Part 2: The Sources of Innovation: Understanding The Impact of Organizational Systems

Have you wondered why the current economic crisis felt like it hit us so quickly and severely? Have you wondered why fixing the economy is both slow and difficult. Understanding the impact of organizational systems in the context of the change continuum (see Part I) may shed some light on both the cause and how best to respond.

Innovation and change leadership go hand-in-hand and involves much more than the creation of flashy new products and services, information systems and management fads. Innovation is really the only engine that can move us forward in complex and uncertain times. Understanding organizational systems is an invisible gateway to understanding how to access the sources of innovation in any organization.

Organizational systems is a term I use to describe almost any social system, be it businesses, governments, non-profits, agencies, communities, work groups, and even individuals. All organizational systems are social systems with a set of inter-related and interdependent sub-systems. A good way to picture the dynamics of an organizational system is to envision a hanging mobile with concentric rings and a small sphere at its center. Each ring represents a critical organizational sub-systems and the center sphere represents both the inter-section of all sub-systems as well as a fourth sub-system created by the inter-dependence of the other sub-systems. No sub-system is more important than the others; all rely on each other and are impacted by the health and stability of the rest.

In most organizations, there are three primary sub-systems that can be described as:

1. Organization Systems: the formal rules and structures by which an organization operates and plans for the future. These systems include such things as the espoused mission and values, formal policies and procedures, strategic plans, and organizational development.
2. Technology Systems: the administrative, technical and physical resources and activities that allow an organization to operate and monitor its performance day-in and day-out. Examples include training, information technology, human resources, financial management, and roles and responsibilities.
   
3. People Systems: all of the ways that human being interact such as team functioning, leadership performance at all levels, personal and professional growth and learning.

At the center of our mobile is the fourth sub-system we call culture. Culture is at the intersection of the other three organizational sub-systems. Cultural Systems includes the assumptions and norms that people operate under, both consciously and unconsciously and their behavior. Another way to think about cultural systems is that they tend to be how things really get done. Cultural systems tends to be most stable and therefore the most difficult to change.

Reflecting on the number of variables of any sub-system and how each impacts one another is a tiny microcosm of what we experienced when the the global economy began to fail and slow down. The shear number complex systems involved is one reason it was difficult to predict precisely when the market crisis would overcome market stability. When the dynamic patterns of the financial markets finally reached a tipping point, the impact seemed quite sudden, yet the forces leading to that point has been in place since the 1980s. Further when a sub-system as large at the global financial system changes its pattern, the ripple affect is quite severe creating an economic tsunami.

The importance of understanding organizational systems and the complexity continuum provides a rational guide to a chaotic situation and a way to understand how to best leverage the sources of innovation.

Coming up: More about complexity and why it matters.

-- Sources of Innovation is based on collaborative work developed in partnership with my colleague and friend, Dee Endelman. For information on workshops and speaking engagements email inquiries info@northshoregroup.net

(c)2009, Lucy E Garrick. All rights reserved. Written permission is required prior to reproduction.

Economic Crisis: A Focus for Leadership Development

Economics and Money. The economic crisis is on everyone’s mind. In a recent conversation about financial matters, a distinction between money and economics was suggested by a colleague. I can see his point. Money and economics are interdependent and separate concepts. It’s important to be aware how we relate to both.

Economics is about how we meet each other’s needs. We enter the world as economic beings, innocent and vulnerable. How our needs are met from this time forward influences our intellectual and emotional capacity to meet the needs of others. The concept is essentially about trust: if we do for others, they will be able to do for us.


Leaders are called upon to both give and receive trust in service to others. Their relationship to economics, therefore, influences the complex dimensions of both personal and organizational leadership.

Money, my colleague argues, is an agreement. Legal tender holds a signature. The signature implies that in your hand is a contract. The tender represents value that can be exchanged for capital, goods and services.

The relationship between economics and money is a timely metaphor of the interdependent functions found in organizational structures. Consider the need for mutual support between marketing and sales, organization development and human resources, or supply chain management and manufacturing. Each plays a vital role in supporting needs and holds a space for the integrity of operational agreements between stakeholders.

Perhaps the most important, and least acknowledged distinction between economics and money in organizations, is between leadership and management. Leadership has to do with providing vision for the organization to achieve its mission through commitment, service, accountability and innovation – made possible by creating the conditions for trusted relationships to emerge. Those trusted relationships are foundational for holding all mutual agreements.

Management is about the agreements themselves. Agreements include things like the use systems and processes, delivery of value in exchange for knowledge and labor, and the authority granted by others to monitor, control and react to business conditions. Confusing one for the other, can lead to serious consequences. And as current events remind us, ignoring one or other can be nothing short of perilous.

Organizational Capital. How we are as economic beings informs how we perform as stewards for all forms of organizational money, often referred to as capital. In today’s organizations many forms of capital are needed to conceive, produce and maintain the profitable delivery of modern products and services. Organizational capital is not limited to materials, facilities and labor, but includes broader definitions, such as human capital and knowledge capital. The development of all is essential for sustained economic growth.

How leaders personally relate to economics informs how they prioritize an organ-ization’s needs for capital development. All forms of capital can be likened to a rubber band at rest – potential energy waiting to be realized. We can see clearly by the collapse of the world’s financial systems that no country, organization or individual is immune to the impacts of globalization. Developing all forms of organizational capital creates the tension needed to transform potential energy into the kinetic energy needed for adaptation in a complex global system.

Adaptation. Examining one’s relationship to economics and all forms of capital provides timely insights for leaders about what is currently needed for organizations to thrive in the future. The current chaos of global financial markets is creating only one thing we can count on: unexpected change. Everyone is affected. Expertise in adaption will be needed to deftly navigate these waters.

At no other time has the ability to lead change in organizations been more important. A single leadership style reveals inadequate understanding of the value and need for adaptation. Such leaders cannot be expected to adequately deepen the development of an organization’s human and knowledge capital. It will no longer be enough to simply establish a clear mission using technical know-how and hard work. In order to make the leap to greatness, leaders need to be able to mobilize all capital effectively through unanticipated change.

Considering the current state of ambiguity brought about by the chaos of global financial markets, now is the time to assess and strengthen change leadership capacities in organizations. Only through these competencies will leaders be prepared to release the genius of their organizations and thrive in the years ahead.