Whenever management introduces a change, things seem to get worse before they get better, or get worse followed by further change in hope of fixing the newly created problem. Sometimes it just spirals out of control from compounded reactions and feels like there is no way to pull out before the crash. It is interesting to look at this phenomena from a systems perspective. I am going to use a lot of "geek speak," but I think the analogy helps understand what causes spiraling out of control and how to prevent it. So put on your propeller hand and be assured you can take it off when you reach the end.
Linear feedback systems are characterized by a mathematical model of the relationship between inputs and outputs. Signals in the model have two attributes: amplitude and phase. Amplitude is the strength of a signal and phase is the time signal change occurs. Management systems are complex, but have a similar characteristic, there are actions with direction and force, and reactions occur in time, usually delayed time.
It is desirable for a system to have a simple relationship between input and output, such that the output follows the input. When the input increases, the output increases, and visa versa. However, in some systems when the input increases, the output decreases at first, then increases later. The mathematical description of this is a Right Half Plane Zero. The physical cause is related to energy storage and delay.
In some power conversion circuits, energy is stored during during one time period, and transferred to the output during later time period. Other conversion circuits store and transfer at the same time. The circuit that delays the energy transfer has a Right Half Plane Zero and behaves by decreasing output before increasing output in response to an increase in input. Management systems are full of energy storage and delay, and behave in a similar manner.
Let's look at an example from a start up I was employed by many years ago. This startup manufactured semiconductor devices. Each month wafers would exit the FAB and were sliced, packaged, and tested. There was a pattern of wafers exiting the FAB the first week of the month and parts shipping on the last day of the month. The accounting system produced metrics each month. The board reviewed the numbers and managed expectations of the stock holders, in this case the VC's. There was huge pressure to have good numbers each month to maintain confidence in order to get another round of funding.
Unfortunately, this was an inefficient operation because flow was not smooth. I suggested that we smooth the process, which means packages ship after the end of the month during the time that new wafers are exiting the FAB, thus removing the peaks in the testing process. How would the suggested change impact the system? First, there would be a delay in shipments of one week. This would be a one time delay. This would be followed by increased efficiency which would eventually increase the plants capacity. From a systems point of view, the response is decreased output followed by increased output. A side effect would be poor metrics for one month, followed by better metrics each month as the improved efficiency took effect. Also, some customers may be angry with delays.
Like the power converter, this system had a storage mechanism followed by a delayed transfer. Silicon processing is batch oriented. A batch exits the FAB and is packaged. Further batches leave packaging and go to test. Then these batches are re-batched and shipped. The change in delay caused same effect as a Right Side Plane Zero. This phenomena is very common. If customer demand increases suddenly, working capital increases, inventory drops, etc. We deal with these problems by buffering with inventory, building lean systems, improving predictive analytics, etc. The Bull Whip effect in a supply chain is another example of energy storage and delay, but in this case leads to oscillations.
Things get really bad is when management fails to understand these dynamics and react to the temporary decrease in output/performance or increase in cost. This leads to oscillation like the Bull Whip effect, or worse. In some cases if the reactions continue, it leads to negative feedback and the system no longer self regulates and self destructs. This happens when a change temporarily decreases performance, and before the system switches to increased performance, there is another change which results in a second more intense decrease in performance, followed by another... driving it into destruction. Sometimes fear is the real force behind the reactions.
There are a couple of ways to avoid spiraling out of control. One way is to recognize the pattern and wait long enough to learn whether the reduced performance is temporary and will self correct like the Right Half Plane Zero, or continue. If it continues, the relationship between the change and its effect may not be understood. A second approach is to anticipate the effect and counter it with another change. In engineered systems, this is called feed forward. Essentially, you compensate for the Right Half Plane Zero by providing another path that allows rapid changes in input to bypass part of the system and go straight to the output. A third approach is to remove the Right Half Plane Zero by redesigning the system.
Here are some recommendations:
If you don't understand a management system, delay reactions to change and study its behavior. Don't over react, and certainly don't let reactions compound. You must learn the relationship between input and output. Also consider making only one change at a time.
If your business model will allow it, go lean. Lean effectively will speed up the effect of the Right Hand Plane Zero or eliminate it. If the effect happens fast enough, you will reduce the chance of reacting to a reaction.
Use feed forward. In the start up case, this implies that for several months you work hard to build some inventory. Then when the system is changed, use the inventory to avoid late shipments and poor metrics. Manage management expectations and let them know that the system will still have some temporary swings in metrics that will settle out within a few months, but the magnitude of them will be smaller than just making the change and taking the hit all at one time.
Well, enough "Geek Speak." I hope you see the value of systems thinking and not overreacting when making changes. Remember that human systems are more complex than mechanical or electrical ones. The same principles apply, but the complexity demands more attention and experimentation.
For non geeks out there, a good resource is Peter Senge. Examples of system behavior are given in less geeky terms.