NAGAH RAMADAN AND PATRICK PARKER-ROACH
SETTING PUBLIC
POLICY USING SYSTEM
DYNAMICS AND CAUSAL
LOOP DIAGRAMMING:
A CASE STUDY FROM A COMPETITIVE
PUBLIC UTILITY
SETTING PUBLIC POLICY USING
SYSTEM DYNAMICS AND CAUSAL
LOOP DIAGRAMMING:
A CASE STUDY FROM A COMPETITIVE PUBLIC UTILITY
INTRODUCITON
This paper describes the usefulness of systems thinking and causal loop diagramming in the
development of public policy in a competitive public utility. This paper is based upon actual work
performed in 1995 and 1996 at Cleveland Public Power in Cleveland, Ohio. This paper covers only
the linkage between the systems thinking / causal loop diagramming and the formulation of public
policy aspect of the work. Please refer to Pegasus Communication’s Innovations in Management
Series article, Tranforvatiawl Dialoge The Rerxation of a Public Utility (Ramadan, Parker-Roach and
Klempner 1998) for a more detailed treatment of the overall effort and the broader organizational
learning aspects of the approach.
The paper is divided into three distinct section:
Introduction
In addition to this structural explanation of the paper, this section introduces the reader
with the general context in which the work was conducted.
The Group-Based Construction of a Causal Loop Diagram - By Patrick Parker-Roach,
Consulting Member of the Society of Organizational Learning and Vice President of
Technology Solutions Company
A causal loop diagram of the ‘governance’ environment of CPP was constructed as part
of an organizational assessment conducted under the sponsorship and guidance of
CPP’s commissioner. The causal loop was jointly developed by a group of 35 CPP
employees and contractors as part of this assessment during a series of facilitated
meetings. This section of the paper describes the mechanics of the facilitation’s that
yielded the diagram.
A Dynamic Framework for a Govemmental Competitive Utility - By Nagah Ramadan,
then Commissioner of Cleveland Public Power and current Executive Vice-President of
RCC Consultants, Inc.
Governance issues, in situations where you have governmental entities competing with
private entities are, to say the least, complex and problematic. This section describes
some of the dilemmas that the Commissioner of Cleveland Public Power faced in setting
a strategic direction for his utility, and how systems thinking and causal loop
diagramming helped.
CONTEXT OF THE WORK
Cleveland Public Power (CCP) is the municipal electric power company for the City of
Cleveland, Ohio. Since it was founded in 1908, CPP has been locked in a bitter, competitive battle
with an investor-owned electric utility, Cleveland Electric Illuminating Company (CEI), of First
Energy Corportaion. The two companies compete on a street-by-street, house-by-house basis. In
fact, it is not unusual to see two sets of power poles lining the same street. Historically, CPP has
serviced the older neighborhoods within Cleveland proper, while CEI has serviced the northeast
Ohio neighborhoods and the more lucrative commercial and industrial accounts.
In 1987, CPP, funded by a large bond issue, embarked on a program aimed at expanding CPP's
coverage across the City. As a direct result of this expansion effort, CPP's service area expanded
from 35% to nearly 50% between 1987 and 1995. Although the physical effort of putting up poles,
stringing cable, and putting meters on homes progressed well, CPP began feeling the growing pains
of the expansion. Although customer demand through the expansion effort proved high, customer
satisfaction ratings fell. CPP's operating systems and organizational structure simply could not keep
pace with the company's expanding power delivery system and increases in customer demand.
In February 1995, the mayor of the City of Cleveland appointed a new commissioner to address
CPP's problems. During his first month on the job, the commissioner embarked on a major
transformation effort to address the performance issues. He also realized that he needed to maneuver
CPP into a better position to meet another looming challenge: deregulation of the electric power
industry.
CPP's effort was a systemic one, involving the complete redesign of core business processes and
the creation of an information technology architecture that would support the new processes. The
design and execution of this effort unfolded in an unusual context of competitiveness and public
ownership with unique accompanying cultural and political implications. The change effort also took
place amid intense uncertainty stemming from the impending deregulation of the industry.
We can think of CPP's reinvention effort as consisting of two main stages: assessment and
transformation. The assessment effort was conducted over a two-month period, March April 1995,
and resulted in an action plan for the actual transformation of CPP. It was in the context of this
assessment that a causal loop diagram was constructed to help in setting a strategic course for CPP.
THE GROUP-BASED CONSTRUCTION OF A CAUSAL LOOP DIAGRAM
BY PATRICK PARKER-ROACH
Given the political forces swirling around the public power industry, the competitive
environment, and looming deregulation, CPP would have to effect its transformation speedily. To
meet this challenge, Commissioner Ramadan decided to engage the entire organization in the
reinvention process. His rationale was that if CPP wanted to achieve swainaHe transformation, the
people who would have to implement it and live with the results would need to embrace that
transformation. The team included a complete cross-section of CPP's population. It included
management and line worker representatives from each major function; Customer Service, Trouble,
Engineering, Maintenance, Marketing and Sales, Meter Reading, Computer O perations, Engineering
and Design Contractors, Personnel, and Administration. Other demographic and cultural attributes
were also considered to ensure a balanced cross-section was achieved; gender, union membership,
civil service membership, seniority, etc. CPP also engaged two outside process consultants, Carl
Klempner and Patrick Parker-Roach, to guide the team through the assessment effort.
SETTING THE STAGE
There were a couple of things that were done at the outset of the project to prepare for the
actual assessment.
First, the facilitators constructed a cultural assessment questionnaire and used it as the basis for
one-on-one interviews with the 35 participants of the assessment team. The individual interviews
were confidential. However, a summary of the findings was prepared and fed back to the
interviewees as a group. The purpose of the interviews was to get a general "lay of the land," uncover
a sense of the culture at CPP, and reveal any "landmines" that might be lurking just under the surface
of the organization. The interviews also gave the team members an opportunity to vent feelings and
articulate any hidden pressures or concems that might have been building.
Second, we conducted the Beer Game with the team. In a fun but very real way, the Beer Game
demonstrated how structure drives behavior in organizational settings. It showed that even the best-
intentioned efforts to optimize a group's performance can lead to sub-optimal performance by the
whole organization. This shared understanding of the connections between structure and behavior
set a tone in the group away from placing blame, and towards the sharing of thoughts and ideas
openly in a group setting.
Armed now with a solid understanding of the norms, behaviors, and other cultural forces at play
at CPP, the team designed a plan for assessing the organization's current situation. The plan called
for five two-day meetings over five weeks, a schedule that would balance the need for speed with the
necessity to keep the organization running. It was the first three of these sessions, the Current State
Analysis, which yielded the causal loop diagram.
ANALYZING THE CURRENT REALITY
This phase involved analyzing how work was actually accomplished by CPP's approximately 22
functions. The analysis relied heavily on wall-charting techniques carried out in a large conference
room that had plenty of free wall space. Using colors, symbols, text, and the physical positioning of
cards on the walls, the team captured information and ideas in a visually accessible way. The wall-
charts became a natural form of documentation for the project, and proved an excellent vehicle for
bringing new team members up to speed quickly. More experienced team members could walk a new
person around the room and use the charts to tell the story of the "journey" so far. The wall-charts
also facilitated communication by helping the team members avoid misinterpretations or overly
emotive language. In this way, the charts contributed to an environment that encouraged openness
and a sense of safety. As a result, team members focused their frustrations on the wall-charts, and
not on each other.
“Analyzing Current Reality" involved four distinct steps which led up to the causal loop diagram;
= Detailing Functional Activities,
= Analyzing The Workflow,
= Performing A Root Cause And Consequence Analysis,
= Synthesis Of The Causal Loop Diagram.
These four activities are detailed in the following sections.
DETAILING FUNCTIONAL ACTIVITIES
The Mehanic:
During this exercise, we distributed a large number of white 3x5 cards to all participants of the
room and prepared them for an open dialogue relative to all of the work that is accomplished at CPP
in the delivery and sale of electrical power to their customers. We instructed them to capture all of
the various tasks on the 3x5 cards; one activity per card. We encouraged them to write any activity
that came to mind no matter if it was; performed within their function or not, whether it was at a
high level or low level of granularity, whether they thought someone else probably wrote it or not.
We explained that it was a self-leveling exercise, and that the generation of ideas was the main point.
Once completed, we performed an affinity exercise with the data. The exercise was structured
around the existing functions within CPP. We had prepared in advance by writing the names of all 22
internal functions on green 3x5 cards. We posted the green function cards on a large wall. We
directed the team to place their white cards under the appropriate headings (affinitize). We further
instructed them that it was quite all right to move any card on the wall from whatever heading it
might be under to the heading under which they thought it belonged. If a card moved back and forth
between two functions often enough, the card was duplicated and placed under both functions.
When the team activity came to a halt, we had people ‘sign-up’ to do a refinement of one or
more of the functional groupings that emerged on the wall. This evolved into about 10 teams, each
responsible for about two functions.
The task that they were assigned was to take all of the cards under a function and further
‘affinitize’ them. Unlike the previous exercise, where we told them what functions to group items
under, we now told them to group the cards in natural grouping; ie., activities that tend to go
together. This exercise generally tends to produce 4 to 6 sub-groupings. Once the sub-groupings
were made, we had them name each. A generic example would be a Sales function with sub-
groupings of activities with names like - Take Orders, Process Orders, Do Credit Checks, Generate
Work Orders, etc.
Next, each team was provided a flip-chart
with a template to follow. The template
looked like the top row of the figure at the
right. We instructed the team to label the
function (Sales from the example above) and
place each sub-grouping under the function
(Take Orders, Process Orders, etc.). Then,
for each sub-group the team was directed to
label the chart with the things that a sub-
group activity needed to do the activity
souve | [ tmpas |} Function | ounas |[ pa
Sub-
Group
Sub-
Group
(Inputs), where they came from (Source), what the activity produced (Outputs) and where the
outputs go (Destination). Additionally, we asked them to label anything on the chart that they
thought was good or done real well (green arrows) and anything that was problematic (red arrows).
TheOupis
This exercise produces a number of outputs that are used in the next exercise:
¢ A common understanding, and language describing, what goes on within a function amongst
the team members
¢ A description of the linkages the functions have with each other
¢ And, a list of those things the team thinks are done well, and those things they think are
done not so well. Typically, teams usually identify those things they produce as things done
well, and those things which they receive to do their work as something less than perfect!
ANALYZING THE WORKFLOW
The Mehanic:
Armed with the outputs from the previous exercises, representatives from each function
presented their respective charts to the entire team describing the nature of their work. They then
described the inputs to, outputs from, and work within their particular function.
During these presentations, the speakers built yet another wall-chart to show how their inputs
and outputs linked up with other CPP functions or with outside entities such as customers,
regulatory agencies, and so forth. This chart is referred to as a diagonal matrix. It was built on the fly
during each function's presentation. Refer to the following chart. Notice that the functions are placed
on a diagonal from the top left to the bottom right. At CPP we started with 22 functions and then
added entities as necessary (customers, unions, etc. - Any entity that interfaced with CPP). As each
group presented the inputs to, and outputs from, their respective functions, those inputs/ outputs
were placed on the chart (Items on the chart). The key to building and reading a diagonal matrix is as
follows. Outputs from a function are on the function’s horizontal axis (left or right); in our example,
Items 4 and 5 are outputs from Function 3. Inputs to a function are on its vertical axis (above or
below); in our example, Items 1 and 5 are inputs to Function 2. The beauty of the diagonal matrix is
that you can graphically depict an any-to-any mapping between any number of entities (functions in
our example). Another nice thing about the diagonal matrix is that if the need to add another
function is identified during the presentation, another function card can be added at either end of the
diagonal at any time.
Function 1 [item |
[item 2 | Function 2 l
ol Test 5: Function 3 [ent |
Item 6 Function 4 Item 3
Function 5
In addition, the speakers recorded their function's successes (green arrows) and intemal
problems (red arrows), and their feelings about the other functions on which they relied. As the
speakers talked, audience members had the opportunity to relate their feelings in kind. Not
surprisingly, this exchange generated a tremendous amount of energy in the room. The group also
gained vital new insights and lessons. As a result of this sharing of information and feelings, the team
arrived at a holistic, integrated view of the organization.
The Outputs
This exercise produces a number of outputs that are used in the next exercise:
¢ The entire team gained a shared understanding and language to describe how work actually
was accomplished within CPP. It was a real eye-opener for some employees who had been
with the utility more than 25 years. They stated that this was the first time that they had seen
how the whole thing came together and they were only on their second day working as a
team!
¢ After the dialogue that ensued, there was consensus in the group on what and where the
major problems (symptoms) facing CPP lied, both internally and externally. This kind of
declarative analysis makes it very difficult to hide any issues.
¢ Likewise, core competencies of the organization came to the surface.
ROOT CAUSE AND CONSEQUENCE ANALYSIS
During the previous exercise real and perceived problems and competencies rose to the surface.
The team now used Ishikawa fishbone diagramming techniques to uncover cause and effect
relationships. Using these techniques the team was able to uncover the real underlying causes of the
problems. At the same time, the effect analysis exposed the true costs to CPP (in money, service
quality, time, customer satisfaction, etc.) of the organization's various problems. Understanding true
costs proved enormously valuable. The team used these insights later to decide how to allocate their
energies in designing solutions.
The Mehanic:
The team was directed to copy all of the red (problems) and green (competencies) arrows onto
3x5 cards with one problem or competency per card. There are typically one to two hundred cards
on a diagonal matrix. Once done, the team placed all of the cards up on a large wall. They then
sorted the cards into ‘like’ groupings. Typically, an organization will find between seven and fifteen
of these groupings. Once the groupings are stable, the team subdivides itself based upon where
individuals have energy relative to the major groupings. The sub-teams then name the major
groupings. If there are a significant number of cards in one of the groupings, the team may be asked
to further subdivide and name the sub-groupings.
This is typically a significant moment for teams. When they see hundreds of red arrows on a
diagonal matrix, they seem to get overwhelmed by the volume of troubles that they have. A sort of
mini-depression can set in if you do not move them through this quickly. Once all of those cards are
condensed into seven to fifteen bullets, people tend to feel much better. That number can fit on a
piece of paper, and the first impulse is to go off and attack those items. However, now is the time to
remind people that those items represent seven to fifteen symptoms, not the root causes of the
symptoms.
The second step of this exercise is to analyze the symptoms and get to the real root causes, and
their consequences. First the root cause.
The sub-teams are assigned one or more of the problem groupings to analyze. The technique is
to take a problem (red rectangle in the following figure) and ask “Why is this a problem?” five times.
The following diagram depicts 3 root cause and consequence analyses. It is a well known and
documented technique in TQM circles, and will not be discussed in detail here. The one thing to
remember though, is that when the team identifies what they believe is a root cause, have them
document any ideas on how to remedy the problem right then, while the analysis is fresh in their
minds. In the case of these diagrams, the good ideas are shown as lavender and blue ovals.
a wr Tannin ; cowry
: =i
Now, a less well known technique is performed that is called a consequence analysis. It is very
similar to root cause analysis and is also shown in the above figure to the right of the rectangular
problem boxes. In this case, there are two significant differences. First, instead of asking “Why”, we
ask “So what is the consequence of this problem?” The second significant difference is that we do
not ask the question five times. We ask the question as many times as it takes to bring the analysis to
a neeanaile outcome; lost revenue, decreased quality, employee tumover, etc. The measurable
outcomes are indicated by the green triangles at the leaves of the consequence trees.
The Outputs:
This exercise produces a number of outputs that are used in the next exercise:
¢ This is a very difficult piece of work for the teams. It takes a lot of energy on everyone's part
to complete it. Because of the effort involved, everyone gains a true appreciation for the
underlying dynamics of the problems. Much more so than if someone (a suited consultant,
for example) was to just present their own findings to them.
¢ The true costs and implication to CPP emerged. They were able to easily identify those
problems which were just ‘squeaky wheels’ and those that had profound implications to their
success as an organization.
¢ The team had evolved the foundations of a management dialogue, instantiated in the root
cause and consequences charts, that proved invaluable in justifying their recommendation to
the Mayor when they presented to him.
¢ An identification of the major variables, inside and outside of CPP, business as well as
political, that were driving business results.
CAUSAL LOOP DIAGRAM SYNTHESIS
At this point the discussion becomes somewhat anticlimactic. In structuring the data as we had
so far, it was a fairly straightforward to synthesize an initial causal loop diagram of the environment
at CPP.
The Mehanic:
The root cause and consequence diagrams are constructed on wall charts. They are completed by
sub-teams working in parallel. When completed, each sub-team presents their work to the entire
team. As the wall filled up with root cause and consequences charts it became apparent that the
consequence of one analysis would turn out to be the root cause of another. As a team, we noticed
the connections and knew that the complexity of the interactions of these connections would make
meaningful analysis near impossible unless we could find a new way of representing the connections.
The work was taken off line and connections between the key variables were made using bits of
twine to make the links. This new model was moved into a graphical computer model. The creation
of a causal loop diagram was not an explicit or implicit goal of the work at this time. It was the
visualization of the connections that made it apparent that with a little work a causal loop model
could be evolved to help understand the workings at CPP at a much deeper level.
It was with the aid of the Commissioner, who had deep private insights into the political and
competitive environment fueled by impending deregulation, that the final form of the diagram was
realized. It evolved through the telling of stories around the diagram. Sustaining and opposing loops
started to emerge, as the stories became richer. Some variables were dropped, while others not
thought of were added. As with all useful causal loop models, this one too is evolving with time.
10
TheOupis
The following is a sanitized version of an early version of the model. A more detailed one is not
provided due to the competitive nature of CPP’s business environment.
An Open Systems Model of a Governmental
Entity Within a Competitive Environment
This concludes the Group-Based Construction of a Causal Loop Diagram section of this paper.
Nagah Ramadan completes this paper with a discussion of how this approach aided him in
developing a model for governance and A Dynamic Framework for a Governmental Competitive
Utility.
11
A DYNAMIC FRAMEWORK FOR A GOVERNMENTAL COMPETITIVE UTILITY
BY NAGAH RAMADAN
This paper addresses the issues of governance, administration, and politics that affect the
outcomes of municipal governments in delivering their goods and services while competing in the
market place with private industry. Furthermore, it expands upon the issues of governance by
addressing the dilemmas and paradoxes of a governmental bureaucracy functioning in a competitive
environment under the restraints of the American Constitutional doctrine of separation of powers. It
touches on the paradoxes a public administrator faces in bridging the gulf that separates the
bureaucratic stability and rigidity from the dynamics of a changing business environment, using the
electric utility industry as an example. This industry is currently on the verge of a fluid era of
deregulation similar to that being experienced by the gas and telecommunication industries. And this
paper, in due course, prescribes a dynamic framework for a competitive governmental utility. It
explains the interactions between the Executive Office, the Legislative Branch, the competitive
governmental agency, a dynamic business environment, and the public perception and what impacts
it. It concludes with a prescriptive model that illustrates the components and associated interaction of
a competitive government utility.
By taking the oath of office, the public administrator of a competitive governmental agency
ingests a razor blade that he can neither swallow nor can he spit out. He has to manage paradoxes,
tenuous situations, and choose among difficult choices and competing altematives of ends and
means. In the due course of discharging his responsibilities, he must bring to bear his knowledge of
managerial, political and legal theories and processes to fulfill executive, legislative, and judicial
governmental mandates for the provision of the services and regulatory functions for the society as a
whole or for some segments of it +. Also, with the popularity of government providence of public
utilities services, he must borrow the power of each of the underlying base disciplines and his hard-
won experience and tacit knowledge to formulate useful tools to deal pragmatically with ambiguity,
uncertainty, complexity, asymmetry of information, differing values and distinctive views of the
individual citizen, and change.
PARADOXES OF PUBLICLY OWNED CPP AS A COMPETITIVE ENTERPRISE
The Charter of the City of Cleveland vested the City Council as the legislative power of the city;
the executive and administrative power of the city is vested in the mayor, directors of departments,
and other administrative officers. Each department of the city is divided into divisions. These
divisions are established either by the charter or by City Council by ordinance, with the concurrence
of the Board of Control. Also, the Board of Control was created, as the City’s Cabinet, by the City
Charter and consists of the mayor as its ex-officio president and the directors of the departments.
The State of Ohio Constitution Article XVIII, know as the Home Rule Amendment which was
adapted in 1912, gives the City of Cleveland, as a municipal corporation, the power to order its local
affairs in its own way and prevents the State from dictating internal policy.? Also, Ohio Constitution
XVIII-4 allowed municipalities to acquire public utilities or contracts from public utilities services.
Furthermore, the Ohio Constitution XVIII-5 conditioned acquiring or operating municipal utilities
Rosenbloom, David H., Public Administration Understanding, Management, Politics, and Law in the Public Sector,
3d. Ed., McG rawHill, New York, 1993.
2 ‘See Froelich v, Cleveland, 29 CC(NS)49, 30 CD 493 (Cuyahoga, 1918), affirmed by 990 D 376, 124 NE 212 (1919)
12
on ordinance such an act. The foundation of the City’s current organizational structure goes back to
1931.
Cleveland Public Power (CPP), a public electric utility, is owned and operated by the City. It is a
division of the Department of Public Utilities which belongs to the Policy Cluster that is headed by
the Executive Assistance for Policy and Chief of Staff of the City’s Administrative Branch. CPP
exemplifies the paradox of a publicly owned and in the same time a competitive enterprise. It is an
enterprise in a real competitive business environment. Its survival is based on its performance -- its
revenue generating capacity. It is not supported through the general fund revenues, as it is the case of
any non-enterprise city’s agency. The paradox here is that CPP has to be judged according to its
performance in the market place, while at the same time, it has been governed and controlled as a
true government agency, by all the weight and rigor of the public bureaucracy. This dual and
apparently sometimes conflicting role must be managed.
Another paradox is that CPP has to function both as an effective part of the government and as
an efficient utility while maintaining its major competitive advantage - lower electricity rates. The
paradox is in the balancing of being both responsive to the market dynamics and the
transformational tremors of electric utility deregulation and partial deregulation looming on its
business environment horizon, while being a governmental bureaucracy that is rule bound,
impersonal, mechanistic and fastened by codified ordinances, formalistic, service-centered, socially
moral and representative. It is a competitive business entity and must respond timely and effectively
to its changing business environment. It must manage its function and deliver its outputs as a
competitive enterprise within the confinements of the public administration -- legal-constitutional
and political -- boundaries while enhancing its market position and adapting to the environment’s
dynamics whether business or cultural, social or political. As a competitive enterprise, it does have
specific clearly defined goals. As a governmental and political enterprise, its high-level goals, the
political directives, are vaguely defined and means-end cyclic. CPP is an anomaly in the traditional
governmental environment. While CPP confronts door-to-door competition, the other city agencies
enjoy a natural monopoly. CPP’s customers have a choice to get their services from other
competitors. While the customers of the other agencies have no redress, if such a need arises, against
inefficiency, poor service, high rates and general disregard for their needs. Indeed, CPP is controlled
by market discipline in addition to being governed by governmental cumbersome administrative and
regulatory rules.
COMPETITIVE PUBLICLY OWNED UTILITY’S INTEGRATED APPROACH FOR CURRENT
AND FUTURE CHALLENGES
The popularity of the privatization and the competitive approaches, that some municipal
governments around the country are adopting, calls fora framework that captures the intricacies
and interdependence of the public administration variables, especially when they are compounded by
the complexity of actual competition. A dynamic framework helps in identifying the competitive
environment of the governmental unit or agency. It highlights the important and continuously
changing factors and the diverse choices available; and it provides choices among different courses of
actions. Additionally, it helps in thinking through the appropriate interventions to be taken and the
systemic consequential reaction. Furthermore, the dynamic framework that is developed in this paper
contains models of the critical interacting variables, their consistent logical relationships, and their
impact on the framework outcome.
The practical experiences, theories, and the empirical descriptions of how government units
operate, how they are managed, governed, and controlled, and how they compete, are what this
dynamic framework sets out to explain, and to provide choices and respective outcomes. It also helps
13
to understand the causal relationships of all the components in the framework. These components
are: the Administration - the ExeutiveOffie the Legislative branch- CityCoundl, and the agency or the
division competing in the competitive environment - the CPU of a municipal government unit.
Additional components include the Caypditive Emiromet and Public Pawpias The Carpditive
Enmiromet includes emerging and newly entering competitors, federal and state regulatory
dictates, as dynamic inputs and influencing agents. The Public Pavgtians are affected by extemal
changing inputs, such as demographic and cultural shifts, political and social changes, constituents
and stakeholders and private agendas.
The development of the theory that is embedded in this framework as reflected in the way the
variables interact and their interdependence, their mutual reinforcing, retarding and balancing effects,
and the parameters and structure that induce their dynamic behavior that affect the outcome will be
the subject of another project. A graphic model is included in the next section - Sample Causal Loop
Diagram Scenarios - to offer an illustration of how models within this framework function, in case of
a CPU, and to answer questions such as: how a CPU responds to the changes in its business
environments?, what are the responses needed from the framework building blocks?, and how can a
CPU’s internal structure be impacted? This graphical model representing the systemic behavior of the
vital external systems to the CPU -- the Administration, the Legislative and Regulatory, and the
Competitive Environment -- with narratives explaining the interactions between the major systems is
included for reference.
Additionally, this model represents the business impact on the CPU’s internal structure; reflects
its responses and needed competencies; and guides decision making through considering the
interrelationships among the framework building blocks. Additionally, while cognizant of the models
limitation and abstraction, this was developed as an interactive one that lends itself to computer
modeling for testing the business theory hypothesis, rethinking its continuous validity, simulating
different scenarios to meet new challenges, and the testing of major changes in the business
strategies.
One of the struggles encountered in developing this paper was in sharing all of the complexities
associated with the framework. It became apparent very early that written language was not sufficient
to convey the concepts. To overcome the shortfalls, the causal loop presentation was chosen to
convey the complexity of interactions. The causal loops bring about a common language that
illustrates the complexity of the systemic behavior of a governmental competitive utility, and brings
about knowledge sharing and a common language. This approach is attributed to Jay Forrester. See,
for example, Industrial D ynamics,(Cambridge, Mass: MIT Press, 1961), one of his pioneering works
in the system dynamics approach. Narrative was added to explain the causal loop interactions
This paper has presented a comprehensive framework for describing a very complex and
interdependent environment fraught with paradox in which competitive public utilities operate. The
tools and mechanisms used to understand and come to grips with the complexity are elegant. They
encompass a frame of reference to model complex theories for investigating courses of action and
potential implications. However, it remains the duty of the administrative executive to take the
utility's vision and transform it into a sustainable reality. This includes consolidating the interactions
between power centers, actors, business environments, organizations and the public. The vision
needs to be communicated and promoted, internally as well as externally, in soliciting the critical
mass necessary to support it. The administrative executive must exemplify tenacity despite adverse
conditions and create the social climate in which it can flourish.
14
EXTERNAL SYSTEM GROWTH PROGRAMS
START AT GROWTH FUNDING (1)
A Growth Funding (1) enables the External System G rowth Programs (2).
More money in the External System Growth Program (2) enables more New Business (3).
More New Business (3) drives two loops which both meet at Operation Revenue (7).
SUBLOOP 1
More New Business (3) means more New Accounts (4)
More New Accounts (4) means more Total Accounts (5)
More Total Accounts (5) means more Revenue (6)
More Revenue (6) means more O perating Revenue (7)
SUBLOOP 2
More New Business (3) means more one time New Business Acquisition Costs (9) per account.
More New Business Acquisition Costs (9) means less Operating Revenue (7), unless it is
financed throughout long term debt, which is more than offset by the above stated ongoing Revenue
(6).
The increased Operating Revenues (7) means more ability to pay the D ebt Service (8).
The ability to pay the Debt Service (8) means that the organization is in a good position to
acquire more Growth Funding (1) and this is a vay postive ranfaing lap and typically the original
vision of an External Growth Program.
REDESIGNING THE CPU INFRASTUCTURE
Start at New Accounts (4)
The increasing New Accounts (4) caused by the Extemal System Growth programs scenario has
a negative impact on the Core Organizational Infrastructure (10) due to the increased burdens to
support such increase without change in structure. This manifests itself in two major subloops which
ultimately feed upon each other.
SUBLOOP3
The over-stressing, due to the Extemal System Growth programs, of the Core organizational
Infrastructure (10) increases the Burden of Internal Systems (15)
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The increases in Burden of Internal Systems (15) weakens the competitive capabilities which
invites an increase in the number and magnitude of Aggressive Tactics by Competitors (16). This has
two effects:
The Needs to Combat Aggressive Tactics by Competitors (16) causes a lowering of Operating
Revenues (7) which in tum lowers the ability for the organization to invest in its infrastructure and
again decreases Core Organizational Infrastructure (10) creating a vicious cycle.
The increase in Need to Combat Aggressive Tactics by Competitors (16) causes a decrease in the
ability to have New Business (3) which in turn lowers New Accounts (4), Total Accounts (5),
Revenue (6) and ultimately Operating Revenues (7). There are further implications to the decrease in
Operating Revenues (7) that will be discussed when the next subloop meets this subloop at
Operating Revenues (7).
SUBLOOP 4
The overstressing of Core Organizational Infrastructure (10) decreases Customer Satisfaction
(11). This impact on Customer Satisfaction (11) has two main effects:
The decrease in Customer Satisfaction (11) lowers the Public's Perception (17) of the CPU,
which in tum, lowers the number of New Accounts (4). This eventually ties back to Operating
Revenues (7) as shown above. The lowering of Public Perception (17) also results in more Executive
Office Intervention (18). This has two effects:
More Executive O ffice Intervention (18) causes more Priority Interrupts (19) to the organization
which further reduces the Core Organizational Infrastructure (10) capacity to meet the needs of an
expanded customer base; another vicious cycle.
More Executive Office Intervention (18) causes more Information Requests (20) to the
organization’s senior management causing a reduction in the Senior Management's Focus on
Organizational Issues (21). This reduction in focus reduces Core Organizational Infrastructure’s (10)
capacity to met the needs of the expanded customer base; yet another vicious cycle.
The reduction in Customer Satisfaction (11) increases the number of Lost Business to
Competitors (12) further reducing Total Accounts (5), Revenue (6), and Operating Revenue (7).
These two vicious cycles culminate in a reduction in Operating Revenues (7) which further
exasperates the problem. The reduction in Operating Revenues (7) lowers the ability to pay the Debt
Service (8) making it more difficult to get a further Growth Funding (1) to fund future External
System Growth Programs (2), Additionally, the reduction in Operating revenues (7) directly impacts
the organization's Rates (13). Indirectly, the reduction in Operating Revenues (7) negatively impacts
the organization’s Purchasing Power (14) making it more difficult to negotiate lower Rates (13) for its
customers. The inability to offer lower Rates (13) reduces the organization's ability to attract New
Accounts (4) and increases Lost Business to Competitors (12) and impacting Operating Revenue (7)
causing further deterioration.
All of these loops and subloops combine to balance and negate the positive effects of the
Extemal_ System Growth (2) programs in a negative spiral. An appropriate intervention is the
redesign the organizational infrastructure enabling it to respond to the additional demands of the
Extemal System G rowth (2) programs.
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LEGISLATIVE INTERVENTION
Start at Public Perception (17)
As Public Perception (17) of the Organization deteriorates due to the Customer Satisfaction (11),
Executive O ffice Intervention (18) increases. If the nature of the Executive Office Intervention (18)
took the form of legislation, Regulatory and/or Control, and Contracting and Rates Authorization
(22) the following two subloops would occur:
SUBLOOP5
Favorable Legislative Intervention (22) will decrease the Cost Per New Customer Acquisition
(23) reducing overall related New Business Acquisition Costs (9) having an positive impact on Sales
Revenues (7). CPU’s positive Legislative Regulation (22) will open up new service areas for
expansion allowing more New Business (3) helping to address the New Accounts (4) to Lost
Business to Competitors (12) ratio.
SUBLOOP7
Favorable Legislative Intervention (22) will help CPU’s ability to meet Competitive
Environment (24). Which in tum helps meet CPU’s Needs to Combat Aggressive Competition (16).
The reduced pressure will improve Core Organizational Infrastructure (10) which will result in
increased New Accounts (4) resulting from the New Business (3) described in Subloop 5 above.
This Legislative Intervention coupled with the redesign of CPU’s Infrastructure combine to
support and enable the original goals and vision of the External System Growth (2) programs to
meet the changing competitive environment.
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