I still remember the time I discovered Systems Thinking. Nassim Taleb referred to it in his book The Black Swan and I immediately searched for the authoritative book on the topic. That book is our feature this week: Thinking in Systems by Donella Meadows.

In my experience, the framework of systems thinking distinguishes the wisest among us. It provides an incredibly powerful lens to see the true nature of everything. Of all the books I’ve reviewed thus far, this book is only rivaled by Gary Klein’s Sources of Power for its sheer importance. I assure you that I’ll struggle to do justice to the content.

But before we continue, I want to highlight four very good Medium articles that introduce the fundamentals of systems-thinking. I’ll provide some basic introduction but strongly encourage you to read these pieces first.

Tools of a Systems Thinker

Systems Thinking Scales

Problem Solving Desperately Needs Systems Thinking

And with that, let’s consider one of the prescient lines in the book, written in the Introduction:

If you see a behavior that persists over time, there is likely a mechanism creating that consistent behavior. That mechanism operates through a feedback loop.

Mechanism? Feedback loop? It sounds like stuff from an engineering manual. In some ways, it is. Systems thinking has taught me that the interconnectedness of minor things can lead to the emergence of really big things. And all the problems we’re facing? Housing affordability? Public health? Etcetera? As hard as it is to believe, there is a system behind it all with stocks, flows, loops, and a bureaucratic mass that pushes it ahead.

It affects a lot of people. But it’s nothing personal.

So back to our author: If you see a behavior that persists over time, there is likely a mechanism creating that consistent behavior. That mechanism operates through a feedback loop.

As an example, consider the plague of short-term focus in corporate business. Sure, it might not seem like a big problem but it is far more pervasive than you may think. There is a prevailing drive towards maximizing shareholder value within public corporations. For years, it has created behavior that many consider to be a serious problem.

What is the mechanism that creates that consistent behavior? It is the earnings guidance of the standard quarterly report. This regular report creates an information flow. And as we covered in previous writings, information flows can create strong currents of influence that change the way decision-makers interpret their options. This report pushes corporations towards short-term profit-seeking targets. As Seth Godin would say, it’s a ratchet. It creates a persistent pattern of behavior that deviates from traditional best practices and is perhaps less productive than conventional paradigms.

Simply put, a business does not naturally operate in the manner led by the short-term thinking we’re seeing today. The maxi-min tactics and risk-taking inherent in chasing constant accelerated gains requires bloodthirsy tactics that often run counter to customer focus. Consider the regular tendency to outsource and offshore jobs at the cost of quality. Or the aggressive investment in complex derivatives and mortgage-backed securities. Or stock buybacks that are timed to goose earnings per share. Or absurd tax shelters for companies like Apple.

Is there a way to stop this behavior? Yes but it isn’t easy. Companies have to either eliminate the quarterly report and the investor pressure that it creates (as recommended by Buffet and Dimon) or reduce the information’s influence with a countervailing metric (such as long-term revenue growth). In either case, the idea is to manage the behavior by managing the mechanism that creates the reinforcing feedback loop.

A person can’t easily pinpoint these relationships without a systems-thinking point of view. Furthermore, a person can’t convince others without a systems-driven explanation of the behavior. But best of all, a person can’t see this view as a singular leverage point that will solve all the problems. There is seldom a root cause. Systems-thinking teaches that. There are points and connections and relationships that can be directionally corrective (such as eliminating quarterly reporting) but they won’t work miracles.

Systems don’t operate on miracles. None of us do. This is a beautiful thing for us non-miracle-workers who still want to make a difference. Systems thinking gives us a powerful tool to do that.

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