Learning to Cooperate: Applying Deming's New Economics and Denzau and North's New Institutional Economics to Improve Interorganizational Systems Thinking

Abstract

SummaryPublic administrators often go about their business blind to how their actions both affect, and are affected by, the activities and processes of agents operating outside their own organizations. In truth, no single agency or department operates in a vacuum or in isolation of other organizational entities. According to world‐renowned leadership and management expert, W. Edwards Deming, a given agency's ability to perform its duties effectively is the result of a myriad of interdependent processes and operations with other organizations. Consequently, effective leaders must develop an understanding of how the departments they oversee both influence, and are at the same time influenced by the outside agencies and organizations upon whom they mutually depend.1) We draw jointly on W. Edwards Deming's System of Profound Knowledge (SoPK) framework and Arthur T. Denzau and Douglass C. North's (1994) New Institutional Economics (NIE)‐based work on Shared Mental Models (SMM) to explore why inter‐agency cooperation tends to be limited in ‘traditional’ organizational environments. 2) Drawing on Denzau and North's SMM, we then suggest how inter‐organizational communication and cooperation can be facilitated via two means of learning—training and experiential. 3) We then apply concepts from Denzau and North's SMM to suggest a modified model of the Nash equilibrium used in game theory. This model is then used to operationalize the learning path to Deming's approach to ‘systems thinking’ (SoPK.) 4) Finally, we provide a real‐world example to illustrate the modified model.