Organization Systems

In August of 1950, Dr. W. Edwards Deming presented his concept of production as a system to senior business leaders in Japan (Deming, 1986, p. 4). Since then, numerous attempts have been made to define the organization as a system of interrelated activities and decisions. One notable example is Michael Porter’s Value Chain, which builds on the production chain and incorporates cross-cutting functions such as procurement, technology development, human resource management, and firm infrastructure (Porter, 1985, p. 37). Kaplan and Norton developed a Balanced Scorecard Strategy Map approach, depicting causal relationships among four interrelated perspectives: financial (revenue and productivity), customer (products, relationships, and operational excellence), internal (processes, innovation, and sustainability), and learning and growth (Kaplan and Norton, 2001, p. 96). The design of the activities and decisions that comprise these systems was influenced by Juran’s Trilogy of planning, management, and improvement, which is embedded in the performance excellence models that followed (Juran, 1992).      

Organizational Excellence frameworks, such as the European Foundation for Quality Management (EFQM, 2024) and the Malcolm Baldrige National Quality Award (NIST, 2021), emerged in the 1980s and have influenced the development of numerous systems frameworks worldwide. Some organizations have developed their own frameworks, such as the Tata Business Excellence Model in India. Other countries have developed frameworks that fit their country's strategy and vision, such as the United Arab Emirates' Sheikh Khalifa Government Excellence Program. Additionally, the African Excellence Forum aligns its framework with the United Nations' Sustainable Development Goals. While the details of each assessment framework are distinct, they all address the planning, management, and improvement of the interrelated activities and decision-making that are common to most organizations. All of these frameworks have proven useful to assess the current design of organizational systems. 

Organization Systems

Organization activities and decisions can be organized into nine interconnected dimensions that comprise a universal systems framework to guide the design of the value creation, enabler, and guidance systems (Figure 1). The value creation components include understanding customers and designing products to meet their needs; producing, delivering, and servicing the products and services; and managing suppliers and partners. The value creation activities are enabled by an empowered and engaged workforce, the organization’s culture, and scorecards and analyses that provide essential knowledge throughout the organization. In addition, the development and deployment of strategy, governance, and leadership work together to guide activities and decisions throughout the organization. 

Well-designed approaches for each of the nine areas are systematic, with the appropriate level of flexibility, consistent with other relevant aspects of the organization (aligned), and operate in a coordinated fashion with different activities and decisions (integrated). Additionally, they continuously evolve to stay relevant in a rapidly changing and uncertain world.  

Customers

The purpose of an organization or any system within an organization is to produce an output for its external customers or the next internal operation. A systematic approach to current and potential customers begins with methods for capturing and understanding their needs, wants, and desires. Analysis of their requirements enables the organization to segment customers into groups with similar needs and identify the factors influencing satisfaction, purchase decisions, and referrals. These factors are used to proactively design and develop products and services, manage customer relationships, and identify communication and delivery channels that meet customers' needs. 

A systematic customer complaint management process is used to resolve unexpected issues. The complaints are then aggregated and analyzed to develop solutions to prevent future occurrences. A comprehensive customer system includes measuring product and service quality and performance that predict customer satisfaction, as well as customers’ perceptions and behavior. The insights from the systematic customer approaches inform strategy, guide workforce development, and plan, manage, and improve the operations that produce and deliver the products and services. Example customer activities: 

• Segments - Identify target customer groups, including both current and potential customers, as well as those of competitors.   
• Requirements - Determine customer and market requirements, expectations, and preferences that influence purchase decisions, including initial purchases, repeat business, and referrals.
• Design and Development - Translate customer requirements into product and service offerings, features, and functions. Develop and test new and improved products and services.
• Channels - Pathways to deliver the products and services, including communication methods, distribution, sales, and support. 
• Relationships - Build relationships with customers by engaging with and supporting them throughout their product and service experiences. 
• Complaint Management - Resolve customer complaints and aggregate complaint data to identify solutions to prevent similar complaints in the future.  
• Satisfaction Measurement - Determine how satisfied customers are with the products and services, including perceptions, behavior, and comparisons.
• Analysis and Improvement - Analyze customer and market information to develop new and improved products, services, and customer experiences.   

Operations 

The operations and production systems include the essential production and support activities and decisions that create and deliver products and services to meet the customers’ needs. Effective operations begin with a systematic approach to planning and organizing production and delivery activities. Operations are designed and managed to meet the unique needs of the organization and its operating environment. In-process metrics are tracked to ensure that operations produce the necessary outputs to meet customer needs. 

Support activities are designed and managed to serve operations and production activities. Each activity in the organization either serves the external customer or an internal customer, creating a chain of internal customer-supplier relationships that eventually serve the external customer. This approach is often referred to as “next operation as customer.” 

Systematic problem-solving methods are incorporated into the system to address unexpected issues and minimize downtime. The operations system's overall effectiveness, efficiency, alignment, and integration are regularly assessed from multiple perspectives and refined to improve performance. The operations system transforms the inputs from suppliers and partners and thus depends on high-performing suppliers and partners. Example operations activities: 

• Work System Design - Design and develop the system of work processes to produce the products and services.  
• Planning - Forecast, plan, and schedule work activities; identify materials needed, and assign people. 
• Process Management - Ensure that the day-to-day operations meet or exceed both internal and external customer requirements. 
• Project Management - Manage unique work for custom solutions for internal and external customers.
• Measurement - Metrics to proactively manage work processes, customer experiences, end product quality, and performance.  
• Problem Solving - Solve problems that arise during recurring work activities and special projects. 
• Assess and Improve - Periodically assess and improve work processes and the overall operations. 

Suppliers

Many organizations rely on the performance of suppliers and partners to deliver the necessary inputs for creating high-quality solutions for their customers. Based on the organization's strategy and core competencies, the approach to suppliers and partners begins with a systematic method to determine where to place work, either within or outside the organization. Once a decision is made to place work outside the organization, a systematic process is used to identify the organization’s needs and develop comprehensive supplier source selection criteria, including quality, cost, and risk. Following a systematic process, the organization solicits supplier proposals or researches existing suppliers, using the selection criteria to evaluate and choose the most suitable suppliers. 

Supplier and partner performance expectations are communicated using a two-way exchange process that helps develop and manage the relationship. Performance is tracked, and feedback is provided to suppliers and partners, enabling them to proactively ensure they meet your expectations and continuously evaluate and improve their performance. When the value chain is well-designed, it forms an aligned and coordinated system of suppliers, partners, operations, production, and customers. However, the value chain system doesn’t produce anything without people to do the work.  Example supplier activities: 

• Work Placement - Determine where to best place work, inside or outside the organization, to build, maintain, and leverage core competencies. 
• Requirements - Identify the roles, responsibilities, and requirements of the suppliers and partners in the organization. 
• Selection - Evaluate and select suppliers and partners based on their ability to meet key requirements such as quality, performance, and support; total cost of the solution; and risks associated with the supplier organization, products, and services. 
• Measurement - Measure supplier and partner quality and performance, and provide feedback.   
• Management - Ensure individual suppliers and partners meet or exceed the organization’s needs, such as preventing defects, service errors, and rework.  
• Coordinate - Align and coordinate the mix of suppliers, partners, and collaborators to create, deliver, and support the products and services. 
• Assess and Improve - Periodically assess and improve supplier and partner performance.  

Workforce 

Value creation activities require individuals with relevant information and tools to perform the work. A fully enabled, empowered, and engaged workforce begins with a systematic approach to determine what type of workers are needed (workforce capability) and how many of each type are required (workforce capacity) today and in the future. Job openings are identified, candidates are recruited based on the capability and capacity needs, and new hires are evaluated and selected based on clear criteria. 

Workers are then developed through comprehensive training, mentoring, a clear career progression system, and succession planning. Training and development activities are designed based on a needs assessment of the workforce, then delivered, assessed, and continuously improved to ensure the workforce is prepared to meet the organization's challenges. 

The empowerment and engagement activities focus on supporting high-performance work and innovation aligned and integrated with the organization's strategic goals, objectives, and action plans. Workforce performance measurement and incentives are designed to motivate and reinforce the desired behaviors and performance needed to create and sustain the culture and accomplish the organization’s strategy. Finally, the support system focuses on key workforce health, safety, and security, including policies, services, and benefits to create and maintain a high-performance work environment that encourages engagement. Example workforce activities: 

• Needs Forecasting - Forecast the workforce capability and capacity (knowledge, skills, and abilities) needs of the organization, including methods to assess the current workforce capability and capacity. 
• Segmentation - Identify the needs and requirements of the workforce, segment them into groups, and develop engagement strategies tailored to the unique needs of each group. 
• Attract and Acquire Talent - Attract, recruit, and select the talent needed to support current and future activities. 
• Training and Development - Conduct needs assessment, design training and development programs, deliver programs, assess the effectiveness, and reinforce knowledge, skills, and abilities on the job. 
• Engagement and Performance Management - Support workforce engagement and high performance, including feedback mechanisms and coaching. 
• Work Environment - Ensure an inclusive, supportive, healthy, and safe working environment.  
• Reinforcement - Incentives that support the desired behaviors, performance, and engagement of the workforce, both individuals and groups.   
• Support - Identify, develop, and deliver support services and programs for the personal and professional needs of the workforce. 
• Succession Planning - Develop a pipeline of highly qualified workforce replacements, including leaders. 

Culture 

Organizational culture is the glue that holds the systems together and helps bring them to life. All too often, organizational cultures emerge from an unplanned, impromptu collection of events and behaviors that occur over time. These events, behaviors, and beliefs become habits embedded in the culture. While this might be common, it doesn’t have to be this way. At the center of an organizational culture are the values that inform the organization's rituals, symbols, heroes, and practices, which can be purposefully designed to reflect the values. 

While many organizations have identified their desired values, few have systematically embedded those values in the various practices throughout the organization, resulting in misalignment and confusing mixed messages. The challenge for organizational designers is to align the design of activities and decisions, measurement, and incentives throughout the organization with the desired values. Then, those defined practices will drive behaviors and habits that become the organization's culture. To achieve a high-performing, integrated organization based on the concept of 'next operation as customer,' requires a culture of service to one another and all the stakeholders. Example organizational culture components: 

• Values - Values describe the underlying principles that provide a foundation for the desired culture. We can’t directly see or measure values. Instead, we infer the values of the organization or individual by what they do and the decisions they make. 
• Symbols - Symbols are everywhere, from the reserved parking places to the corner offices to those who get to fly first class. Symbols are powerful and also reflect what you truly value.
• Rituals - The word ritual is often associated with religion. Still, it can be any sequence of steps (often symbolic) taken that has a meaning, such as a rite of passage (e.g., a wedding ceremony). Organizations have many rituals, from annual strategy retreats to award ceremonies and celebrations such as retirement parties. These rituals reflect and reinforce the organization's values.
• Heroes - Choose your heroes wisely; your choices reflect your values. You might say you value teamwork, but if your heroes (those you celebrate and promote) are not team players, then no one will believe you. 
• Practices - Whether consciously or unconsciously, cultural values are embedded in the organization's policies and practices. From the words of the leaders to the process for expense reimbursement and the criteria for promotions, the way activities are performed and decisions are made reflect and shape the culture of the organization. 

Scorecard 

While each activity is measured, managed, and improved, the comprehensive scorecard aggregates and analyzes metrics from around the organization to provide a systems view of the flows and leverage points. Creating a scorecard begins with selecting metrics based on both external and internal stakeholder requirements, system analysis, strategy, and the ability to take action. A system is then designed to collect, aggregate, analyze, and display results, supporting strategy development and deployment, as well as operational decision-making throughout the organization. 

Information includes the current levels of performance, the trends over time, comparisons, and analysis of the causal relationships between the metrics. The information must be accurate, timely, secure, and easily accessible and understandable to provide valuable insights. Analysis methods, tools, and techniques are employed to review and study performance over time, identifying areas for improvement in the system's performance. These methods also help leaders identify and mitigate unintended consequences of changes to the system. Evidence-based learning supports rational design and decision-making, resulting in steady improvement. Example scorecard activities: 

• Framework - Develop a scorecard that provides actionable insights into the overall enterprise as a system. 
• Selection - Identify, evaluate, and select current and potential metrics that provide actionable insights to help plan, manage, and improve organizational performance. 
• Collection - Capture, organize, and ensure the credibility and reliability of data and information. 
• Comparison - Identify and collect comparison results to understand how your organization stacks up against industry leaders, world-class organizations, and competitors. 
• Display and Analysis - Visually display and analyze the results of individual metrics, including level of performance, trends over time, and comparisons. 
• Systems Analysis - Analyze the cause-and-effect relationships among metrics to identify root causes and leverage points.   
• Knowledge Management - Ensure accurate, reliable, secure, and timely data, information, and knowledge are readily available throughout the organization.  

Strategy 

Systematic approaches to strategy require just enough structure to assist the creative process without unnecessarily restricting the strategists’ thinking. Strategy typically begins with analyzing the external environment and competition to identify opportunities for growth and expansion. This opportunity-driven approach differentiates strategy in commercial enterprises from programming found in organizations with a mandated mission and a budget, such as many government organizations and NGOs. Both involve formal plans to communicate the implementation details, but programming follows a mandated mission, and strategy is opportunity-driven and determines how the organization will compete. Commercial strategy is a much more ambiguous and risky activity than planning for a mandated mission.  

The internal core competencies, capabilities, and the organization's purpose inform the development of a strategy to address the opportunities. Strategy is a hypothesis of what the leaders think will result in the desired customer, market, and financial outcomes. Strategies are typically translated into goals, objectives, and initiatives, along with action plans, to inform resource allocation and decision-making. The progress toward the strategy is reviewed periodically to determine if the hypothesis was correct or if adjustments are needed to keep the organization moving toward its vision. Strategy is a continuous learning process of development, deployment, review, and revision. Example strategy activities: 

• Vision and Mission - Develop and deploy the organization's purpose, vision, and mission, and periodically evaluate them to ensure they remain current, relevant, and effective.  
• Environmental Scan - Collect and analyze information on relevant external factors, including political, economic, social, technological, environmental, legal, and competitive trends. 
• Core Competencies - Assess and analyze the unique internal organizational context and core competencies. 
• Strategy Development - Develop competitive strategies to succeed in a dynamic and uncertain environment.   
• Feasibility - Test the feasibility and risks associated with the proposed strategies, refining them to increase the odds of success. 
• Action Plans - Identify the specific changes required to implement the strategy, including deliverables, activities, personnel, resources, metrics, and schedule. 
• Initiative Management - Actively manage strategic initiatives to ensure the timely delivery of required deliverables, quality, and performance within allocated resources. 
• Review and Revise - Periodically review progress and performance improvements, making adjustments to the strategy and initiatives as needed. 

Governance 

Governance activities focus on ensuring accountability for and protection of stakeholder interests. While the activities, decisions, and participants involved vary by type of organization, industry, and country, governance activities apply to all organizations and contexts. Governance activities include proactively ensuring that all organizational members adhere to ethical, legal, and regulatory requirements in all their actions and decisions. Additionally, it provides methods to address any unethical or illegal behavior and non-compliance with regulations. 

Governance also addresses the organization's economic, social, and environmental sustainability, including products, services, operations, supply chain, and workforce. Ideally, governance activities incorporate ways to anticipate stakeholder concerns with current and planned products, services, and operations. Financial responsibility is assessed using methods and people who are independent of those held accountable. Risk assessment and mitigation are critical aspects of ensuring stakeholders are protected. While governance approaches may not directly contribute to the organization's performance, they can help save it from destruction. Consequently, governance is a vital complement to strategy. Example governance activities: 

• Accountability - Ensure accountability at the top and throughout the organization, including established methods and criteria to assess the performance of CEOs, senior leaders, and board members. 
• Communications - Select, analyze, and disseminate information to inform decisions and develop policies for sharing information within and outside the organization. 
• Audits - Ensure accurate reporting through independent internal and external audits. 
• Risk Management - Assess and mitigate risks associated with all aspects of the organization’s operations, products, and services. 
• Regulatory Compliance - Ensure compliance with existing regulations and anticipate and prepare for future regulatory changes. 
• Ethical and Legal Behavior - Proactively ensure ethical and legal behavior by all organizational members in all transactions and correct unethical and illegal behavior when it occurs. 
• Impact on Society - Identify and address adverse effects of current products, services, and operations on society, including anticipating public concerns with planned products, services, and operations.
• Natural Environment - Identify and address adverse effects of current products, services, and operations on the natural environment, including anticipating the environmental impact of planned products, services, and operations. 

Leadership 

Leadership is needed to guide the activities and decisions throughout the organization. An explicitly defined approach to leadership helps develop leaders who are aligned with and reinforce the organization's purpose, values, and strategy. Leadership encompasses defined activities, the manner in which those activities are carried out, the style and characteristics of the leaders, as well as the rhetoric or messages they convey. At its core, leadership is one person influencing another individual or group by providing direction and an example to emulate. 

Leaders face many complex, risk-taking situations that require analysis and decisions for the organization. They also need a flexible approach to help them deal with various followers and situations. Consequently, an approach to leadership should provide sufficient structure to help leaders navigate the ambiguity of complex and constantly changing people and contexts without restricting their ability to address the challenges of the day in a creative manner. When embarking on an organization redesign journey, it is often best to begin by designing a custom approach to leadership. This provides leaders with the tools to lead the redesign and transformation of other systems within the organization, thereby increasing their credibility by setting a positive example. Example leadership activities: 

• Set Direction - Develop the values, strategies, policies, and expectations that guide people throughout the organization. 
• Communicate - Develop and deliver messages that convey the organization’s values, purpose, direction, policies, practices, and other key information. 
• Set the example - Role-model the desired behaviors that are consistent with the organization's values, purpose, strategies, policies, and practices.  
• Solve Problems - Analyze a variety of complex organizational challenges, crises, and conflicts and decide on the best course of action to address the issue. 
• Develop People - Coach and mentor individuals to empower them to reach their full potential. 
• Review Performance - Periodically evaluate organizational results and make adjustments to strategies, policies, and practices to improve performance. 
• Hold Accountable - Review individual performance and hold people accountable for behavior consistent with the organization's values and practices, and for making the necessary changes to achieve the strategy.  
• Learn and Develop - Continuously reflect, learn, and develop their own knowledge, skills, and abilities to stay relevant in an ever-changing and uncertain world.   

Systems Thinking

While developing systematic methods for the individual activities is helpful, the real power lies in aligning and integrating the activities and decisions to enhance overall firm performance. Deming (1994) notes that for a system to be high-performing, its interdependent components must communicate, cooperate, and coordinate their actions and decisions effectively. In Deming’s system, clearly defined relationships among the components, along with an understanding of each component’s role in maximizing the firm's performance, are the basis for negotiating operating agreements among various stakeholders, including departments and divisions within the organization, as well as external suppliers, partners, and customers, among others. This makes the design of organizational systems an inherently cross-functional, collaborative activity. 

It is one thing to consider individual exchanges between the interdependent components in a system, and quite another to understand how the “flows” of energy, information, and value unfold over time in a dynamic system. Individual actors in the system often make decisions without fully understanding the downstream or upstream implications (Senge, 1990). In organizations, the delay between action and result can be months or even years. This makes it difficult for designers to learn from experience what worked and what didn’t work. To transition from endless reacting to symptoms and “fighting fires” toward identifying and fixing root causes and “preventing fires,” designers need an understanding of system dynamics and leverage points (Meadows, 1999). Understanding the overall organizational system and its subsystems is essential for designing approaches that effectively contribute to maximizing overall organizational performance, both in the short term and the long term. 

References 

African Excellence Forum https://aefx.africa 

Deming, W. E. (1986). Out of the crisis. Massachusetts Institute of Technology, Center for Advanced Engineering Study.

Deming, W. E. (1994). The new economics: For industry, government, education (2nd ed.). Massachusetts Institute of Technology Center for Advanced Engineering Study (MIT CAES).

EFQM. (2024). The EFQM Model 2025. EFQM. https://efqm.org/ 

Juran, J. M. (1992). Juran on quality by design: The new steps for planning quality into goods and services. Free Press ; Maxwell Macmillan Canada ; Maxwell Macmillan International.

Kaplan, R. S., & Norton, D. P. (2001). The strategy-focused organization: How balanced scorecards companies thrive in the new business environment. Harvard Business School Press.

Latham, J. R., & Vinyard, J. (2011). Organization diagnosis, design and transformation: A Baldrige User’s Guide (5th ed.). John Wiley & Sons. https://drjohnlatham.com/books/organization-diagnosis-design-and-transformation/ 

Meadows, D. H. (1999). Leverge points: Places to intervene in a system. Sustainability Institute. https://donellameadows.org/archives/leverage-points-places-to-intervene-in-a-system/ 

NIST. (2021). 2021-2022 Baldrige Excellence Framework: Proven leadership and management practices for high performance. National Institute of Standards and Technology (NIST). http://www.nist.gov/baldrige 

Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press. 

Senge, P. M. (1990). The fifth discipline: The art and practice of the learning organization. Currency Doubleday. 

Sheikh Khalifa Government Excellence Program, UAE https://www.skgep.gov.ae/en 

Tata Business Excellence Model https://www.tatabex.com/about-us/tata-business-excellence-model