Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.
Systems thinking is based on systems theory and is responsible for one of the major breakthroughs in the understanding of complex organizations.
Systems theory studies systems from the perspective of the whole system, various subsystems, and the recurring patterns or relationships between subsystems.
The application of this theory in an organizational context is called systems analysis – of which systems thinking is a primary component.
In general terms, systems thinking considers systems in terms of their overall structures, patterns, and cycles.
This broad and holistic perspective enables organizations to identify solutions that address as many problems as possible.
In systems thinking, these solutions are known as leverage points because they leverage improvement throughout the system. Prioritizing leverage points across an entire system is called whole systems thinking.
The approach differs from traditional analysis methods which study systems by separating them into their constituent parts.
In addition to analyzing organizational complexity, systems thinking has also been used in medical, environmental, political, economic, and educational contexts.
Why use systems thinking?
By considering the system as a whole, systems thinking encourages organizations to broaden their perspectives and consider new or innovative solutions. This is particularly important for problems that are:
Chronic – that is, they are not a one-time event.
Familiar – or those that have a known history of repeated occurrences.
Complex – where people have unsuccessfully tried to find a solution in the past and failed.
Perhaps more profoundly, systems thinking promotes the idea that there is no perfect solution to any situation. Every decision the business makes will impact other parts of the system, so the “right” decision may be assumed to be any with the least severe negative impact.
For project teams, systems thinking diagrams are also important in telling compelling user stories. Diagrams that deal with cause and effect force the team to develop shared pictures and stories that can be understood and communicated by every member.
Six key themes of systems thinking
Here are some of the key themes that comprise a systems thinking mindset:
Interconnectedness
Systems thinkers understand that everything is connected. Trees need carbon dioxide, water, and sunlight to thrive.
Humans, in turn, can only survive by eating the food and oxygen that trees and other plants produce.
Systems thinkers see the world as a dynamic, chaotic, and interrelated arrangement of relationships and feedback loops.
Synthesis
In most cases, synthesis means the act of combining things to create something new.
In systems thinking, synthesis means separating complexity into manageable parts to understand the whole and the parts simultaneously.
Emergence
A term used to describe the natural outcome of things interacting with one another.
Key characteristics of emergence include non-linearity and self-organization.
Feedback loops
A natural consequence of interconnectedness are the feedback loops which flow between the elements of a system.
There are two main types: reinforcing and balancing.
Reinforcing feedback loops involve elements in the loop reinforcing more of the same, such as population growth in a large city.
Balancing loops are comprised of elements in some form of harmony, such as the relative abundance of predators and prey in an ecosystem.
Systems mapping
This is one of the key tools in a system thinker’s arsenal.
There are many ways to map a system, including behavior-over-time graphs, iceberg models, causal loop diagrams, and connected circles.
Whatever the method chosen, it should define how the elements within a system behave and how they are related.
Insights can then be used to develop effective shifts, interventions, policy, and project decisions.
Causality
Systems thinking also encourages the individual to consider causality as a dynamic and constantly evolving process.
Most people understand simple cause and effect, but relatively few can apply the concept to gain a deeper understanding of system feedback loops, agency, connections, and relationships.
Systems thinking examples
Subaru
Japanese car maker Subaru operates the only zero-waste automotive manufacturing facility in the United States.
While the EV revolution is now well underway, car manufacturing itself remains a process with a harmful carbon footprint.
This is mostly because the sourcing and processing of raw materials such as steel, aluminum, plastic, and rubber are extremely energy-intensive.
In a 2018 report, for example, it was estimated that the vehicle industry’s GHG emissions exceeded those of the European Union.
Subaru’s approach
Operating in an industry not known for environmental values, Subaru employed systems thinking to radically rethink its operations.
Over a period of just two years, the company transformed its Lafayette, Indiana-based assembly plant into a zero-waste facility.
With assistance from an environmental consultancy firm, Subaru adopted the three Rs of sustainability: reduce, reuse, and recycle.
Underpinning this effort was the kaizen philosophy of continuous improvement with employees rewarded for ideas that promoted environmental stewardship.
The factory itself also sits on an 832-acre site surrounded by forests, prairie grass, and other habitats for some of America’s most iconic plant and animal species.
According to executive vice president Tom Easterday, this includes firms outside of the automotive industry:
“We sometimes joke that we’ve had everything from potato chips to rocket ships visit us – from Frito Lay to Raytheon.”
The National Parks Service (NPS) has also turned to Subaru for assistance with its own zero-waste initiative.
Systems thinking has enabled Subaru to frame issues within the broader contexts in which it operates.
Importantly, the company understands the interconnectedness of business, the environment, and society as a whole.
“We don’t need the government to tell us to be good environmental stewards – it’s good for business”, Easterday explained.
Costco
To meet increased consumer demand for organic food, Costco started to invest in organic farmers in its supply chain.
The move relates to the key systems thinking principle of causality and has a basic but effective premise: If Costco provides the means for producers to transition to organic, the retailer can enter into “first buyer” agreements with them, stock more organic food in its stores, and increase revenue.
While the industry enjoyed grew at an impressive rate of 10%, the fact remained that if there was more organic produce, revenue and growth would be even higher.
Costco’s role in the industry
To some extent, growth in organic food sales has been stifled by structural issues in the agricultural industry.
Namely, the powerful influence of multinationals who control food supply with vast, monoculture farms and the governments that subsidize them.
However, Costco’s initiative shows that companies can use systems thinking and take a more proactive approach to manage their supply chains. This particular retailer improved its bottom line by meeting consumer demand in a rapidly growing industry.
But in the process, Costco also increased ethical and environmental standards in the food industry and made it more attractive as a potential recipient of investment or subsidization.
Key takeaways
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. In addition to analyzing organizational and project complexity, it is also used in medical, environmental, political, economic, and educational contexts.
Systems thinking promotes the idea that there is no perfect solution to any situation. This helps the organization choose the best course of action by anticipating the potential impact of each option.
The systems thinking mindset is comprised of six key themes: interconnectedness, synthesis, emergence, feedback loops, systems mapping, and causality.
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and any eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.
The STEEP analysis is a tool used to map the external factors that impact an organization. STEEP stands for the five key areas on which the analysis focuses: socio-cultural, technological, economic, environmental/ecological, and political. Usually, the STEEP analysis is complementary or alternative to other methods such as SWOT or PESTEL analyses.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful businessproduct portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision-making by avoiding two pitfalls: underprediction, and over-prediction.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
