Week 47, 2018
Systems Thinking: Stocks and Flows, Feedback Loops, and Leverage Points
Each week I share three ideas for how to make work better. And this week, those ideas are plucked from the annals for Systems Theory — the study of complex systems and their behavior over time.
Complex systems are everywhere. Nature is a complex system. As is the economy, the city you live in, and the organization you work for. They’re called “complex” because they contain component parts and dissing arrays of interconnections.
Last week’s issue talked about leadership in general and Structural Leadership in particular. And it struck me that the Systems Thinking (i.e., the act of considering whole systems) is a necessary skill set for effective structural leadership.
So. What exactly is Systems Thinking?
1. Stocks and Flows
“Systems thinkers see the world as a collection of stocks along with the mechanisms for regulating the levels in the stocks by manipulating flows.” ― Donella H. Meadows
At the most basic level, Systems Theory teaches us that complex systems are made up of stocks and flows. Take your bank account as an example. The state of that system is the amount of money you have in stock. And each time you make a deposit or a withdrawal, money either flows in or out of that stock — changing the system’s state over time. Trust is another good example. If trust was a battery (as Shopify CEO Tobias Lütke is fond of saying), that battery would either charge or discharge depending on your interactions with other people. And the state of system — its stock — is the amount of trust you managed to accumulate and retain over time.
2. Feedback Loops
“You think that because you understand ‘one’ that you must therefore understand ‘two’ because one and one make two. But you forget that you must also understand ‘and.’” ― Donella H. Meadows
Complex systems are complex because they contain stocks and flows on the one hand and a myriad of interconnections on the other. Imagine, if you will, that you’ve managed to accumulate a bit of money in your bank account. If you’re like most people, you might use this as an excuse to spend a little more as well — buying that new phone you’ve been wanting. This “perceived state” is a negative feedback loop. The more money you have in your account, the more money you are likely to spend. And this is true for trust as well: the more trust you’ve got built up with another person, the more likely you are to ask them for favors. You save and you spend. The system self regulates.
3. Leverage Points
“If you define the goal of society as GNP, that society will do its best to produce GNP. It will not produce welfare, equity, justice, or efficiency”. ― Donella H. Meadows
Every system has a purpose. That is, its stocks, flows, and interconnections are organized to produce a certain outcome. You can influence that outcome by way of targeted interventions. In the case of the economy, you can, for example, tweak the interest rate. An increase will remove money from circulation (money flows into your account). A decrease will stimulate consumption (money flows out of your account). Whether you find this desirable or not depends on your point of view (good for you, bad for society). And that is the most potent leverage point of all: no intervention is as powerful as changing the intended output. Just imagine an economy designed for happiness rather than growth!
I got my first exposure to Systems Thinking back in 2014 curtesy of Donella H. Meadows’ book Thinking in Systems: A Primer (from which I’ve sourced the above quotes). And if you want more information on leverage points, I can recommend this essay — also penned by Meadows and recommended by fellow Systems Thinker Christopher McCann (Thanks, Chris!).
Next week’s issue will seize on the above notion of “intended output” to talk about disruptive innovation. As it happens, Systems Thinking provides a great backdrop for understanding this elusive and much sought after ideal.
