1. Chapter 7: The Principle of Leverage
Senge, Chapter 7
THE FIFTH DISCIPLINE

2. Seeing the Forest and the Trees
SENGE: Chapter 8
The Fifth Discipline

3. CHAPTER 8: The Saga of Jimmy Carter
Immersed himself in detail
Quality of decision making?
We need ways to know what is important and what is not important, what variables to focus on, and which ones to ignore
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4. The Saga of Peoples Air A totally different airline
Founded in 1980 to provide low-cost, high-quality airline service to travelers in the Eastern U.S.
Grew to nation’s 5th largest carrier
Brought in a host of innovative human resource policies
In 1986 lost $133M in first six months, and was taken over by Texas Air
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5. What brought PEOPLES down??
Many explanations
Some blame Burr’s “soft” people-oriented management policies
Some blamed the unions
Others blamed the use of Americans’ Sabre Reservation system
Load management could offer a limited number of low-cost seats while others were “full coach”
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6. What variables to blame?
Fleet variables
Human resource variables
Competitive factors
Financial variables
Policy Levers
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7. Fleet variables Planes Capacity of aircraft Routes Scheduled flights
Competitor routes
Service hours per plane per day
Fuel efficiency
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8. Human resources Productivity Experience Service personnel
Aircraft personnel
Maintenance personnel
Hiring
Training
Turnover
Morale
Productivity
Experience
Team management
Job rotation
Stock ownership
Temporaries
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9. Competitive Factors Market size Market segments Reputation
Service quality
Competitor service quality
Fares “load Management”
Competitor fares
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10. Financial variables Stock price Growth rate Debt Interest Rate
Revenues
Profit
Cost of plane operations
Cost of service operations
Cost of marketing
Wages
Stock price
Growth rate
Debt
Interest Rate
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11. Policy Levers Buying planes Hiring people Pricing
Marketing expenditures
Service scope
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12. Enormous detail complexity
We could build a model that contained all of this detail
Or we could use the systems archetypes to disentangle this parable of complexity
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13. What do we have in terms of loops?
A growth loop certainly (reinforcing)
The airline, unlike WonderTech was investing in its capital equipment infrastructure
It was buying planes to accommodate the growth
A balancing loop
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14. What archetypes? LIMITS TO GROWTH SHIFTING THE BURDEN
Erodiing goals (standards)
The combination of these produces a third archetype
The Growth and Underinvestment Archetype
This was first seen in the WonderTech Scenario
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15. The Simplified Structure--p. 133
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16. The Simulation Structure--Reinforcing Loop
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17. The Simulation Structure--Balancing Loop one
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18. The Simulation
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19. Copyright C 2002 by James R. Burns
All rights reserved world-wide. CLEAR Project Steering Committee members have a right to use these slides in their presentations. However, they do not have the right to remove this copyright or to remove the “prepared by….” footnote that appears at the bottom of each slide.
1 June 2002
Prepared by James R. Burns
Prepared by James R. Burns