What is system thinking in business?
Companies face complex challenges requiring innovative and effective solutions in today’s fast-paced and constantly changing business world.
Therefore, many businesses are turning to system thinking to better understand and deal with the root causes of problems to overcome this.
And this works better than simply treating the symptoms of the problems.
In this article, you will discover what system thinking is, how you can effectively apply it, and other essential information.
All of which will provide you with a powerful approach to problem-solving.
So, as a business leader or entrepreneur who wants to widen their knowledge and improve their business ventures, read on!
What Is System Thinking? – What Is System Thinking in Business
System thinking is a way of looking at how a system works, its perspectives, and how to improve its behaviour.
It involves looking at the various elements within a system and how they’re interconnected and related.
System thinking is a holistic approach to problem-solving in business.
It involves considering a system and all its interrelated parts rather than focusing on each component separately.
It involves looking at and considering the underlying causes and root issues of a problem instead of focusing on the immediate symptoms.
The core idea of system thinking is that everything in a system is interconnected.
So, any change to one part of the system can create ripple effects throughout the whole system.
Understanding System Thinking in Business – What Is System Thinking in Business
System thinking in business is looking at the company as a system, with different departments, processes, and stakeholders all playing a role.
However, in some cases, a system in business could be the entire organisation or just a specific process or department.
System thinking in business is used to solve issues and problems that might arise in any given system.
Furthermore, using system thinking, businesses can better understand how different parts of their organisations are interconnected.
Also, they learn how changes in one area may impact others.
This can help businesses develop more effective strategies and address the root causes of problems more effectively.
Elements of System Thinking in Business – What Is System Thinking in Business
System thinking is a problem-solving approach that sees the organisation as a system made up of interconnected parts.
In business, the elements of system thinking include:
A holistic perspective is an essential element of system thinking.
It involves looking at the organisation as a whole rather than just focusing on individual parts.
In other words, it is the element that considers the interconnectedness of different components and looks at how they impact each other.
Furthermore, a holistic perspective allows companies to identify the impact of external factors on the organisation.
For instance, you can consider your organisation’s impact on the environment and how environmental factors may affect the organisation’s performance.
In addition, a holistic perspective encourages collaboration and communication between different parts of the organisation.
As a result, it can lead to better decision-making and problem-solving.
Feedback Loops – What Is System Thinking in Business
Feedback loops are essential components of system thinking.
This is because they help companies understand how different business parts influence one another.
Feedback loops occur when the output of one part of the system affects another part and then feeds back into the first part of the system.
There are two types of feedback loops: positive and negative.
Positive feedback loops occur when the output of one part of the system leads to an increase in the output of another part of the system.
This, in turn, will cause an increase in the original output.
Ultimately, this can create a self-reinforcing cycle that can benefit or harm the business, depending on the circumstances.
Meanwhile, negative feedback loops occur when the output of one part of the system decreases the output of another.
And in turn, it feeds back to reduce the original output.
This type of feedback loop can help a business maintain balance and stability by preventing any element of the system from dominating.
Emergent properties emerge from the interactions of individual parts within a system.
However, they are not present in any individual part alone.
In other words, they are characteristics of the system as a whole that cannot be explained by examining the parts separately.
In business, emergent properties can arise from the interactions of employees, customers, suppliers, and other stakeholders.
For example, a company’s culture is an emergent property that arises from the interactions of employees and the shared values and beliefs they hold.
Mental Models – What Is System Thinking in Business
Mental models refer to the mental frameworks or cognitive structures individuals use to interpret and understand the world around them.
In business, mental models can influence how individuals perceive and make decisions about the various elements within a system.
However, companies need to recognise that mental models can be helpful and limiting.
This is because they can shape how individuals approach problems and opportunities.
Nonetheless, businesses can gain new perspectives and insights that lead to more effective problem-solving when they understand and challenge mental models.
Additionally, businesses can challenge and refine their mental models to better align with their goals and values when they:
- Encourage open dialogue.
- Encourage diverse perspectives.
One key aspect of system thinking in business is the concept of boundaries.
Boundaries refer to the limits or borders of the system.
They define what is included within the system and what is excluded.
Boundaries can be physical, such as the physical boundaries of a building or a manufacturing plant.
Sometimes, they can be conceptual, such as the boundaries between different departments.
It can even be between the company and its external environment.
So, when thinking about boundaries in business, you should consider how they impact the system as a whole.
For example, let’s assume that the departments in your company have a rigid boundary between themselves.
And they also have little communication or collaboration between them.
As a result, it can lead to inefficiencies and missed opportunities.
Furthermore, if the boundary between the company and its external environment is weak, with no clear limits, it can lead to misdirection and poor focus.
System Archetypes – What Is System Thinking in Business
System archetypes are recurring patterns or structures that can be found in complex systems.
They are a way of understanding and predicting how different parts of a system will interact and how the system will behave over time.
Managers who understand system archetypes can identify and address underlying problems and improve the overall performance of an organisation.
So, one thing you need to understand about system archetypes is that they are based on the idea that systems are dynamic and interconnected.
In other words, the changes in one part of a system can have ripple effects throughout the entire system.
And that problems or issues in one area can be caused by interacting with other system parts.
For instance, let’s consider the example of the “shifting the burden” archetype.
This occurs when a company relies too heavily on a short-term solution to a problem instead of addressing the underlying root cause.
As a result, the underlying problem will continue to worsen and likely spread across the entire system.
Types of System Thinking in Business – What Is System Thinking in Business
Different types of systems thinking can be applied in a business context.
Here are a few examples:
Dynamic System Thinking
Dynamic system thinking is a type of system thinking that considers the constantly changing nature of the system.
It focuses on the dynamic relationships and feedback loops within a system and how they influence each other over time.
To understand dynamic system thinking, imagine a garden.
A garden is a dynamic system because it is constantly changing and evolving.
So, the plants grow and interact with each other, and the environment affects their growth.
Therefore, if one part of the system changes – for example, if a new species is introduced – it can have ripple effects throughout the entire system.
In business, a dynamic system is important because it helps companies understand an organisation’s complex and constantly changing nature.
When it comes to dynamic system thinking, you will need to analyse the dynamic relationships and feedback loops within a system.
This will help you identify how changes in one part of the system can affect others over time.
For instance, let’s say your company introduces a new product.
Dynamic system thinking would encourage you to consider how this product might affect the rest of the organisation.
For example, it might affect supply chain logistics, customer service demands, or employee workloads.
However, when you analyse the dynamic relationships within that system, you can anticipate the potential risk of introducing the new product.
And to take steps to mitigate those risks.
Complexity System Thinking – What Is System Thinking in Business
Complexity system thinking is another system thinking that can be useful in business.
It focuses on understanding how complex systems emerge and evolve.
To explain complex system thinking, let’s use the example of a traffic system.
So, a traffic system is complex because it involves many interacting parts – cars, roads, traffic lights, pedestrians, etc.
Each part’s behaviour influences the system’s behaviour as a whole.
Complex systems thinking is important in business because it helps us understand the complexity of modern organisations.
So, many businesses operate in constantly changing and evolving environments, with many interacting parts and stakeholders.
Using complexity systems thinking, you can better understand how this system emerges and evolves.
For example, let’s say a company is developing a new product.
Complex systems thinking would encourage us to consider how the product might interact with other parts of the organisation.
For example, how it might affect supply chain logistics, customer demand, or employee satisfaction.
So, businesses can anticipate the potential challenges and take steps to mitigate them by analysing the complex interactions between different parts of the organisation.
Soft System Thinking
Soft system thinking is a type of system thinking that is often used in situations where there is no clear problem or solution.
It focuses on the human element of systems and considers the perspectives of all stakeholders involved.
So, to understand soft system thinking, imagine a group of people trying to solve a complex problem.
Soft system thinking would encourage them to consider the different perspectives of each stakeholder involved.
Additionally, it would encourage them to consider the intangible aspects of the problem, such as values, beliefs, and cultural factors.
In business, soft systems thinking can be useful when no clear problem or solution exists.
For example, if a company is experiencing low employee morale, soft system thinking would encourage them to consider the perspectives of all stakeholders involved.
Also, it would encourage them to consider the intangible aspects of the problem, such as values or cultural factors contributing to low morale.
Critical System Thinking – What Is System Thinking in Business
Critical system thinking is a type of system thinking that focuses on the ethical and social implications of business decisions.
It recognises that business decisions can have far-reaching consequences for individuals, communities, and the environment.
And it also encourages companies to consider these implications in their decision-making processes.
To understand critical system thinking, let’s consider the example of a business considering outsourcing jobs to a foreign country to reduce costs.
Critical system thinking would encourage the decision-makers to consider the potential impact of this decision on stakeholders and communities affected.
For example, outsourcing jobs will make workers lose their jobs and the communities that rely on these jobs for economic stability.
It would also encourage them to consider the potential environmental impact, such as increased carbon emissions from increased transportation.
So, in business, critical system thinking is important because it helps companies make ethical and socially responsible decisions which ultimately benefit their bottom line.
Cybernetic System Thinking
Cybernetic system thinking is a type of system thinking that focuses on feedback loops and control mechanisms within a system.
It focuses on monitoring and adjusting a system to maintain stability and achieve its goals.
So, to understand cybernetic systems thinking, let’s consider the example of a manufacturing plant that produces goods.
Cybernetic systems thinking would encourage that company to monitor the production process.
Additionally, it helps them make the necessary adjustments to ensure the production process runs smoothly and efficiently.
So, this might involve adjusting the inputs, such as the number of raw materials used.
Or adjusting the production process, such as the speed of the assembly line.
In business, cybernetic systems thinking can be useful in situations where there are complex processes that need to be managed and monitored.
For example, a company might use cybernetic systems thinking to monitor and adjust its supply chain processes.
All of these ensure that products are delivered on time and within budget.
How to Apply System Thinking in Business – What Is System Thinking in Business
To apply system thinking in business, you can follow these steps:
Identify the Components of your Business
The first thing to do when applying system thinking in your business is to identify the various components that make up that business.
So this can include things like your employees, products or services, marketing effort, finances, and customers.
Map the Relationships and Interconnections – What Is System Thinking in Business
At this point, you can start thinking about those components you identified and have come to interact with one another.
You might need to ask questions that will give you answers to how these components interact with one another.
Some of the questions you can ask include the following:
- How does marketing affect sales?
- Do the employees impact customer satisfaction?
- How do your finances impact your ability to innovate?
Analyse the system
By now, you have an understanding of the relationships between the components.
So, you can start to identify areas where improvements can be made.
You will need to look for feedback loops, patterns, and trends to help you understand how the system functions and make improvements.
For example, you might realise that investing in employee training can improve customer satisfaction and ultimately increase sales.
You might not come to this realisation if you don’t analyse the system you now understand.
Identify Leverage Points – What Is System Thinking in Business
Leverage points are areas within the system where a small change can significantly impact the system as a whole.
So, by identifying these points, you can develop strategies to improve the system’s overall performance.
Importance of System Thinking in Business – What Is System Thinking in Business
System thinking is essential in business for several reasons:
Understanding the big picture
System thinking helps companies see beyond individual parts and understand how different components work together to achieve a common goal.
As a result, it enables companies to better understand their operations and identify areas for improvement.
Identifying underlying issues – What Is System Thinking in Business
Businesses can identify the root causes of problems rather than just treat symptoms by analysing the system as a whole.
As a result, it enables them to create effective solutions that address the underlying issues and improve overall performance.
Anticipating and managing the impact of changes
System thinking helps businesses anticipate and manage the impact of changes within the organisation or external environment.
So, businesses can identify potential unwanted results of decisions and take steps to reduce them by analysing how different parts of the system are interconnected.
Making informed decisions – What Is System Thinking in Business
System thinking enables businesses to make informed decisions based on understanding the organisation and its operations.
Consequently, this reduces the risk of making decisions based on incomplete or inaccurate information.
Conclusion on What Is System Thinking in Business
System thinking is critical for businesses to thrive in today’s dynamic and complex business environment.
It requires a holistic approach that considers the interrelationships and interdependencies of various system components.
This is where system thinking comes in.
Thankfully, we’ve explored this concept fully in this article.
So, use this knowledge in your business to manage your business and achieve success in the ever-changing business world.