Systems thinking in developing corporate strategy for organisations

By Godwin GADUGA

“Let’s face it, the universe is messy. It is non-linear, turbulent, and chaotic. It is dynamic. It spends its time in transient behaviour on its way to somewhere else, not in mathematically neat equilibria. It self-organizes and evolves. It creates diversity, not uniformity. That’s what makes the world interesting, that’s what makes it beautiful, and that’s what makes it work.” –Donella H. Meadows, Thinking in Systems: A Primer, p.181

There is no denying the rapid growth of the complex systems that continuously spring to life in the world around us. As nations become increasingly interconnected, globalization grows our social systems in complex new ways.

Technological advancement spawns system after system, each increasing in interdependence on other systems that have come before (Internet, GPS, power grid, software APIs, et al.). International trade ties nations together in powerful economic feedback loops. Policy changes in one nation inevitably cause ripple effects in another.

Systems, if ever they were separated, are indomitably moving towards interconnectedness as we hurtle into a globalised future. All of these systems feed into each other to produce extremely complex, unpredictable effects.

Or, do they?

With the use of a skill set called systems thinking, one can hope to better understand the deep roots of these complex behaviours to better predict them and, ultimately, adjust their outcomes. With the exponential growth of systems in our world comes a growing need for systems thinkers to tackle these complex problems.

This need stretches far beyond the science and engineering disciplines, encompassing, in truth, every aspect of life. Now, more than ever, systems thinkers are needed to prepare for an increasingly complex, globalised, system of systems future in which everything from Ghana logging to other nations will produce ripple effects throughout the globe. Based on this reasoning, it could be strongly argued that all people in decision-making roles should have a solid grasp of systems thinking.

Systems thinking is both an approach to seeing the world in a way that makes connections and relationships more visible and improves our decision-making abilities and a set of methods and tools. This article provides an overview of ways to think about systems as an initial step towards systems thinking, and how systems thinking can be used as a tool for strategic development.

WHAT IS A SYSTEM?

To think in systems, we must first understand what this term means. We encounter systems in many different contexts and situations—from circulatory systems to climate systems to healthcare systems to transportation systems. But what is a system? How would we know a system if we saw one, and why is it important to understand systems at all?

A system is a group of two or more related parts (sometimes referred to as elements, components, or stocks) that interact over time to form a whole that has a purpose or function (note, function, and behaviour are often used interchangeably in systems thinking literature, but for our purposes, we will use the term function). We can conceive of systems as physical entities that we can observe and empirically examine—like a tree or a subway system, or as abstract constructs we can use to understand our world—like a model of a cell or of the solar system.

A system includes both parts and the relationships that hold the parts together—these can be physical flows (for example, the neural signals that allow us to sense our environment), or simply flows of information in a social system.

Many parts can form a whole, but unless they depend on and interact with each other, they are simply a collection. Consider a jar of dried basil, a jar of cinnamon, and a jar of paprika—a group of spices that comprise a spice rack. Their function does not change if you add or remove spice jars or re-arrange them, because the spice rack is simply a collection.

In contrast, your body is a system composed of multiple different, interacting, and interdependent organs or nested subsystems. A set of parts, arranged and connected, is essential for you to survive. Furthermore, these components can function together in ways that would not be possible for each part on its own, and as a system, exhibit properties that emerge only when parts interact with a wider whole.

Investigating the parts and interrelationships of systems helps us understand how they function (a term usually used for nonhuman systems, like a computer) or their purpose (a term usually used for human systems, like a government).

Often the best way to discern the function (e.g., delivering potable water from a faucet) or purpose (e.g., educating a student) of a system is to observe how the system operates over time, in terms of growth, decline, oscillation, stasis, or evolution.

All systems have boundaries that define what is “in” and “out” of the system. Most bounded systems are nested or hierarchical; there can be purposes within purposes. Hierarchy is the arrangement of subsystems organized into larger and larger systems. An example of a hierarchy is an individual cell within your heart, which, in turn, is part of your circulatory system, which is in turn a subsystem of your body.

A hierarchy not only gives system stability and resilience but also reduces the amount of information that any part of the system has to track. For example, a ship’s captain might not need to know about the individual actions of every individual crew member because they trust those leaders to make appropriate decisions at their level.

SYSTEM THINKING

Systems Thinking is described by Peter Senge as “a discipline for seeing wholes rather than parts, for seeing patterns of change rather than static snapshots, and for understanding the subtle interconnectedness that gives (living) systems their unique character”.  Systems Thinking examples include ecosystems, cars, and human bodies as well as organisations!

Systems Thinkers have taught us that a system is a product of the interaction of its parts, not just the sum of its parts. For example, if you take the car apart it is no longer a car, as it has lost its essential functions. It is the collective interactions of the parts that dictate system behaviour.

Instead of ‘analysis’ – a focus on individual components, Systems Thinkers place importance on ‘synthesis’ – the relationships between components and how they function as a whole.

Leonardo DaVinci is an early example of a Systems Thinker. Though he became famous because of his paintings, he was a Renaissance man – mathematician, geologist, anatomist, botanist, inventor, writer, sculptor, architect, and musician. DaVinci sought to learn from every possible source and was fascinated by the interconnections he found. “Learn to see”, he urged, “Realise that everything connects to everything else”. The Vitruvian Man is a system thinking example: more than an illustration of human proportions it is the synthesis of anatomical, geometrical, religious, and philosophical studies and way greater than the sum of its parts.

Other systems thinking examples include a loaf of bread, a supply chain, educational systems, or healthcare systems. Each is a fusion of several parts that interact, and are influenced by many factors which may include social, economic, political, and environmental – a whole web of interconnectedness indeed.

Adopting a Systems Thinking habit helps to understand important connections and encourages a wide perspective, rather than just a focus on specific events. Let’s consider the Iceberg Model used in Systems Thinking as it provides a valuable framework to assist.

• At the tip of the iceberg – the ice you can see above the waterline – is an eventor a happening. This is easily seen and recognized. For example, failure to deliver a project on time.
• Below the waterline, not visible to observers are patternsor trends that happen over time. In the systems thinking example of failure to deliver a project this may relate to several instances of missed tollgate review meetings or the fact that several risks in the project risks register went unaddressed.
• Deeper underwater are the underlying structures– the causes of the observed patterns. So why weren’t tollgate meetings made to happen, and why wasn’t appropriate attention given to project risks? This may be due to poor governance practices, an inexperienced project lead or sponsor, or a lack of consequence associated with failure to deliver.
• And finally, deepest of all is the mental models – the attitudes, beliefs, and assumptions that allow structures to persist. In this example of systems thinking, they may include a lack of belief in the importance of the project or its objectives. We’re focussing not on the behaviour but on the motivation for that behaviour.

SYSTEM THINKING AS A TOOL FOR CORPORATE STRATEGY

Systems thinking is a management approach that focuses on the interrelation of systems and how they operate within the context of larger systems. An excellent example of a system is an organisation, as it serves a specific purpose and contains various subsystems such as units.

Additionally, as a system, an organization operates within a more extensive system: the environment that influences its functions. Organisations have various projects that they look forward to completing in line with their corporative strategy. Consequently, systems thinking influences projects and corporate strategy development and implementation.

A system such as an organisation fits into a broader context such as the environment. There are levels of perspective framework that consist of events, patterns, and systemic structures to illustrate how a system fits in the broader context.

Events are the daily occurrences witnessed while patterns are the events’ memories that form recurring trends, and systemic structures are the organisations of parts of a system. Consequently, systemic structures generate the patterns and events observed. The same framework can be used to illustrate the connection between systems thinking, projects, and corporate strategy.

Based on the levels of perspective framework, systems thinking generates an organization’s corporate strategy and projects. Systems thinking helps analyse and assess the factors that influence the development and implementation of corporate strategy.

Systems thinking is applied in project development and implementation to understand complex factors that influence success. The framework also helps understand the relationship between corporate strategy and projects in an organization.

An organization’s strategy dictates the projects to be undertaken and how they are implemented. Therefore, systems thinking influences corporate strategy and project development and implementation.

Systems thinking plays a crucial role in the development of corporate strategy. It is the case that effective strategy development is only possible when an organization’s internal and external factors are considered. Understanding these factors calls for a system thinking approach and thus contributes to strategy development.

Also, systems thinking enables organisations to fully consider their environmental factors when developing their strategy. Specifically, system thinking helps firms undertake systematic screening of their environments and a thorough analysis of the internal circumstances, generating the best strategies.

Many organisations utilize feedback loops to understand the perceptions around significant products or other company-related issues.

The feedback enables the transmission and return of information between an organization and other parties, such as the customers. Feedback loops and labels can illustrate how an event can grow into a vision and later a strategy. The diagram below offers an example of how an event can turn into a vision or strategy using loops and labels.

Managing product quality

The diagram illustrates the relationship between product quality, customer demand, and production pressure. It insinuates that an increase in customer demand increases production pressure, reducing product quality.

Therefore, the production pressure that arises from the event, customers demanding more, makes an organisation develop a strategy to maintain desirable product quality. High customer demand is likely to make the company develop a strategy such as embracing more technology to avoid lowering product quality.

System Thinking in Business Management

Systems thinking is a holistic approach to problem-solving that takes into account the interconnectedness of various elements within a system. In business management, systems thinking helps entrepreneurs and managers make more informed decisions, improve operations, and optimise outcomes.

Businesses often face unique challenges, including limited resources, a need for agility, and the pressure to compete with larger organisations. By using systems thinking, business owners and managers can better understand the interdependencies between various aspects of their operations and make decisions that improve the entire system, rather than just one part of it.

One of the key benefits of systems thinking in business management is the ability to identify areas for improvement. By taking a holistic approach, business owners and managers can gain a better understanding of the interconnections between various parts of the business, such as processes, systems, and people. This can help to identify inefficiencies, bottlenecks, and other areas for improvement.

For example, if a business is facing challenges with customer satisfaction, a system thinking approach would consider the interconnections between various elements, such as customer service, product quality, and marketing efforts. By taking this holistic approach, the small business owner or manager can identify the root cause of the problem and develop a more comprehensive solution.

Another benefit of systems thinking in business management is increased efficiency. By understanding the interconnections between various elements of the business, business owners and managers can optimise processes and systems to reduce waste and improve productivity.

For example, by streamlining processes, improving communication, and collaborating more effectively, businesses can reduce the time and resources required to complete tasks and improve overall efficiency.

Moreover, systems thinking improves collaboration and communication within a business. By taking a holistic approach, business owners and managers can promote a more collaborative culture and encourage employees to work together to achieve common goals. This can lead to a more cohesive and productive team, which can improve outcomes and support the success of the business.

Additionally, systems thinking can also help business owners and managers make more informed decisions. By considering the interconnections between various elements of the business, decision-makers can gain a deeper understanding of the potential consequences of their decisions and make choices that optimise outcomes for the entire system, rather than just one part of it.

However, it is important to note that systems thinking requires a shift in mindset and a willingness to think beyond individual parts of the business. Business owners and managers must be open to considering the interconnections between various elements and be willing to make changes to improve the entire system, rather than just one part of it.

Why The Need for Systems Thinking

The demand for newer structures requires systematic skills that are competent enough to provide suitable advice on organisational management. It is high time that organisations go beyond the linear perspective of models and algorithms for business operations.

Managers need to develop the art of proactive thinking which will enable them to intuit circumstances and make rational plans of action rather than classifying the events as per pre-determined linear patterns of thinking. In other words, managers need to widen their horizons and plan what is possible in the future and how emerging phenomena can be tackled to leverage benefits. The top management of the companies needs to adopt a pre-emptive approach toward planning of organisational activities in the purview of the business environment. This is possible only through continuous and righteous deciphering of continuous change and making swift moves to be able to cash on the opportunities.

Thus, arising and also combating threats, if any. This strategic thinking process from a holistic perspective and seeking lessons from mistakes of the past is known as “systems thinking”. Apart from business complexities, the ever-changing consumer behaviour theories like hedonistic consumption, consumer culture, consumer identity project, etc.

Also, builds pressure for “out-of-box” thinking and management techniques. Further, to be better equipped for alarmed emergencies and ensure long-term sustainable competitive advantage. There is an ardent need to think beyond linear business decision-making models and adopt systems thinking.

Applying systems thinking

Systems thinking can be understood as the capacity to view things holistically encompassing all types of different inter-relationships between the existing elements in a complex system. Senge defined it as “Systems thinking is a sensibility – for the subtle inter-connectivity that gives living systems their unique character”.

Systems thinking perceives the world as systemic with emergence and inter-connectivity being the founding rocks. Systems thinking is instrumental in developing a simplified thought process which is a prerequisite for effectual accomplishments in the prevalent complex world.

However, systems thinking is more layered than the mere usage of “casual loop diagrams”. It instigates a model conceptualization. Managers can utilise systems thinking to be able to view a clearer, better “larger picture” without segregating the phenomenon based on functional orientation.

The vital tool for systems thinking is computer software programs which enable the integration of learning about complex team interactions and business interactions. Following is the diagrammatic representation of the adoption of systems thinking in research before decision-making.

Approach to systems thinking

There are many approaches to systems thinking that help managers to make better-researched and structured management decisions. Following is the tabular presentation of the various approaches.

In the present competitive business landscape, innovation is the key to sustainability. The following diagrams clearly explain the impact of system thinking:

Thus, it can be concluded that systems thinking is a formidable means of rational thinking that can be invigorated in multiple economic endeavours to devise newer ways of confronting challenges and strengthens the business understanding of the managers. This is possible through radical re-engineering initiatives and the positive support of the top-level management.

In conclusion, identifying these systemic components and how each of those affects the transformation would determine the success or failure of the transformation. It is important to understand the dependencies between each of them and also in a given situation which component has a higher impact over the other. Most of today’s organizational problems are complex and are the result of reductionist thinking. While we solve one problem, we see other problems arise. This sort of problem-solving only provides symptomatic relief without addressing the root issues. Systems thinking helps bring a nuanced understanding of the problems without jumping into solutions. Hence it attempts to bring long-term and sustainable solutions to a complex problem.

Systems thinking also encourages a long-term perspective and emphasizes the importance of feedback loops and continuous improvement. By focusing on the system as a whole rather than individual components, organisations can better adapt to changes in the external environment and make more informed decisions that align with their overall goals and objectives.

Furthermore, systems thinking can help organisations identify opportunities for innovation and growth by recognizing patterns and connections that may not be immediately apparent. By understanding the underlying dynamics of the organization, leaders can make more effective strategic choices that leverage the organization’s strengths and address its weaknesses.

Overall, systems thinking provides a powerful framework for developing a corporate strategy that is comprehensive, adaptable, and aligned with the organization’s goals and values. Embracing a system thinking approach can help organisations navigate the complexities of today’s business world and achieve sustainable success in the long run.

 

References

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4. Halecker, B. and Hartmann, M. (2013). How Can Systems Thinking Add Value to Business Model Innovation? XXIV ISPIM Conference – Innovating in Global Markets: Challenges for Sustainable Growth in Helsinki, Finland on 16-19 June.
5. Kim, D. H. (1999). Introduction to systems thinking (Vol. 16). Waltham, MA: Pegasus Communications. Web.
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9. Woodside, A. (2006). Advancing systems thinking and building micro worlds in business and industrial marketing, Journal of Business & Industrial Marketing, 21(1), Pp. 24-29.

 

Godwin is a Ph.D. Fellow, CEPA, Ch. ME, ChMC, CFIP, MSC, MPHIL, BSc and has LL.B

Contact: 0246390969     – Email: [email protected]

 

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