To Compete in the New World, You Need to Think in Systems

Thinking in Systems

In 2014, General Motors issued one of the largest auto recalls in history. More than 27 million vehicles vehicles were pulled off the road.

The Malibu, Cobalt, Alero, Grand Prix, and other models all had faulty ignition switches that had led to at least 13 confirmed deaths.

For at least 11 years, there had been internal testing and discussion on these issues. But the information had never made its way to the public – nor had it managed to raise red flags inside the company.

Although there has been much speculation about what type of internal malfeasance could have led to such a massive corporate failure, the conclusion is ultimately less exciting – although maybe more horrific.

According to a report filed by investigators following the recall, GM’s internal structure was so siloed and fragmented that there was a “failure to understand, quite simply, how the car was built.”

In other words, the catastrophic error that led to unnecessary crashes, injuries, and deaths was caused by poor internal strategy, structure, and communications.

The barrier and silos between departments had grown to such a level that even an issue of this magnitude and severity could not break through. The classic warning of tunnel vision and poor communication caused by overly-fragmented corporate structure came to pass, costing GM at least $1.2 billion in losses.

This case proves to be a harrowing example of the importance of thinking in systems. While each components of the car may have been managed by individuals groups or teams, it was the culmination of each of those components – the system as a whole, the car – that needed to be better understood.

For decades, management books and classes have taught the importance of systems thinking. But while they may portray it as a competitive edge or a smart way of doing business, technology has upped the ante. Systems thinking is no longer nice to have – it’s table stakes for any competitive industry or niche.

Executives need to apply systems thinking across their company in order to compete in the evolving landscape of technology and connected platforms.

The Interconnected Business

In the digital age, almost no part of your business operates in isolation.

What were once clear and discrete business units have now become a loose collection of interchanging and overlapping circles. Your online marketing strategy plays a huge role in how your sales team operates. Product teams deliver on marketing messages. Service drives product decisions. And so on.

But it’s not just a matter of people and communications. It’s also the technology and platforms that we use to power our business – they are increasingly connected as ecosystems of data that flow back and forth.

The ways in which these teams, people, and systems interact is often much more complex than a manual process where paperwork may flow from one department to another. Because of this, it requires a whole new level of understanding about how these systems work together.

The digital age also requires a shift in thinking about how changes may ripple throughout the system.

In an interconnected business that is powered by large-scale technology ecosystems, each of those systems will impact each other. And the knobs and levers that you have to control – say, to reduce costs or improve efficiency – will then have an effect on different parts of the business that touch that some system.

The Linear Thinking Trap

The reason why systems thinking is so important in modern business is because to not think in systems means to think linearly. This is problematic.

There are many clear cases when linear thinking can lead to short-term or isolated improvements at the cost of long-term strategy or growth. When decisions are made through the lens of a siloed department, you end up with cases like the GM recall from above. No one is monitoring how acute choices will shape the overall outcome.

As another simple example, a manufacturer of goods may find a way to cut production costs by using alternative materials or cheaper processes. But that change could lead to the company producing an inferior product – which could in turn drive down demand, sales, and revenue.

In isolation – or by applying only linear thinking – this change may seem like a clear win. Cut costs and raise profits; there’s no downside.

This simplified example makes it easy to point out the fault in this kind of thinking. Yet, a similar, linear approach is applied to business decisions in companies every day. Planning and strategy are hobbled by short-sighted and narrow analysis of any particular decision or direction.

To look at this problem through the lens of technology, you can imagine that the Sales team is tasked with choosing a new CRM platform. They may spend weeks or months analyzing and choosing the best option. But unless they also consider how that CRM will integrate with other systems – Marketing’s lead generation tools, Support’s help desk software, Accounting’s invoicing process – the entire project could be a colossal failure.

Because so many of your business systems and functions are interconnected, it’s important to consider decisions and changes not only for how it will affect a particular team or department, but what the larger effects might be across your entire company.

Systems thinking and smart strategy and planning can present many opportunities. Part of that process is identifying and utilizing the right tools that can be quickly and easily integrated or expanded into different sections of your business.

Systems Thinking as a Competitive Advantage

In the abstract, the concept of systems thinking can feel like a burden. And while it’s true that there is increasing urgency around the need to apply systems thinking, it shouldn’t be considered an operational bottleneck. 

Instead, systems thinking represents a number of enormous opportunities.

The “synergy” craze of the 1990’s was – albeit nauseating – a product of a shift toward systems thinking. The idea of synergy is to derive additional value by creating systems that work well together. Processes, teams, and business units that, together, can produce more value than those same pieces individually.

Applying a process of systems thinking affords your organization a number of advantages.

In particular, systems thinking is a critical part of:

Each of these is largely dependent on having a broad understanding and deep insight into the systems and processes that are driving the organization.

This requires having a broad set of stakeholders at the table and/or working to create cross-functional business units that aren’t confined by traditional corporate structures. If these groups are able to work together to define and understand the underlying mechanics of the business, then they’ll be able to also identify opportunities for growth.

Over the coming years, systems thinking will continue to grow. And firms that are the most proactive in applying it across their whole organization will reap the largest benefits.

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