Chuck Vest, - former MIT president, and now head of the National Academy of Engineering, - gave an excellent keynote address. He talked about some the grand challenges that the field of engineering faces. Only 4.5 percent of US university graduates have degrees in engineering, he said, a number substantially lower that in other parts of the world. Large-scale system challenges, he added, offer us the opportunity to reinvigorate engineering education and capture the imagination and intellect of the next generation of engineering leaders.
Following Vest’s keynote, I participated in a panel on Critical Issues and Grand Challenges, in which we discussed the kinds of complex and exciting societal challenges Chuck told us are needed to inject excitement into engineering. The panel was moderated by Jim Champy, head of consulting and strategy at Perot Systems and co-author of Reingeneering the Corporation, the best-seller that launched the business process re-engineering revolution in the early 1990s.
The panel included talks on financial, health care and energy systems by three of the most eminent leaders in their respective fields. John Reed, - chairman and CEO of Citi from 1984 until 2000, and head of the New York Stock Exchange from 2003 - 2005, - shared his views of the issues in the financial services industry that led to our current crisis. Denis Cortese, CEO of the Mayo Clinic, talked about the huge problems in the health care industry due to its lack of a coherent view of health care as a holistic system. Steve Koonin, - recently nominated Undersecretary of Science in the Department of Energy,- gave a comprehensive overview of the energy and environmental challenges that the planet faces. Steve served as BP’s chief scientist for the past five years, following a 29 year career at Cal Tech as professor of physics and provost.
I was the last speaker in the panel, and talked about complex organizational systems. I contrasted the classic engineering of the industrial economy, which over the past century have helped us develop very high quality, complicated physical objects like bridges, cars and microprocessors, with the engineering now needed in the 21st century to enable us to address complex, market-facing challenges involving people and services. In addition, our moderator, Jim Champy asked me to try to identify the common principles or elements that engineering systems should exhibit to help us address the kinds of problems in the financial, health care and energy industries that my three panel colleagues talked about.
After listening intently to what they said, I came up with four key such common principles for complex systems. Complex systems should be framed as systems of coupled systems; people and services predominate in these systems and give them their unique multi-disciplinary and unpredictable character; real-time information analysis, modeling, simulation and related computational methods are critical to help us understand and manage such system; and choosing the proper values and objectives around which to design and optimize the overall system is perhaps the most important challenge of all in order to develop well functioning systems. Let me say a few words about each of these.
What makes complex organizational systems so complex? It is not just that they are composed of large numbers of parts. After all, a stone is composed of huge numbers of molecules, but we do not consider stones complex. A microprocessor has lots of components. It is very complicated, but not quite complex. According to Cal Tech professor John Doyle, who also participated in the MIT Symposium, financial or health care systems exhibit an intrinsically different kind of complexity from stones and microprocessors. They are composed of many different kinds of parts, intricate organizations and highly different structures, all interacting with each other at different levels of scale. They are essentially systems of coupled systems, and it is their coupling and ensuing interactions that make them so dynamic and unpredictable.
Most experts will agree that our financial crisis is fundamentally the result of a systemic failure of massive proportions. A major reason why few anticipated a crisis of this magnitude is that almost no one was looking at all the new components of financial systems and the new ways those components were now interacting with each other. Events that previously seemed highly improbably, started to become more commonplace once financial systems became so globally integrated.
Denis Cortese gave a particularly eloquent view of health care as a system of coupled systems. He talked about health care in terms of three mega-domains: the knowledge domain - the world of medical research, where new ideas, inventions and medical approaches are developed, such as the concept of individualized medicine based on our unique genetic blueprint; the care delivery domain, - the world of physicians and hospitals, where patients are treated; and the payer domain - the world of insurance, governments and others that pay for the delivery of health care. Each of these domains is huge in its own right, but according to Dr. Cortese, their flawed interactions with each other is one of the main reasons why our health care system is so dysfunctional.
Physically engineered systems are based on rational, well-behaved components that do what they are supposed to do most of the time. That makes it possible to generally predict the behavior of such systems under widely varying conditions. People, and the services they perform for each other are the key components in organizational and socio-technical systems. People and services exhibit a high degree of variance that makes such systems intrinsically unpredictable.
How do you then deal with these new kind of market-facing, people and services oriented complex systems? First of all, you need to know what is going. Fortunately, we now have access to vast quantities of information. We now have the ability to gather huge amounts of information about the real-time behavior of organizations and markets, which we can then analyze and model with powerful supercomputers so we can make better informed, more intelligent and smarter decisions.
Information should also help us better optimize and manage these complex systems. Which then leads to the most important principle in an organizational system. What are the key objectives of the system? What values are you optimizing around? What are you trying to achieve? These are not technical issues at all. They are the key social and human elements that a well designed, well engineered and well managed system should exhibit.
John Reed said that financial systems must once more focused on providing services to their customers. He pointed out that about twenty years ago, banks started losing sight of their clients as they discovered the ability to make a lot more money through proprietary investments. They came up with all kinds of new financial instruments, many of which were not regulated as were their classic banking products.
Each of the major constituents of the financial system, - traders, company executives, rating agencies - were optimizing their own returns and not paying a lot of attention to the stability of the overall system. Regulators and other government officials who were charged with watching out for the larger interests of society, did not pay much attention to the overall financial system either, since they held the ideologically inspired belief that the marketplace was perfectly capable of self adjusting on its own. Sooner or later, losing sight of the interests of their customers is bound to get any business or industry in trouble.
For Denis Cortese, creating value for patients must be the overriding objective around which we transform the health care system. If health care reform does not benefit patients, then we will continue to have a dysfunctional system in which patients will continue to pay too much for too little.
He said that key to value creation is paying for results and outcomes, not procedures. A proper value-based health care system must be centered around the needs and preferences of patients, and involve measurable outcomes, safety and service compared to the cost of care over time.
It was a very interesting and stimulating panel. Lots of good ideas were discussed in the MIT Symposium. Hopefully, the field of complex engineering systems will continue to make rapid progress into the future.