to other consortium members.

Conclusion

John Ehrenfeld (1998,2000), president of the International Association for Industrial Ecology, has written that much of what is being pursued currently in the corporate sustainability movement naively assumes that new measures can substitute for new paradigms. Most efforts to foster business environmentalism, such as the WBCSD and ISO14001, concentrate on establishing agreed upon metrics (Elkington and Robins 1994). Measures of eco-efficiency or “ecological footprints” or life cycle analysis, become de facto strategies for change, the premise apparently being that if people can measure their negative environmental impacts, they will then have both the incentive and method for improvement. But there is good reason to question that better metrics alone are sufficient to produce the new ways of thinking, new products and processes and new business models that sustainability will require.

Ehrenfeld argues that, while important, metrics need to be complemented by new metaphors to spark radical shifts in thought and action. System dynamics can be a foundation for shaping those new metaphors, and connecting them to new operating policies, including new metrics. The figure below, based on Ehrenfeld’s, shows a progression from system dynamics methods used to create new language, to leadership and management principles, to practical learning tools that influence thinking about specific types of decisions, and thereby shape policies. As Ehrenfeld suggests, all are important. While new policies, decisions and metrics are vital to business practice, new language and normative principles are crucial to shape new the paradigms or worldviews that can give rise to new practices. System dynamics can potentially contribute across this entire spectrum, a potential we hope to better assess in the SoL Sustainability Consortium.

Figure 4 From Paradigmatic Shift to Normal Practice

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