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How do you avoid wasted time, money, and resources from short-sighted decisions? When you think in systems, you can learn to recognize the relationship between structure and behavior to create better business decisions. We read the book Thinking In Systems by Author Donella H. Meadows who created the “systems thinking” approach to help you understand, adjust and improve any system. We’ll share the top insights to hone your ability to build upon and benefit from reinforcing feedback loops, create and foster sustainability in your industry, and get creative to redesign flawed systems. In addition to basic and complex system fundamentals, we’ll also review Meadows’ insights into a number of common traps systems create and how to escape them.
Before we talk about the insights, let’s talk about the author. Donella H. Meadows was an American environmental scientist, educator and writer with a Ph.D in biophysics from Harvard and research fellow at MIT. At MIT, she was a member of the team that invented system dynamics and the principles behind magnetic data storage for computers. Later on she became a Pew Scholar in Conservation and Environment and was a MacArthur Fellow, and founded the Sustainability Institute which combined research in global systems with practical demonstration of sustainable living, including the development of cohousing on organic farms which is also known as an ecovillage. Her book, Thinking in Systems, is more or less a collection of her research and studies on systems modeling and systems thinking that offers insights on how to solve problems on a personal level all the way up to the global scale.
Meadows defines a system as a set of independent things that are interconnected in a way that causes them to produce their own patterns over time. Nearly everything is a system, from our bodies to the universe and the computer you use to watch this video. Systems are influenced by outside factors, but any system’s patterns are largely internal. For example, the market economy has natural ups and downs that can be impacted by politics, but is not driven exclusively by them.
A system consists of elements, interconnections, and functions. In the case of human-built systems, function could also be a purpose. Stocks are the “foundation” of a system and are the element that you can see, feel, count, or measure. Customer satisfaction levels can be a stock, for example. Stocks change over time through the actions of flows, i.e. sales, growth, shortages, failures, etc.
You can understand the behavior of complex systems if you observe the dynamics of stocks and flows. A bathtub is a system that consists of inflow (its faucet), outflow ( its drain), and stock (the water in the tub). If you plug the drain or turn down the water, the stock is impacted accordingly.
A feedback loop is formed when changes in stock affect the flows into or out of that same stock. A prime example of this concept is interest as it relates to the amount of money in a bank account. Likewise, if you see less money in your account, you might react and take more work and thus the cycle continues.
A reinforcing feedback loop enhances whatever direction of change is imposed on it. High inflation leads to higher prices, increases wages, and leads to price hikes. Reinforcing feedback loops are found whenever a stock has the capacity to reproduce itself or grow as a constant fraction of itself.
If you support positive feedback loops like reinvestment of profits, this behavior can be harnessed. The more customers leave positive feedback about your company, the more people will try it and leave more feedback. Over time, your stock - in this case, customer satisfaction - will reproduce on its own. It’s possible to calculate the amount of time it would take to double a stock within a reinforcing feedback loop. The “doubling time” equals approximately 70 divided by the growth rate (in percentage). If you deposit $100 at 7% interest, it will take you 10 years to double your initial investment.
Negative reinforcing feedback loops are better known as “vicious cycles.” If you’re stressed, you might eat a tub of ice cream, which makes you feel guilty, which stresses you out, so you reach for more food. For example, if you allow performance standards to be influenced by past performance, it sets up a reinforcing feedback loop that lowers goals and sends your system towards low performance. To avoid this, set standards according to the best performances instead of being discouraged by the worst.
Another reinforcing feedback loop occurs when winners are systematically awarded with the means to win again. If allowed to continue, winners take all and losers are eliminated. Combat this loop through diversification, like antitrust laws, or devise rewards for success that do not bias the next round of competition in favor of previous winners.