Strategic Systems Thinking

Introduction

Measurement is a crucial part of management in that it allows the manager to understand the current state compared to a predicted or desired state. Even more important is the ability of the manager to effectively measure aspects and come up with correct and credible results from the effort. The inability to effectively measure aspects of management may be due to, among others, lack of understanding of the specific aspects and how they work in the organization. The manager, therefore, has to develop the necessary understanding of employee performance, for instance, to measure this performance effectively. This paper evaluates Gray et al.’s (2015) statement on the need for one to understand what they measure with a focus on three essential themes in strategic management. It justifies the sentiment by Gray et al. (2015) by delving into the interaction between measurement and knowledge, communities of practice, and performance management. An analysis of Gray’s statement shows that effective measurement is based on a clear understanding of measurement aspects as a prerequisite to performance management and strategic systems thinking.

Strategic Systems Thinking

Gray et al. (2015) statement that “before we measure something we must ask whether we understand what it is we are trying to measure” is based on the need for performance measurement as a part of strategic management. Performance measurement is a critical part of strategic systems due to its role in controlling and directing the general direction of an organization. Basically, the statement suggests that performance measurement should be anchored in the proper understanding of performance indicators. For the manager who intends to utilize performance measurement, Gray et al. (2015) suggest that only a clear understanding of the performance indicators can allow proper measurement.

This statement further leads to the question of why performance measurement is a necessity for strategic systems thinking. Strategic systems are based on the formulation and implementation of often complex systems in an organization with the aim of producing the desired result from the execution of the strategy. According to DeNisi & Murphy (2017), performance measurement helps the manager understand how the company is performing and compare that to the strategic goals and objectives of the organization. Performance measurement is thus the directing force towards controlling organizational outcomes and direction towards strategy. Gray et al.’s (2015) statement on measurement can thus be seen as based on the need to understand key performance indicators as a crucial step towards effective performance management.

Knowledge Management and Intellectual Capital

One of the biggest performance indicators in an organization is the management of knowledge for competitive advantage in the organization. The importance of this topic in evaluating the statement by Gray et al. (2015) is that understanding knowledge management justifies the need for knowing something before measuring it. Measurement is a part of planning in strategic systems and thinking, and hence knowledge management, possible through measuring knowledge and strategizing, is also an essential part of strategic thinking and systems. The connection between knowledge management and measurement in organizations is thus interpreted through the necessity of performance measurement and management in the organization.

The definition of knowledge management is anchored in the continuous effort to learn and use this knowledge towards organizational improvement. Knowledge management, therefore, is an essential part of organizational management and continuous improvement. Rastogi (2002) defines knowledge management as the “firm’s continual endeavor to learn, acquire, create, develop, share, use, and apply knowledge in support of the firm’s customer value proposition, competitive logic, and integrated activity system” (232). This definition of knowledge management equates it to innovative efforts and exploration, which are essential in creativity. Therefore, knowledge management can be defined as the conscious effort to innovate using and exploring knowledge for organizational improvement.

After defining knowledge management, it is crucial to further understand its importance in promoting measurement and strategy control in the industry. Knowledge management is a process of asking and finding answers to two questions in the organization: What is known? What needs to be known for strategic purposes? These two questions are the basis for determining how knowledge interacts with other aspects of the organization to promote systems thinking and strategic goals for the company. The importance of knowledge management is in promoting competitive advantage through integrating innovation with knowledge management to harness innovative practices towards strategic management (Dasgupta & Gupta 2009). From this definition, it is clear that the aforementioned questions are asked for the manager to utilize innovative means towards promoting knowledge in the organization. Knowledge management is thus crucial in advancing innovative approaches to improve the business.

Moreover, knowledge management promotes performance measurement through the processes of generating and protecting valuable knowledge in the company. Performance measurement is possible through first generating accurate knowledge and categorization of the existing knowledge in the organization. When discussing the phases of knowledge management, KnowledgeMT (2017) identifies that detecting and categorizing, promoting and enabling sharing, and generating and protecting valuable knowledge are the core processes involved in knowledge management. Identifying the various sources of knowledge and working to create it and share it in the organization thus come across as crucial aspects of the knowledge management process, promoting performance measurement and management. Understanding what knowledge is valuable and how to access it is thus a crucial step in enhancing knowledge management.

In addition to generation and protection of knowledge, intellectual capital is also considered crucial in the measurement processes due to its central role in value creation within the knowledge economy. Management in organizations has developed to utilize knowledge as the key resource in developing a competitive advantage. Choong (2008) identifies that intellectual capital is one of the key resources used to generate value from the hidden capabilities of an organization by leveraging knowledge. Intellectual capital is thus a close partner to knowledge management and a significant player in the general process of utilizing knowledge for effective management of the organization. As such, understanding and managing intellectual capital connects to the general topic of measurement through its use in knowledge management in organizations.

The three main categories of intellectual capital (IC) play different roles towards effective performance measurement in the strategic alignment of the organization. IC can be categorized into human capital, relational resources, and structural resources. The first category, human capital, refers to the value that the people in the organization deliver towards a certain strategy (Rastogi 2002). The importance of measuring this value is in order to transform it to innovative strategic approaches towards improvement. Human capital can be measured using the return on investment formula to determine human capital. For instance, a company that invests £ 500,000 in human capital and gets profits of £2 million may track its achievement over time to determine how investment in human capital affects the bottom line and whether outcomes are linked to human capital. While the accurate measurement of human capital may be challenging, understanding performance indicators can enhance the ability to measure and effectively determine the contribution of human capital to strategic improvement.

In general, IC connects to knowledge management by measuring the contribution of these intangibles to the strategic management of the organization. Relationships and structures, for instance, determine the quality of ties to management processes and are measured using different reporting models. Kauffman and Schneider (2004) claim that IC may influence organizational structure and strategy, and hence measurement and monitoring of its aspects play a crucial role in the strategic management of the organization. This overview of the role of intangibles in an organization connects them to knowledge management, which is essential to understanding the crucial aspects to be measured for performance analysis. Knowledge management and intellectual capital are thus instrumental in enhancing strategic approaches to organizational management and working towards continuous improvement through strategy.

Communities of Practice (COP)

The second concept connected to performance measurement through an understanding of key indicators is the communities of practice (COP), a concept that defines social interactions and how they produce meaning in the organization. These communities are elemental in understanding how interactions in the organization may enhance strategy and organizational improvement. According to Wenger (1999), COP refers to “people who engage in the process of collective learning in a shared domain of human endeavor” (2). This concept thus expands on the relational capital discussed in the previous section by expanding on the networks that underline organizational activities. These networks of staff and other people in the organization determine how learning and organizational ties can enhance strategy through effective performance measurement and general improvement.

The measurement of organizational performance can be increased through a thorough understanding of how communities of practice operate in an organizational setting. According to Wenger (1999), communities of practice are defined according to a shared domain, community of sharing, and a specialized practice which produces a shared environment or resource in the domain. The community of practice, therefore, is a focused group of people sharing interests and working together towards those interests. The group also has a shared practice, which is the essence of the organization. The COP, therefore, is the tacit structure of networks and relationships in the organization, which is useful in directing how people work together towards the achievement of a shared goal.

The importance of COP in performance measurement is its great potential in developing knowledge and improving performance. COPs are fluid structures that give practitioners space and room to explore and develop meaningful information from interactions. Interactions within the organization thus include sharing of knowledge and self-improvement, which further leads to the engagement of the staff with the general strategic direction of the organization. The main aspect to consider here is how these networks are formed and maintained with a clear focus on strategic goals and commitment of the individuals involved in that community. Sharing of knowledge, as a characteristic of communities of practice, provides the potential of increased knowledge development in the human capital of the organization and hence improved management and performance.

Understanding communities of practice in the organization can assist in developing the capacity to enhance performance measurement. Gray et al. (2015) highlight the need for one to understand what it is that they measure as a means of enhancing the accuracy and utility of their performance measurement. Therefore, the statement connected to COP through the need to identify the latter as a key performance domain that managers need to pay attention to. Managers thus have to understand how collaborative learning and practice in the organization works and the means to measure this process. By understanding COP, the managers adhere to Gray et al.’s (2015) statement on measurement and knowledge of those measurements. Therefore, this second concept in performance measurement connects to knowledge generation and how networks in the workplace may be visualized, and their performance in collaborative learning and experience measured.

Furthermore, it is crucial to understand how these communities enhance performance and promote effective performance measurement in the organization. Social capital initiatives by organizations are usually based on the idea of communities of practice and the need to improve social connections and to learn in the workplace. Primarily, the management should provide opportunities for people to make new connections, provide time and space for relationship building, and find methods to effectively communicate culture and norms (Lesser & Storck 2001). These are the initiatives that an organization can use to effectively enhance communities and trace their effects in the practice. By providing a basis to boost connections, a qualitative analysis of the initial state and the outcomes can be performed to enhance performance measurement of the impact of COP in the organization.

The benefits of COP are numerous and based on the fact that COP promotes a link between performance and learning. COP creates an environment of knowledge creation and sharing. Lessner & Storck (2001) found that communities of practice are effective in producing new product and service ideas, responding more effectively to evolving customer needs, and reducing the learning curve of new employees. These benefits of COP necessitate the focus of managers on communities of practice since they provide measurable outcomes that can be used to support a strategic direction. COP benefits are thus tangible and measurable outcomes based on knowledge management and the general strategic systems thinking in the company.

Performance Management

Performance management is an overarching theme of the general management of an organization towards strategic goals. Working towards strategic goals requires checks and measures that ensure that the organization remains on course to achieve the stipulated target. Performance management can thus be defined as the process of setting and monitoring performance goals and working towards achieving those goals (Wenger, 1999). This type of management is thus integral to strategy and systems thinking since it is the driver towards achieving set targets and goals. The goals of performance management in keeping on track with milestones and goals are important in the overall direction of the organization’s strategy and systems.

Performance management is central to the question on measurements because it utilizes the measurement of performance as a key indicator of an organization’s direction. To manage performance towards a desired goal, it is essential for effective measures to be put in place. Hrinz (2015) explains that the objective of performance measurement is “to ensure that every employee is carrying out their duties which they are employed to do in an effective and satisfactory manner, which is contributing to overall business objectives” (15). Effective measures thus point out the behavior of employees in performing their roles and hence indicating their general performance towards agreed strategic goals. Therefore, measurement is central to organizational performance management as a tool for determining the level reached and how they portray the general direction of the organization.

Moreover, performance management supports Gray et al. (2015) by availing tangible measurement indicators that help in effective management of the organization. The first concept is the concept of having objectives which are basically the targeted state of the company in the future. Scuderi (2016) explains that one of the major questions a manager has to ask when seeking to improve results is “what is the desired outcome?” (3). Here, the author prioritizes the need for setting tangible and clear objectives in developing strategic goals. This process of setting objectives justifies Gray et al.’s (2015) views that one must understand what they are measuring first. The process of setting objectives allows the manager to know what they are measuring and when their desired outcome is met or not.

Under the objectives are critical success factors (CSFs) and key performance indicators (KPIs), which give structure to the performance management and guide measurement as well. CSFs are the crucial steps and actions that a company must undertake to achieve specific objectives, and KPIs are the specific measurement points that are evaluated to determine achievement or failure thereof (Choong 2008). CSFs define what is to be done to achieve an objective and the KSIs define how to measure progress. These two are crucial in providing structure to performance management since they enhance clarity and provide structure in approaching an otherwise complex system.

The importance of performance management in strategic systems thinking is indispensable in generating a competitive advantage and continuous improvement. Strategic thinking focuses on the general implementation of certain strategic efforts in the organization and the work of the organization towards achieving a certain goal. Strategy is complex and combined with systems thinking, the interactions of different systems to function as a whole are even more confusing for many managers. Performance management is thus a tool for effective tracking and analysis of the general direction and the direction of specific aspects in the organization. Through performance management, strategic thinking is made a reality by giving structure to the system.

Lastly, performance management underlies the statement by Gray et al. (2015) by defining structures and processes used in measuring performance and hence enhancing understanding of the structures and processes. To measure something, one must understand what it is they are measuring. Performance management does exactly this by outlining the aspects of the organization to be measured. It defines objectives, CSFs, and KPIs, and relates them to organizational context and strategy. It further provides the foundation for determining the means to achieve and measure these aspects in the business and strategic context. Therefore, effective performance management is surely a means of affirming the need to understand the nature of performance markers before even venturing to measure them.

Conclusion

Strategy is a complex and often unclear aspect of businesses and measures to give it structure and simplicity are always welcome. Strategic systems thinking applies tangible and measurable goals and targets that are only assessable through effective measurement. Effective measurement is only possible if the manager knows what it is they are measuring. In the measurement of knowledge, understanding how knowledge is created and shared in the organization is essential to effective measurement and strategic management. Performance management also relies on tangible measures to determine the level of performance of a company and decisions to be made for better performance in the future. Overall, Grey et al. (2015) meant that clarity and structure in measurement are important in directing how performance is managed in systems strategic management.

References

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