From the Society for Organizational Learning, Assessment for Learning Research Initiative, First Research Forum - January 14-16, 1998
In Three Parts: Part One
This is a story about a modern sort of innovation, the development of a new idea. Note first of all that Prof. Johnson is allowed entry into his specialist area by his training, and when doubt arose about the practice of management accountants, the initial response was to find a solution from within the accountancy discipline. But the doubt did not go away. New people, new situations and new ideas led to a vague understanding of a different type of solution that could not at the time be articulated. Public expression of that concern and hope for a better solution encouraged new people to make their ideas and concerns known. As a specific way of understanding the problem developed, Johnson began to see that he was in fact dealing with an idea that many researchers and philosophers had written about. At first this reading just seemed to make things more complicated, but slowly a general approach began to present itself, and that was reinforced by the realisation that Paul Tillich an old teacher of Johnson's, had given him some of the keys to the problem, in class, some 40 years before. At the time this paper was presented Prof. Johnson is quite clear that he now understands a better way for firms to control the work process.
I started out as an accountant in 1960. I practiced, taught, and wrote in that field from the early 1960's to at least to the mid-80's. Let me start by making a few comments about how I've moved to where I am now in my thinking.
When I look back at the whole span of my career, I see myself now as starting out at the mouth of a great river. This great river is a metaphor for the economy and the businessworld, and the mouth of the river is where all the data about economic and business results pour out. The mouth of this river is the world that accountants and economists inhabit. That was the world I grew up in, became very comfortable with, and gained a lot of expertise in from the early 1960s to the mid-1980s.
Many of us in that world became increasingly concerned in the late 1970's and the early '80's that something was wrong with American business, and particularly American manufacturing. At the time, the numbers indicated deep problems with manufacturing productivity, and the problems were getting worse.
In that spirit I started the collaboration with Robert S. Kaplan, which led to the book, Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press, 1987). although Bob and I came from quite different directions, we both had a sense that there was something wrong in business that accounting, especially management accounting, was contributing to. ... Major companies in manufacturing industries that had been prospering and leading the world in the early 1900's were bleeding red ink and many seemed to be dying.
The upshot of our collaboration, articulated in Relevance Lost, was the argument that management accounting, despite making a positive contribution to American manufacturing growth in the 19th and early 20th centuries, was giving managers very misleading information by the 1960's and 1970's that was causing them to make poor, often disastrous, decisions. In Relevance Lost we suggested that management accountants must clean up their act. We outlined some ideas for how to do this, one of which came to be known as activity-based costing.
After that book came out I received many invitations to speak not only from accountants, but also from people in industrial engineering, manufacturing engineering, and operations management. The engineers were particularly enthused by the message in Relevance Lost. Some of them, after I gave a presentation, would come to me and say "you are telling accountants what we industrial engineers have been trying to tell them for decades; but they never listened to us. Because you're coming out of accounting, they're going to listen to you. It's about time. This message is going to help us all."
Some of these engineers went on to say, "When you look at what you mean by consumption of resources, you're talking about work, aren't you?" I thought about it and said, "Well, yes, I guess we are." They said, "isn't that the cause of costs? You have people who work. If there aren't people around doing work, you probably don't have any costs, from a practical standpoint. So work causes costs." And then they said, "Industrial engineers and manufacturing engineers have gained a lot of insights, about what it means to organize work. We've come to a whole new sense of this, and we think you should pay attention to it. We think you could push the argument you've developed even further." I said, "What do you mean?" They said, "Well, if you organize work properly, you don't have to worry about getting the lowest costs. The costs will take care of themselves. In fact, you do not need cost information to tell you how to organize work properly. If you organize work properly, the costs will take care of themselves. Look at Toyota to understand what we mean by this."
At first I thought, "these guys aren't accountants; they don't really understand." But I took up their advice. I started talking to consultants who had worked in Japan and I began to read a lot about Toyota that had been translated from Japanese. Gradually, it began to dawn on me that maybe there was a message here. It came slowly, but once it hit, it hit very hard and fast.
Along the way, other speaking invitations led me into the Deming network, to people influenced by the late W. Edwards Deming. They started to tell me another thing. They said, "This is nice, you're saying that work affects costs. We've always believed that. But, you know, there's another missing piece here in all these articles and books you write. We don't find the word customer anywhere." I scratched my head for a minute, and said, "Yes, well, maybe you're right." They said, "Well, why are we doing all the work? Isn't it to satisfy a customer?" This is what drew me in to the quality movement and gave me my first insights into systemic thinking.
As I look back, I realize now what I was doing. In terms of the metaphor of the river, I was starting to move upstream. In contemplating activities, I had starting to move above the mouth of the river, where there is this enormous amount of data about business and economic results. I was beginning to move upstream to observe conditions that gave rise to those quantitative financial data. Moving up to where I considered the nature of work, and how it is organized, was an even bigger jump than the one that took me to "activities." If you think of it in terms of moving up the Mississippi River, I was starting to see the water clear a bit. By the time I got to where you consider the way to organize work, and then to customers, I think I was almost beginning to see the bottom of the river.
All these encounters with people who worked outside accounting and outside economics was opening a whole new perspective to me. It was opening my mind to a whole new way of thinking about why we are in business and what we are doing, and about how we think about these problems that I had always studied through the medium of accounting numbers. In particular, I was beginning to be more convinced of the idea that if you do the right things--listen to the customers, listen to the voice of the process--then costs will take care of themselves. You didn't have to worry about having a cost system to tell you how things are going. although at first I couldn't articulate the basis for this belief, I began to be convinced of it the more I thought about it.
By late 1991 I had finished writing another book, Relevance Regained: From Top-Down Control to Bottom-up Empowerment (New York: The Free Press, 1992) where I expressed some of my new thinking in the form of criticisms against activity-based cost management. The new book raised the ire of my former co-author Bob Kaplan, who became outspokenly critical as were the American management accounting profession. I now found it difficult to communicate with them.
However, I find no shortage of fascinating people who have been upstream and with whom I am communicating, and from whom I have been learning, in the past 7 or 8 years. Through these people who work in fields such as operations management, systems thinking, life sciences, design engineering, quantum physics, non-linear mathematics, cybernetics, and quality management I hope someday to find the means to communicate again with the accountants and economists I once worked with in the mouth of the river.
Probably the most important result of my publishing the book Relevance Regained is the attention it brought from two people: Anders Bröms, a consultant in Sweden, and Kaz Mishina, a young operations management expert with a profound knowledge of Toyota who was teaching at Harvard Business School in the early 1990s. It was Mishina who contacted me first. He said "I like this new book of yours. It has a lot of good ideas that reflect what people say at Toyota. But, "he said, "I detect in what you write about Toyota that you've never been in a Toyota plant. Have you?" I said, "You're right, I never have." He said, "I could tell." And he said, "What I want you to do, if you would like, is join me. I'm going to go to the new Toyota plant in Georgetown, Kentucky, to gather material for a series of Harvard Business School cases. They're going to be the first Toyota cases ever written at Harvard. Would you come and work with me?" I said, "Wow, would I come? When do we start?"
That was about six years ago. I've probably been to Georgetown 40 times since then. although Kaz Mishina has long since returned to Japan, he connected me with a wonderful network of Toyota people who are a continuing source of inspiration for me. It was in Georgetown that I started to learn first hand, and finally began to understand, that "if you do things right, the costs will take care of themselves."
Soon after Mishina contacted me, I received a call from Anders Bröms in Stockholm, Sweden, who told me that he and one of his consulting clients--the heavy truck maker Scania--liked the message in my new book and they wanted to talk to me. Here began a relationship that has deepened enormously over the past five years. With Bröms, Scania, Toyota--and now with an evolving relationship between people in Toyota's Georgetown plant and people in Scania that Bröms and I have helped facilitate over the past few years--I have travelled farther upstream than I ever could have imagined possible when I wrote Relevance Regained.
Somewhere during this time, in 1991 or 1992, I ran into Peter Senge and the Organizational Learning Center (OLC) and its programs. At about the same time I met Juanita Brown and I started to attend conversations with her friends in her home in Mill Valley. I had the privilege to join gatherings in her living room, in that beautiful setting on the side of Mt. Tamalpais, meeting people who were interested in things that were not different from what I was hearing from my Toyota friends, from Deming, and from Anders and the people at Scania. But it seemed to go further. We started to talk about systems, system thinking and relationships.
Somewhere along the way, about four or five years ago, somebody told me about Gregory Bateson. Now that was a remarkable turning point. I started to read Bateson perhaps four or five years ago. About three years ago, I started to finally get serious about it. (It takes a year or more to figure out what's going on when you read Bateson. ) What eventually came out of reading Bateson was a sense that what we are looking at in the world of business are mechanical systems human beings have created. They're designed by minds that are good at doing mechanical things. These systems (defined essentially by lineal causality and independent relationships among parts) are then set down and put to work in a world which nature runs in quite a different way (a world of recursive feedback and interdependent relationships). Influenced by Bateson, I came to see the world as made up of two systems. There is nature's system and there is the system that self-conscious human beings create, what I would call the mechanical system. Without the human being I think there is nothing mechanical in the universe. Our problems in organizations come because they impose the mechanical onto the natural, and then operate in a necessarily parasitic way in the midst of nature's evolving system. I began to see what Bateson meant when he said that "the source of most of our problems is the difference between the way man thinks and the way nature works." With Bateson, I had advanced much further upstream. In terms of the Mississippi, I was a long way north of St. Louis.
So I set out to understand, how does nature work? This is a question I learned a lot about from reading Bateson, but also from reading Fritjof Capra and other writers talking about modern physics and evolutionary biology. I was beginning to get an appreciation of what Bateson was talking about when he said "the way nature works." I began to conclude that that's the way human beings have got to work. Work is work. Like the industrial engineers were telling me way back in the late '80's, it's all work in the end. If you get that figured out, then everything else is going to take care of itself. By now I realized that idea was even more than they knew.
I was troubled with System Dynamics and much of the "system thinking" stuff for a couple of years. Troubled because I think so much of that work comes out of the mechanical side of man's thinking, and not out of an understanding of life systems. When you start to study ecology, and you abstract yourself from the mess we've created in the world, and think about what nature has done for four billion years on this earth, it's a pretty remarkable accomplishment.
What are the kind of messages that come out when we study how nature works? There are obvious things -- like nature is basically an inter-dependent system where everything is self-emergence, self-referential, self-identifying. Everything is working to ultimately increase diversity over time. It seems that nature's only job is to increasingly diversify the manifestations of the pattern that appears in all the matter that surrounds us.
There are people who have been talking about such ideas for a long time. This is not just modern physics. It's not just evolutionary biology. These ideas don't appear for the first time with modern scientists such as Lynn Margulis and David Bohm. This is Buddha, and this is Christ, and this is Lao Tzu, and this is Pythagoras -- thinkers through the ages who have provided us profound shafts of insight. All the way down to modern times, to the 19th century with Blake and Goethe, and to this century with Whitehead, Tillich, Bohm, and so forth. There have been thinkers expressing these ideas, and we can call them System Thinking, in a way, if we want to-- as long as we remind ourselves that there are two kinds of systems.
There's the mechanical system and the living system. Peter, (Peter Senge) you hit it in the preface to Arie's new book (Ariede Geus, The Living Company). I really want to congratulate you on saying what you did in that preface. Those few pages are his book to me. They do a nice job of making that distinction between seeing a corporation as a machine for making money and seeing it as a life system, a human community. I think this is a distinction that we've needed for a long time. It's the one I was realizing as I looked at Bateson's work.
I say, all right, "knowledge of nature's patterns" -- that's what we've got to focus on now. Science, religion, ... there are lots of places we can turn to find out more. This body of knowledge is not an empty set that we have to build from scratch. There's a lot of knowledge out there to build on. For a while, now, let's put away all the economics books and all the accounting books. Let's go back and regroup. We'll find, once we get started, that it isn't that hard, and it's good stuff when you get into it.
The other day I pulled off my shelf a book that had been sitting there for years. It was the third volume of Paul Tillich's Systematic Theology. I had the good fortune to be an undergraduate at Harvard in the last half of the 1950s. For about two years, around 1958 and 1959, I attended some courses presented by Paul Tillich. Thinking back on it now, I realize I got maybe ten percent of what he was saying. But when I looked recently at the third volume of his Systematic Theology (published a few years after I graduated from Harvard), I realized that it was the material from which the lectures I heard in the late '50s were constructed. He talked in the book about life, in terms of "actualization of potential." That was the whole subject of the introduction to the book. I remembered sitting in old Emerson Hall hearing him say the phrase" actualization of potential." There I was a 19- or 20-year old kid, sitting and listening to his thick German accent, talking about "actualization of potential." Little did I realize then how forty years later I would rediscover his words in a journey upstream where I was learning about life as "actualization of potential" in writings by Bateson, by Whitehead, from Buddha, Goethe, and of course, from David Bohm. So I look at these things now, and I say, "Well, these are the messages we want to listen to."
I now think that's what "learning" really is: it is discovering and embodying nature's patterns. That's what our work is. That's what our work is as human beings. It should be the primary work of the organizations we belong to. That is what I hope we are going to discuss over the years in our meetings of the Society for Organisational Learning.
See also http://www.ate.co.nz/owndata/measurement.html
See also http://www.ate.co.nz/owndata/discussion.html
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