Admittedly, you kept a few weeks' worth of beer in your warehouse, but those stocks were exhausted by Week 7, only two weeks after the.
The next week, while you had back orders for nine gross and another twenty-four gross in new orders, you could send out only twenty-two gross. By that time you were a hero within your company. The plant manager had given everyone incentives to work double- time, and was feverishly interviewing for new factory help. You had lucked out with that Iconoclasts' video mentioning the beer. You had learned about the video in Week 3—from letters written by teenagers to the brewery.
But it had taken until Week 6 to see that video translate into higher orders. Even by Week 14, the factory had still not caught up with its backlogged orders. You had regularly requested brew batches of seventy gross or more. You had wondered how large your bonus would be that year. Maybe you could ask for a percentage of the profits, at least once you caught up with back orders. You had even idly pictured yourself on the cover of Marketing Week.
Finally, you had caught up with the backlog in Week But the next week, your distributors had asked for only nineteen gross. And last week, Week 18, they had not Some of the order slips actually had orders crossed out on them. Now, it's Week You have a hundred gross of beer in inventory. And the orders, once again, ask for virtually no new deliveries.
Zero beer. Meanwhile the beer you've been brewing keeps rolling in. You place the phone call you've dreaded making to your boss. The same pattern continues for four more weeks: Weeks 20, 21, 22, and Gradually your hopes of a resurgence slide, and your excuses come to sound flimsier and flimsier.
Those distributors screwed us, you say. The retailers didn't buy enough beer. The press and that rock video hyped up the beer and got everybody sick of it. At root, it's the fickle kids—they have no loyalty whatsoever. How could they buy hundreds of cases one month, and nothing at all the next? Nobody misses you when you borrow the company car at the beginning of Week Your first stop is the wholesaler's office. Not only is it the first time you have ever met face to face, but it is only the second time you have ever spoken.
There has never been anything to say until this crisis. You greet each other glumly, and then the wholesaler takes you out to the back warehouse. We still have truckloads here. Another example of the fickleness of the public. If the retailers had stayed on top of it and warned you, this would never have happened. You are working over the phrasing of a marketing strategy report in your mind on the way home when, on a whim, you decide to stop at the store of a retailer you pass along the way.
Fortuitously, the owner of the store is in. You introduce yourself and the retailer's face breaks into a sardonic grin. Leaving an assistant in charge of the shop, the two of you walk next door to a luncheonette for a cup of coffee. The retailer has brought along the shop's inventory tally notebooks, and spreads them open across the table.
At this rate, it's going to be another six weeks before we order any more. And then you pull out a pocket calculator. If every retailer in this area waits six weeks before ordering any more beer, and then only orders a few cases a week, it's going to be a year or more before they put a dent in those truckloads sitting at the wholesaler's. Then, in Week 2, we sold eight cases.
And it never died out. We still sell eight cases of beer—week after week after week. But you didn't send us the beer we wanted. So we had to keep ordering, just to make sure we had enough to keep up with our customers.
Anyway, I wish you'd do a coupon promotion or something, so I could make back some of my costs. I'd like to unload some of those ninety-three cases. Then, on your trip back, you plan the wording of your resignation notice. Obviously, you'll be blamed for any layoffs or plant closings that come out of this crisis—just as the wholesaler blamed the retailer, and the retailer blamed the wholesaler, and both of them wanted to blame you.
At least it's early enough in the process that you can quit with some dignity. If only you could come up with some explanation to show that it wasn't your fault—to show that you were the victim, instead of the culprit. Structure Influences Behavior Different people in the same structure tend to produce qualitatively similar results. When there are problems, or performance fails to live up to what is intended, it is easy to find someone or something to blame.
But, more often than we realize, systems cause their own crises, not external forces or individuals' mistakes. Structure in Human Systems is Subtle We tend to think of "structure" as external constraints on the individual.
But, structure in complex living systems, such as the "structure" of the multiple "systems" in a human body for example, the cardiovascular and neuromuscular means the basic interrelationships that control behavior. In human systems, structure Leverage Often Comes from New Ways of Thinking In human systems, people often have potential leverage that they do not exercise because they focus only on their own decisions and ignore how their decisions affect others.
In the beer game, players have it in their power to eliminate the extreme instabilities that invariably occur, but they fail to do so because they do not understand how they are creating the instability in the first place. People in the business world love heroes. We lavish praise and promotion on those who achieve visible results. But if something goes wrong, we feel intuitively that somebody must have screwed up. In the beer game, there are no such culprits.
There is no one to blame. Each of the three players in our story had the best possible intentions: to serve his customers well, to keep the product moving smoothly through the system, and to avoid penalties. Each participant made well-motivated, clearly defensible judgments based on reasonable guesses about what might happen. There were no villains, but there was a crisis nonetheless—built into the structure of the system.
In the last twenty years, the beer game has been played thousands of times in classes and management training seminars. It has been played on five continents, among people of all ages, nationalities, cultural origins, and vastly varied business backgrounds. Yet every time the game is played the same crises ensue. First, there is growing demand that can't be met.
Orders build throughout the system. Inventories are depleted. Backlogs grow. Then the beer arrives en masse while incoming orders suddenly decline. By the end of the experiment, almost all players are sitting with large inventories they cannot unload— for example, it is not unusual to find brewery inventory levels in the hundreds overhanging orders from wholesalers for eight, ten, or twelve cases per week.
The causes of the behavior must lie in the structure of the game itself. Moreover "beer game"-type structures create similar crises in real-life production- distribution systems. For instance, in , personal computer memory chips were cheap and readily available; sales went down by 18 percent and American producers suffered 25 to 60 percent losses.
The result was a to percent increase in prices for the same chips. After a huge order buildup and increases in delivery delays throughout the industry, demand collapsed and you could have virtually any product you wanted off any supplier's shelf overnight. Within a few years, Siemens, Signetics, Northern Telecom, Honeywell, and Schlumberger all entered the business by buying weakened semiconductor manufacturers.
The companies already are idling plants and laying off workers at rates not seen for years. Similar boom and bust cycles continue to recur in diverse service businesses. For example, real estate is notoriously cyclic, often fueled by speculators who drive up Unfortunately, the people in the real estate industry are too busy trying to address the problems they have left over from the last one.
A real retailer can order from three or four wholesalers at once, wait for the first group of deliveries to arrive, and cancel the other orders. Real producers often run up against production capacity limits not present in the game, thereby exacerbating panic throughout the distribution system.
In turn, producers invest in additional capacity because they believe that current demand levels will continue into the future, then find themselves strapped with excess capacity once demand collapses.
The systems perspective tells us that we must look beyond individual mistakes or bad luck to understand important problems. We must look beyond personalities and events. We must look into the underlying structures which shape individual actions and create the conditions where types of events become likely.
As Donella Meadows expresses it: A truly profound and different insight is the way you begin to see that the system causes its own behavior. Two thirds of the way through War and Peace, Leo Tolstoy breaks off from his narrative about the history of Napoleon and czarist Russia to contemplate why historians, in general, are unable to explain very much: The first fifteen years of the nineteenth century present the spectacle of an extraordinary movement of millions of men.
Men leave their habitual pursuits; rush from one side of Europe to the other; plunder, slaughter one another, triumph and despair; and the whole current of life is transformed and presents a quickened activity, first moving at a growing speed, and then slowly slackening again. What was the cause of that activity, or from what laws did it arise? The historians, in reply to that inquiry, lay before us the sayings and doings of some dozens of men in one of the buildings in the city of Paris, summing up those doings and sayings by one word —revolution.
Then they give us a detailed biography of Napoleon, and of certain persons favorably or hostilely disposed to him; talk of the influence of some of these persons upon others; and then say that this it is to which the activity is due; and these are its laws. But, the human intellect not only refuses to believe in that explanation, but flatly declares that the method of explanation is not a correct one. The sum of men's individual wills produced both the revolution and Napoleon; and only the sum of those wills endured them and then destroyed them.
Tolstoy argues that only in trying to understand underlying "laws of history," his own synonym for what we now call systemic structures, lies any hope for deeper understanding: For the investigation of the laws of history, we must completely change the subject of observations, must let kings and ministers and generals alone, and study the homogeneous, infinitesimal elements by which the masses are led. No one can say how far it has been given to man to advance in that direction in understanding the laws of history.
But it is obvious that only in that direction lies any possibility of discovering historical laws; and that the human intellect has hitherto not devoted to that method of research one millionth part of the energy that historians have put into the description of the doings of various kings, ministers, and generals.
Rather, "systemic structure" is concerned with the key interrelationships that influence behavior over time. These are not interrelationships between people, but among key variables, such as population, natural resources, and food production in a developing country; or engineers' product ideas and technical and managerial know- how in a high-tech company. In the beer game, the structure that caused wild swings in orders and inventories involved the multiple-stage supply chain and the delays intervening between different stages, the limited information available at each stage in the system, and the goals, costs, perceptions, and fears that influenced individuals' orders for beer.
But it is very important to understand that when we use the term "systemic structure" we do not just mean structure outside the individual. The nature of structure in human systems is subtle because we are part of the structure. This means that we often have the power to alter structures within which we are operating. However, more often than not, we do not perceive that power. In fact, we usually don't see the structures at play much at all. Rather, we just find ourselves feeling compelled to act in certain ways.
In , psychologist Philip Zimbardo performed an experiment in which college students were placed in the roles of prisoners and guards in a mock prison set up in the basement of the psychology building at Stanford.
What started as mild resistance by the "prisoners" and assertiveness by the "guards," steadily escalated into increasing rebelliousness and abusiveness, until the "guards" began to physically abuse the "prisoners" and the experimenters felt the situation was dangerously out of control.
The experiment was ended prematurely, after six days, when students began to suffer from depression, uncontrollable crying, and psychosomatic illnesses. It occurred in a private meeting with a high-ranking member of the Soviet embassy, a few months after the Soviets had sent troops into Afghanistan. The official talked, eloquently and with great sincerity, about how the U. The U. Beginning in the late s, as threats from guerrilla factions increased, the ruling government asked for increasing Soviet assistance.
Modest assistance led to greater needs for broader help. It came to a point, the official explained, where "We really had no choice but to intervene militarily. It also brought to mind similar stories of American officials, ten or fifteen years earlier, trying to explain how the United States became entangled in Vietnam.
How can such controlling structures be recognized? How would such knowledge help us to be more successful in a complex system? The beer game provides a laboratory for exploring how structure influences behavior. Each player—retailer, wholesaler, and brewery —made only one decision per week: how much beer to order. The retailer is the first to boost orders significantly, with orders peaking around Week At that point, the expected beer fails to arrive on time— because of backlogs at the wholesale and brewery levels.
But the retailer, not thinking of those backlogs, dramatically increased orders to get beer at any cost. That sudden jump in orders is then amplified through the whole system—first by the wholesaler, and then by the brewery. Wholesaler orders peak at about 40, and brewery production peaks at about The result is a characteristic pattern of buildup and decline in orders at each position, amplified in intensity as you move "up-stream," from retailers to breweries.
In other words, the further from the ultimate consumer, the higher the orders, and the more dramatic the collapse. In fact, virtually all brewery players go through major crises, ending with near-zero production rates only weeks after having produced 40, 60, or more gross per week. The retailer's inventory begins to drop below zero at around Week 5. The retailer's backlog continues to increase for several weeks and the retailer doesn't get back to a positive inventory until around Weeks 12 to Similarly, the wholesaler is in backlog from around Week 7 through around Weeks 15 to 18, and the brewery from Week 9 through Weeks 18 to Once inventories begin to accumulate, they reach large values about 40 for the retailer, 80 to for the wholesaler, and 60 to 80 for the brewery by Week 30 —much larger than intended.
So each position goes through an inventory-backlog cycle: first there is insufficient inventory, then there is too much inventory. These characterisic patterns of overshoot and collapse in ordering and inventory- backlog cycles occur despite stable consumer demand. The actual consumer orders experienced only one change.
In Week 2, consumer orders doubled—going from four cases of beer per week to eight. They remained at eight cases per week for the rest of the game. In other words, after a one-time increase, consumer demand, for the rest of the simulation, was perfectly flat! Of course, none of the players other than the retailer knew consumer demand, and even the retailers saw demand only week by week, with no clue about what would come next.
After the beer game, we ask the people who played wholesalers and brewers to draw what they think the consumer orders were. Most draw a curve which rises and falls, just as their orders rose and fell.
Such assumptions of an "external cause" are characteristic of nonsystemic thinking. Players' guesses regarding consumer demand shed light on our deeply felt need to find someone or something to blame when there are problems.
Initially, after the game is over, many believe that the culprits are the players in the other positions. This belief is shattered by seeing that the same problems arise in all plays of the game, regardless of who is manning the different positions.
Many then direct their search for a scapegoat toward the consumer. But when their guesses are compared with the flat customer orders, this theory too is shot down. This has a devastating impact on some players. I'll never forget the president of a large trucking firm sitting back, wide-eyed, staring at the beer game charts. At the next break, he ran to the telephones. One of our divisions had tremendously unstable fluctuations in fleet usage. It seemed pretty obvious that the division president didn't have what it took to get the job done.
We automatically blamed the man, just as each of us in the experiment automatically blamed the brewery. It just hit me that the problems were probably structural, not personal.
I just dashed out to call our corporate headquarters and cancel his termination process. In fact, given the "physical system" of inventories, shipping delays, and limited information, there is substantial room for improving most team's scores. Following the "no strategy" strategy, each player would simply place new orders equal to orders he received. This is about the simplest ordering policy possible. If you receive new incoming orders for four cases of beer, you place orders for four. If you receive incoming orders for eight, you place orders for eight.
Given the pattern of consumer demand in this game, that means ordering four cases or truckloads every week—until you receive your first order of eight. Thereafter you order eight. When this strategy is followed unswervingly by all three players, all three positions settle into a form of stability by Week The retailer and wholesaler never quite catch up with their backlogs. Backlogs develop, as in the basic game, due to the delays in getting orders filled.
Backlogs persist because the players make no effort to correct them— because the "no strategy" strategy precludes placing the orders in excess of orders received needed to correct backlogs.
Is the "no strategy" strategy successful? Probably, most players would say no. After all, the strategy generates persistent backlogs. This means that everyone throughout the system is kept waiting longer than necessary for his orders to be filled. In real life, such a situation would, undoubtedly, invite competitors to enter a market and provide better delivery service. Moreover, total cost generated by all positions in the "no strategy" strategy is lower than what is achieved by 75 percent of the teams that play the game!
In trying to correct the imbalances that result from "doing nothing," most players make matters worse, in many cases dramatically worse.
On the other hand, about 25 percent of the players score better than the "no strategy" strategy, and about 10 percent score very much better. In other words, success is possible. But it requires a shift of view for most players. It means getting to the heart of fundamental mismatches between common ways of thinking about the game—what we will later call our "mental model" of it—and the actual reality of how the game works.
Most players see their job as "managing their position" in isolation from the rest of the system. What is required is to see how their position interacts with the larger system.
Consider how you feel if you are a typical player at any position. You pay close attention to your own inventory, costs, backlog, orders, and shipments. Incoming orders come from "outside"—most wholesalers and brewers, for instance, are shocked by the Likewise, you have only a fuzzy concept of what happens to the orders you place; you simply expect them to show up as new shipments after a reasonable delay.
Your perspective of the system looks something like this: Given this picture of the situation, if you need beer it makes sense to place more orders.
If your beer doesn't arrive when expected, you place still more orders. Given this picture of the situation, your job is to "manage your position," reacting to changes in the "external imputs" of incoming orders, beer arrivals, and your supplier's delivery delay. What the typical "manage your position" view misses is the ways that your orders interact with others' orders to influence the variables you perceive as "external.
For example, if they place a large number of orders, they can wipe out their supplier's inventory, thereby causing their supplier's delivery delay to increase. If they, then, respond as many do by placing still more orders, they create a "vicious cycle" that increases problems throughout the system. This vicious cycle can be set off by any player who panics, anywhere within the system—be he retailer, or wholesaler.
Even factories can create the same effect, simply by failing to produce enough beer. Eventually, as one vicious circle influences other vicious circles, the resulting panic spreads up and down the entire production- distribution system. Once the panic builds momentum, I have seen players generate orders that are twenty to fifty times what is actually needed to correct real inventory imbalances.
To improve performance in the beer game players must redefine their scope of influence. As a player in any position, your influence is broader than simply the limits of your own position. You don't simply place orders which go off into the ether and return as beer supplies; those orders influence your supplier's behavior.
Which in turn might influence yet another supplier's behavior. In turn, your success is not just influenced by your orders; it is influenced by the actions of everyone else in the system. For example, if the brewery runs out of beer, then pretty soon, everyone else will run out of beer.
Either the larger system works, or your position will not work. Interestingly, in the beer game and in many other systems, in order for you to succeed others must succeed as well. Moreover, each player must share this systems viewpoint—for, if any single player panics and places a large order, panics tend to reinforce throughout the system.
First, keep in mind the beer that you have ordered but which, because of the delay, has not yet arrived. I call this the "Take two aspirin and wait" rule. If you have a headache and need to take aspirin, you don't keep taking aspirin every five minutes until your headache goes away. You wait patiently for the aspirin to take effect because you know that aspirin operates with a delay. Many players keep ordering beer every week until their inventory discrepancy goes away. Second, don't panic. When your supplier can't get you the beer you want as quickly as normal, the worst thing you can do is order more beer.
Yet, that is exactly what many players do. It takes discipline to contain the overwhelming urge to order more when backlogs are building and your customers are screaming. But, without that discipline, you and everyone else will suffer. These guidelines are consistently missed by most players because they are evident only if you understand the interactions that cross the boundaries between different positions.
The "take two aspirin and wait" guideline comes from understanding the delay embedded in the response of your supplier's shipments to changes in your orders placed. The "don't panic" guideline comes from understanding the vicious cycle created when your orders placed exacerbate your supplier's delivery delay. How well can players do if they follow these guidelines? It is possible to hold these instabilities to a very modest level, a small fraction of what occurred in Lover's Beer.
It is possible to achieve total costs that are one fifth of the "do nothing" strategy, or about one tenth the typical costs achieved by teams. In other words, substantial improvements are possible. For most, the overall experience of playing the game is deeply dissatisfying because it is purely reactive. Yet, most eventually realize that the source of the reactiveness lies in their own focus on week- by-week events. Most of the players in the game get overwhelmed by the shortages of inventory, surges in incoming orders, disappointing arrivals of new beer.
When asked to explain their decisions, they give classic "event explanations. The systems perspective shows that there are multiple levels of explanation in any complex situation, as suggested by the diagram below.
In some sense, all are equally "true. Event explanations—"who did what to whom"— doom their holders to a reactive stance. These companies will be the successful ones in the coming decade because of their ability to learn, to absorb new ideas, theories and practices at all employee levels and use them to competive adventage.
Shared vision, teamwork and leverage are the main themes of this book. Faster previews. How do we sustain momentum? Donors, leaders of nonprofits, and public policy makers usually have the best of intentions to serve society and improve social conditions. But often their solutions fall far short of what they want to accomplish and what is truly needed.
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