What 'systems thinking' actually means - and why it matters for innovation today

We are currently living through VUCA (volatile, uncertain, complex and ambiguous) times.

As innovators, general professionals, key workers, citizens and humans, everything we do is ever more interdependent on each other. ‘No man is an island’ is a well-known phrase, yet in practice, how often do we understand the interconnectedness of everything around us? Enter systems thinking.

In some circles, there has been a lot of hype around taking an "ecosystems view" during this global pandemic, which frankly is not something new. Systems thinking has been an academic school of thought used in engineering, policy-making and more recently adapted by businesses to ensure their products and services are considering the ‘systems’ that they operate within.

Defining innovation

Every firm defines innovation in a different way. I enjoy using the four-quadrant model (see figure below) for simplicity: incremental innovation utilises your existing technology within your current market; architectural innovation is applying your technology in different markets; disruptive innovation involves applying new technology to current markets; and radical innovation displaces an entire business model.

During COVID-19, we are seeing a mixture of these. Many firms will start with incremental changes, adapting their products to a new period of uncertainty. With the right methodology and balance of internal and external capabilities, there is potential for radical and disruptive innovation that meets new needs, or fundamentally, creates new needs based on our current circumstances. Systems thinking is essential in untapping these types of innovation and ensuring they flourish long-term.

A dynamic duo

‘Systems thinking’ does not have one set toolkit but can vary across different disciplines, for example, in service design some may consider a ‘blueprint’ a high-level way to investigate one’s ‘systems of interest’. Crucially, this school of thought is even more powerful when combined with more common approaches, such as human-centered design (HCD).

The latter is bottom-up – looking in detail at a specific problem statement, empathising with its users and developing solutions to target them. Whereas the former is top-down – understanding the bigger picture, from policy and economics to partnerships and revenue streams. Systems thinking unpacks the value chain within an organisation and externally. It complements design thinking: together they’re a dynamic duo.

For starters, this philosophy needs to enter our everyday thinking. Yes, it is crucial for innovation, but an easy first step is to use systems thinking casually throughout your life. How is this purchase affecting other systems in the supply chain? What is the local economic impact of me shopping at the larger supermarket? Who will be the most negatively impacted if I don’t practice social distancing?

This mapping tool from the World Economic Forum is central in understanding causal relationships and effects during COVID-19. It helps to drive systems-informed decision making. Once this becomes mainstream, we can begin integrating data for systems modelling tools that will help us map impact across the multiple layers of influence from this pandemic. So, what does this mean for businesses?

Systems thinking for business

To illustrate how systems thinking applies in business, let's use a simplified example of a bank branch.

Event: COVID-19 declared a pandemic, lockdown implemented for all people and businesses, except key workers and essential firms. Branches are shutting, people are afraid to go to non-essential establishments.

Patterns/trends: what trends have there been over time? Scientists have warned us about being ‘pandemic-ready’ for years, but we have had misinformation or a lack of transparency from other ‘systems’ who should have been driving this.

However, what about banking patterns? More customer service has moved online, digital banks and fintech developments have decreased the urgency for face-to-face business in branches. Are there trends in customer behaviours? More consumers are searching for all their products and services online, and this was common before the pandemic had begun.

Underlying structures: what has influenced these patterns and how are they interconnected? A growing desire for digitalised experiences and convenience is popular in financial services and customers will begin to seek and only interact with businesses who have the infrastructure to operate this way. A minimal number of touchpoints is seen as desirable, providing quicker, stress-free experiences, as consumers want to spend less time on these engagements when work-life balance has become more integrated, and therefore is important to preserve.

Mental models: what assumptions, beliefs and values do people hold about the system? Behavioural economics tells us that customers will adapt and change their consumer spending habits. Used to the convenience of online, less relevance will be seen for branches, and banks will need to further adapt. The ‘new normal’ will contain old and new beliefs. Which ones keep bank branches in place? Human contact and customer service? The agency in dealing with your finances face-to-face? Will a new experience or service be required to keep bank branches relevant or are online digital banks all consumers will need?

Beyond this, do banks have an ethical obligation to monitor spending habits to identify signs of debt and underlying mental health problems? What relationship should banks have with data? How do they balance intuitive service with consumer privacy?

Going through the layers of this iceberg unearths part of the power from using systems thinking and exemplifies how to guide your strategy in a sustainable way.

Only focusing on events? You’re reacting.

Thinking about patterns/trends? You’re anticipating.

Unpicking underlying structures? You’re designing.

Understanding mental models? You’re transforming.

Transformative thinking is how we innovate and systems thinking is essential for this journey.

We’ve only explored the tip of the iceberg (pun intended) on the philosophy of systems thinking. There are many in-depth tools available to discover the approach in more depth.

Ask yourselves if you want to survive the VUCA future ahead. Do you want your organisation to have the capacity to innovate and sustain itself? Are you willing to change your thought pattern to consider the systems in which we all live in?

If the answers to any of the questions above are yes, then you are on the right path to mastering systems thinking to successfully innovate.

The more we begin to use systems thinking every day, the better our innovation will become. We can all be architects for a better world with sustainable growth if we understand the core tenants of this approach. To echo my introduction, no customer, or citizen, or business, or policy, or company, or idea itself is an island. Whatever ‘new normal’ we have, systems thinking should drive this future and will ensure innovation is pursued with knowledge of the complex intricacies that we are living through.