Reorganization and divestiture: using system dynamics to
navigate perilous waters.
Donna Mayo, Jonathan Pott, Alan Graham
Pugh-Roberts Associates, a Division of PA Consulting Group
41 William Linskey Way, Cambridge, Massachusetts 01720, USA
1-617-864-8880
Alan.K.Graham @ PA-Consulting.com
Large-scale re-organizations are poorly understood yet widely executed. Reorganization
and divestiture are often among the least well-prepared actions that organizations take.
Executive hesitate to start widespread discussion and analysis for fear of impacting
current performance. Many of the issues are both intangible and involve indirect
consequences. Given these challenges, it should not be surprising that reorganizations
(and mergers) seldom produce the expected performance improvements. The challenges
in understanding reorganizations correspond to strengths of system dynamics modeling.
In fact, the London Underground subway system is in the process of being split apart and
partially privatized, and has used system dynamics modeling for guidance.
It is not noteworthy that unexpected and useful results came out of the modeling. There
areseveral noteworthy aspects to the case, however:
e Even though the eventual aim of the work was a realistically complex simulation
model, there was extensive use of causal loop diagramming and group learning, to
the point of deriving policy recommendations from that qualitative model.
e In contrast to the more academic forms of organizational modeling (small- to
medium-sized models based on abstract organizational properties such as core
competencies), the basis for the analysis was a realistically complex model of
London Underground's operations, assets, people, and markets. Changes to that
model can reflect impacts of organizational structure on ongoing operations, and
therefore on future performance.
e Assessing impacts of reorganization also creates a more thorough understanding of
what reorganization implies for individual operating units. That understanding was
sufficiently interesting to Management that they asked for a model-based training
tool for middle managers, to understand how their roles would change under the
impending reorganization.
e Even though the initial modeling effort focused on specific organizational questions,
the model and its conceptual viewpoints have been embraced at the Board level for
more general strategic questions, and model use will likely extend outside the
organization to other key stakeholders.
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