What is Systems Based Management?

What Systems Based Management gets right where Traditional Management goes wrong

What’s the best piece of management advice you’ve ever gotten? What was it directed towards? Performance? Strategy? People? I bet it was. These are the typical domains of what I call “Traditional Management”. Their focus is built on a status quo understanding of businesses, an understanding that, whether you’ve realized it or not, has gone the way of the dinosaur. If you’ve read any management book you’ll even feel the antiquity flowing through it. It just doesn’t resonate with how organizations operate today. Underlying all of this is a fatal assumption that no longer holds true. The entire apparatus of traditional management assumes that outcomes are mostly a function of individual character: talent, effort, grit, hustle, individualized strategy and decision making. If the results are good, the person is good. If the results are bad, the person needs to be better, or needs to go. This is how most people view of business. It is also mostly wrong, and it is expensive to believe.

There is a different way to think about running a business, one that treats the system a person works inside as the primary variable and the person as secondary. I call this systems-based management. And I contend that this is a better way to run organizations. It brings management closer to reality: reality of organizations, reality of knowledge, and the reality of effort. Once you start seeing organizations through this lens, you cannot unsee it.

People Already Want to Do Good Work

Traditional management operates on the assumption that people need to be pushed. They need quotas, incentive trips, fear of being fired, leaderboards, and public recognition to bother trying hard. They need performance goals and bonuses to achieve those goals. Strip away the carrots and sticks, the thinking goes, and performance collapses.

This assumption is backwards. Watch anyone in their first month at a new job. They show up early. They ask questions. They want to be good at this. Motivation is not something management manufactures from nothing; it is something that already exists in almost everyone and gets ground down over time.

So where does this motivation go? What kills it? The answer, nearly always, is the system itself. People experience low morale when they are asked to hit targets that the process cannot actually support. A customer service rep is told to keep average call time under four minutes while also being told to fully resolve every issue, score well on satisfaction surveys, and try to cross-sell other products. Those demands are in direct conflict, and no amount of individual effort resolves the conflict, because the conflict was built into the workflow by someone who doesn’t understand the system dynamics. And this very same person will hide behind blaming individual effort or ability as the reason for missing goals. The rep learns, fast, that the goals are fictional and that surviving the job means gaming whichever metric is measured that quarter. What this short vignette reveals is not a motivation problem, but is a systemic dysfunction, an illness that will never be set right so long as we look at “strategy” or “Performance” or “People.”

This is why platitudes and exhortation fail as a management tool. Posters that say “safety first,” speeches about “giving 110 percent,” Slack messages urging people to “own the outcome,” all of it lands on people who are already trying and already own the outcome, or have actively chosen to disengage from owning the outcome because of the dynamics they feel powerless to conquer. Employees are not missing inspiration. What they are missing is a system that lets their effort translate into results. The single highest leverage thing a manager can do for morale is not a pep talk. It is walking the floor, or the codebase, or the call transcripts, and removing the things that make good people fail despite good effort.

Businesses Run on Systems, Not on Heroes

Here’s a convenient heuristic for testing the health of an organization. Ask whether the survival of the organization depends on the occasional brilliant individual to produce good outcomes, or does it produce good outcomes reliably regardless of who is at the helm?

Think about healthcare. Compare two hospitals. One has built layered systems for catching errors: checklists before surgery, a second set of eyes verifying medication dosages, standardized handoff protocols between shifts, root cause reviews when something goes wrong that change the process rather than just the person involved. The other hospital has no such infrastructure, but it employs three legendary surgeons whose personal skill and vigilance keep the error rate acceptable. Which hospital would you actually want to be treated at? Are you going to wait for the legendary surgeons? Do you have that luxury?

The system-driven hospital wins every time. This comes as no surprise. The hospital which has architected layers of checks and fail-safes does not depend on any single person clearing a superhuman bar every single day. Heroics are not a strategy. Heroics indicate an uncontrolled organization. Heroics are a desperate last resort that you fall back on when you have failed to control outcomes systemically. Heroics are a stopgap for catastrophe.

You can find this pattern everywhere once you look for it. Sales incentives are baked into “the system.” But this is no system at all outside of one-off promotions. Many sales teams struggle to produce sustainable revenue without such efforts. Similarly, Starbucks has painted themselves into a corner through discounts. They have for too long relied on discount codes and happy hour pricing to bring in growth, that they’ve forgone is true customer desire and loyalty. Their marketing system is deeply broken.

In every case, the tell is the same. If removing one exceptional person, or pausing one temporary incentive, would sink performance, you do not have a system. You have a person or a gimmick standing in for one, and the actual job of building the system has not been done yet.

The issue is that we are infatuated with heroics. Search for business quotes, and you’ll find several talking about hiring top talent, or leveraging brilliant people, or motivating people to go above and beyond. Consider two which you’ve probably heard before:

"It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do." - Steve Jobs

“Start with good people, lay out the rules, communicate with your employees, motivate them and reward them. If you do all those things effectively, you can't miss.” - Lee Iacocca

Systems Based Management would counter these ideas by saying something like, “Why are you spending all that time trying to find the top talent, competing with God knows how many other firms inside and outside of your industry?” Build a system that anybody can thrive in. Build a system that develops people throughout their careers. Build a system where people learn to build these systems, and you’ll never have to worry about the talent pipeline again!

A short digression: Depending on the industry, you might think it’s unwise to forego seeking out the best talent. Right now, the Tech industry can attract top talent with lavish offices, espresso machines, and above market salaries. But this will not always be so. A century ago, Henry Ford also attracted workers with above market salaries. Even built homes for his workers! But as industries age and competitive forces take hold, that advantage is eroded. Surely we wouldn’t expect Ford Motor to offer any salary higher than what the market would support. This is an inevitability for any industry and market. Better to build up an immunity to the illness before you get it. Some are convinced they won’t contract the bug…

Management’s Job Is to Improve the System

If people are already trying and outcomes are mostly a function of the system they work inside, then the job description for management changes completely. The manager is not a referee handing out grades on individual performance. The manager is an engineer, an architect, a facilitator of the development and design of the organizational system.

That job takes many forms. Sometimes it means stabilizing a process that swings wildly in quality depending on the day, so that output becomes predictable before anyone tries to improve it. After all, you cannot meaningfully improve something you cannot yet predict. Sometimes it means streamlining workflows through the reduction of approvals and handoffs, and legacy check-ins. Sometimes it means finding a new market that the current system is actually well suited to serve, rather than forcing the existing team to hit a number in a market where the product has no real advantage. Sometimes, uncomfortably, it means reducing headcount, not as punishment, but because the system genuinely does not require that much labor to run once its inefficiencies are removed, and pretending otherwise wastes everyone’s time. Sometimes it is as unglamorous as renegotiating contracts of direct material costs, or noticing that a competitor, or a completely unrelated industry, has found a better practice that can be adapted and installed.

None of these are about pushing individuals harder. All of them are about changing the conditions individuals operate under, changing the competitive and organizational environment. This is not necessarily a harder job than traditional management, but it requires the acquisition of new management paradigms and tools and the forfeiture of cherished management tools of yesteryear.

One key difference, that I will admit is harder, is what to do about causality and performance. It is much simpler to sit in a review meeting and tell someone their numbers are down than it is to trace why the numbers are down through six steps of a broken process and then go redesign those steps, implement the design, record the test performance, and make changes until it’s just right. Traditional management is, in a real sense, a way of avoiding the hard work of systems improvement by outsourcing the blame to whoever is closest to the output. Systems-based management refuses that shortcut. It insists that if the result is bad, the first question is what about the system produced that result, and only after the system has been genuinely examined does the question of individual performance even become relevant.

Another difference that this reframing brings to light is how a manager measures their contribution. Traditional management looks at past performance as an indicator of future performance. “Did my team hit the number this quarter?” A systems-based manager asks, is the system that produces our numbers more capable this quarter than it was last quarter? How many improvements did we make? How much money was saved by our improvements? What capabilities have we acquired that we did not possess last quarter? How are we better positioned to meet the needs of our customers next quarter because of our efforts this quarter? Those are different questions, and they produce different behavior. And suffice it to say, this is a much more fulfilling and satisfying way to conduct business!

Reality Is Too Complex to Predict. So Experiment.

Another difference: Traditional management leans heavily on predictive forecasting and descriptive analysis.

Prediction works by building a model, extrapolating from historical data, setting a target derived from that extrapolation, and then managing people against the gap between actual and forecast. This is fraught with issues. Prediction generally doesn’t work because the environments most real businesses actually operate in, which are complex, interconnected, and full of variables that do not show up in last year’s spreadsheet. And many organizations then spend inordinate amounts of time trying to figure out why their predictions were off or how to improve them for the future. It’s truly astounding.

Descriptive Analysis is where we describe who our customers are. Or where our problems lie. Or how long it’s taking us to do a task, say deliver a product to a customer. This too is fraught with baggage because it rarely leads to definitive actions which should be taken. Traditional managers love this sort of analysis because they feel like they understand their current business better. They have something, perhaps even something elegant, to say about their business. But it’s wholly ineffectual in prescribing what to do next.

So we see that the current paradigms of traditional management which incorporate and rely on data often fail in the area we value most: What to do next? Efforts to produce a “better forecast” will still have us chasing our tails trying to understand causes of errors. More descriptives may reveal some helpful insights, but those will quickly be addressed and we’ll be left with more data, more taxonomies of problems, but the same confidence on what to do next.

If we understand systems we will appreciate their complexity and respect our own inability to sift out the underlying dynamics of the system through data alone. Luckily, Systems Based Thinking comes equipped with a new tool to handle this failure of traditional approaches: experimentation. Through experimentation, we can form a hypothesis, run a small test (usually with low resolution, as a proof of concept), observe what actually happens, and let the result tell you something about the dynamics of the system.

The true benefit of experimentation is not so much that you will learn what to do next, but you will develop, very quickly, large swaths of knowledge about your own organization, your customers, your industry, and the forces behind it. This tome of knowledge becomes a catalog of empirical facts which systems thinkers can use to identify dynamics and suggest steps towards improvement. Experimentation begets self-knowledge that becomes a competitive advantage that nobody can mimic, replicate, or take away.

Data still matters enormously in this view, but its role changes. Data does not get to dictate the plan like it does through prognosis and forecasting. Instead, data gets to suggest which experiments are worth running and to tell you, after the fact, whether an experiment worked. Dashboards take on new life not as a recorder of past events but as a pointer toward a hypothesis worth testing.

This focus on experimentation is also why systems-based management tends to distrust rigid annual plans and five-year roadmaps built entirely from projections. Not because planning is worthless, but because a plan is a hypothesis dressed up as a certainty, and organizations that treat their plan as certain stop noticing when reality disagrees with it. The better posture is a portfolio of small, fast experiments running continuously, each one cheap enough to fail without damage and informative enough to actually update your understanding of the system. Over time, this produces something a static forecast never can: an organization that gets smarter about its own reality, month over month, instead of one that gets more confident in an increasingly outdated model of it.

Final Thoughts

Systems-based Management is not an argument against people. Individuals matter. They are still relevant. Traditional management looks at the person before it looks at the system, assumes motivation has to be manufactured rather than protected, attributes blame personally, tolerates dependence on heroics as long as the numbers come in, and manages against forecasts, known to be fraught with errors. Systems-based management inverts every one of those defaults. It assumes people already want to succeed and asks what in the system is stopping them. It seeks to understand how the process has failed the person. It treats dependence on any single exceptional performer as a design flaw to be fixed rather than a strength to be celebrated. It defines the manager’s job as continuously improving the mechanisms that produce results, not scoring the humans caught inside it. And it treats the complexity of the real world honestly; by testing it constantly.

The businesses that actually last are not the ones with the most inspiring leaders or the most talented individual performers scattered across the org chart. They are the ones that have built systems capable of producing good outcomes no matter who happens to be having a bad week. That is a less romantic story than the hero narrative traditional management prefers to tell. It is also the true one, and it is the only version of the story that lasts.

That’s the end of the article!

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