21st Century Organisations: Part 1 - Rebalancing with a systems perspective

Can organisations better adapt to the 21st-century challenges of environmental degradation, social inequality, and just transitions by adopting systems thinking? We think so.

In this first part, we explore the value of systems thinking as the basis for helping us rebalance our 20th-century foundations with 21st-century aspirations for a more sustainable, just and equitable future.?

In today's complex and interconnected world, organisations need to embrace systems thinking to thrive, become regenerative and redefine success. Systems thinking is a shift in mindset, moving away from 20th century mechanistic, linear and reductionist perspective to a more dynamic, circular and interconnected perspective required for 21st-century problems.?

Clearly, though the reductionist mindsets of the 20th century produced many incredible outcomes, especially in advancing scientific knowledge and material production processes, breaking down complex systems into smaller, more manageable parts for example,?allowed scientists to specialise in biology, chemistry, and physics leading them to study individual components in-depth and uncover the fundamental principles that govern them. We learnt more about cells, viruses and bacteria, it gave us the periodic table and the elements and helped us discover atoms, protons, neutrons and quarks. These understandings advanced modern medicine and gave us modern technologies.

But we became addicted to reductionism and forgot how interdependent and connected the world is. We put aside the fundamental truths that our ancestors understood and became blind to them. In the end, our addiction to reductionism over the past 300+ years may have caused us more problems than it helped solve. For those tasked with navigating organisations through the 21st century, we shouldn’t seek to throw out all of that incredible thinking. We should quickly seek to rebalance our thinking and relearn how to see the world and its problems as interconnected and dynamic with systems thinking.?

Relearning Systems thinking

Systems thinking is an approach that recognises how different parts of a system are connected and influence each other. It looks at the bigger picture and sees that everything is part of a larger whole. It considers how the relationships and interactions between different elements influence and shape the behaviour and outcomes of the entire system. Instead of focusing on isolated parts, systems thinking helps us understand the whole system and how changes in one part can affect the others. It helps us see the interdependencies and patterns, enabling us to make better decisions and begin improving the behaviours and overall health of a system through a collection of interventions.

Organisations can use systems thinking to see themselves as part of a larger ecosystem. Just as a tree needs sunlight, water, nutrients, other animals and trees to thrive, businesses need to consider themselves as interconnected systems, and see the components and relationships that enable them to thrive. With this understanding, 21st-century organisations will be able to see and understand their impact on the environment, society, and the economy. They need to understand how their decisions and actions can influence these interconnected systems and work towards creating positive outcomes for all stakeholders, human and non-human.

By adopting a systems thinking approach, organisations gain a deeper understanding of the intricate connections and feedback loops that shape their operations. For example, product development can use systems thinking to consider the entire product lifecycle, from conception to disposal. It should encourage cross-functional collaboration between product teams, marketing, and customer service to ensure that products meet customer needs, align with the company's strategy, and have a positive impact on the organisation and its stakeholders. By taking a systems approach, organisations can avoid siloed product development and create products that integrate seamlessly with other offerings and enhance the overall value proposition. Systems thinking in organisations enables them to recognise that isolated solutions or quick fixes may not address the root causes of problems they face. Instead, they seek to identify the underlying dynamics and interdependencies within the system to create more effective and sustainable changes.

Ultimately, systems thinking allows 21st-century organisations to untangle the complexity of our world and make informed decisions that promote sustainability, equity, and long-term success. It empowers them to navigate a dynamic and interconnected web of relationships, create positive impacts and reduce potential negative impacts within their own walls and within the broader systems they are a part of. This is particularly true for leadership and strategy development, systems thinking can help leaders see and consider how strategic decisions affect different aspects of the organisation and the potential knock-on effects of those decisions across a series of functions like operations, finance, marketing, HR, product and beyond. A systems approach to strategy enables a comprehensive understanding of the organisation's strengths, weaknesses, risks and opportunities, leading to more effective and adaptable strategic plans.

Systems thinking principles for 21st century organisations

To begin to achieve this organisations, their leaders and their teams need to learn and adopt a series of key principles and practices that form the foundations of systems thinking. Beginning to see, understand and work with the following concepts will help:

1. Nested Systems

Nested systems allow an organisation to see the interconnected and interdependent structures, within and around them, defining their context. Systems are everywhere, individuals themselves are a system, sat within a team, sat within a department sat within the organisation which is in turn nested within a market, within communities, within nations, within ecosystems and adjacent to or linked with other ecosystems, nations and communities as part of its supply chain. These systems interact and influence one another, creating a complex web of relationships, behaviours and impacts. Understanding these nested systems is crucial for effective decision-making and the creation of long-term sustainable strategies as it allows organisations to consider the broader implications of their actions and build collaborative relationships with stakeholders.

2. Interconnectedness

Understanding interconnectedness highlights how various components, such as people, processes, departments, and stakeholders, are not isolated entities but rather share relationships that make them parts of a larger system. Changes in one area can have direct or indirect consequences on other areas, creating a chain reaction of effects throughout the organisation or the broader system. Seeing the world through these lenses brings to light the relationships within and between systems, it begins enabling organisations to make better decisions as they can attempt to understand and see the unintended and connected consequences of decisions. Additionally seeing everything as interconnected debunks economic doctrines such as externalities and shows us how our behaviours have consequences, this understanding ultimately requires us to think differently about things like value, scale and impact.

3. Emergence

Is when the definable and easily identifiable elements of a system interact and build relationships producing something identifiable, with its own essence and characteristics. This phenomenon of emergence highlights how, from simple elements interacting we get complex patterns, behaviours and properties. Emergence shows us that a system can have behaviours and properties that aren’t understandable or predictable based on knowing individual components. These emergent behaviours and outcomes can only be understood by exploring the relationships between components and the greater whole. Organisations that embrace emergence and harness it by fostering cultures of collaboration, experimentation, learning and empowerment are often better able to respond and adapt to dynamic and complex problems.

4. Synthesis

Is about helping understand the individual components of a system and the whole simultaneously. Synthesis is what leads us to see emergent properties. It goes beyond analysis which is the breaking down and separating of the components of a system without understanding their relationships. Instead,? the process of synthesis is expansionist, it seeks to bring things together to create understanding through identifying relationships rather than breaking them down. It provides a new and integrated way for us to see and understand a system. Synthesis can allow organisations to make better-informed decisions about the strategies and solutions they create.

5. Feedback loops

Play a crucial role in understanding how a system behaves and evolves over time. Feedback loops are self-regulating mechanisms where the outputs of a system are fed back as inputs, influencing and shaping future behaviour. There are two types of feedback loops: positive and negative. Understanding feedback loops is essential for organisations as it provides a systemic view of how their actions and decisions influence the overall system behaviour. It helps organisations anticipate and manage unintended consequences, address complex problems at their root causes, and foster a culture of learning and adaptation. By harnessing the power of feedback loops, organisations can better manage emergent behaviours and shepherd an organisation towards becoming more sustainable, equitable and just. They can also begin to see and understand how a collective of nested systems and their goals creates feedback loops and how they drive the overall health of a system.

6. Non-linearity

Challenges the traditional linear cause-and-effect relationships. In a non-linear system, small inputs can lead to disproportionately large outputs, and small changes can trigger significant and unpredictable effects. This principle emphasises that the relationship between cause and effect is not always proportional or predictable. Understanding non-linearity is essential for organisations because it highlights the inherent complexity and unpredictability of the systems they operate within. In a rapidly changing and interconnected world, organisations must navigate a multitude of interdependencies, feedback loops, and emergent behaviours. By embracing uncertainty, anticipating unintended consequences and emphasising systemic thinking organisations can navigate and thrive in the dynamic and non-linear environments that will define the 21st century.

7. Time

In systems thinking, time can be linear or not but it's definitely dynamic, with events and changes occurring at different paces. Organisations need to consider the temporal dimension to recognise the compounding long-term consequences of their actions, anticipate trends, and adapt to or be the creators of evolving conditions. Understanding historical patterns and future projections allows organisations to make strategic decisions that align with their sustainability and long-term goals.

8. Diversity

Systems thinking emphasises the significance of diversity, not only in terms of humans but also non-humans, in ideas, perspectives, and experiences. Embracing diversity within and outside the organisation fosters creativity, innovation, and adaptability, leading to more robust problem-solving and decision-making processes. Embracing diversity also allows organisations to better understand the diverse needs and expectations of stakeholders, enhancing their ability to meet and exceed expectations.

These attributes apply to the external impact of the organisation as well as the internal operations of the organisation. A 21st-century system-thinking organisation utilises the right processes for the right application. That is to say, they use systems thinking to make sense of the world and make informed and strategic decisions before moving to take action on some of those focus areas by using more traditional linear organisational approaches that are supported by systems thinking approaches.

Example: Patagonia a 21st-century systems thinking organisation

An example of an organisation that showcases a clear use of systems thinking in its operations, supply chain and relationships with broader systems to drive both positive outcomes for the organisation and for people and the planet is Patagonia:?

Producing (US) $100 million in profits yearly Patagonia has used systems thinking to show that by holistically understanding the organisation, its people, and the context they operate within you can drive operations that both generate profits and improve social and environmental systems. By understanding how its operations create feedback loops into broader social and natural systems it has made strategic decisions that focus on long-term success by promoting the long-term health of the planet and all other systems nested within it.

“I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money.” - Yvon Chouinard?

Patagonia’s mission to “use business to inspire and implement solutions to the environmental crisis.”? is what drives their decision-making and has clearly enabled Patagonia to re-think characteristics like value, success and scale in ways that often feel contradictory to how 20th-century organisations operate, all whilst being incredibly profitable. Their current CEO Jenna Johnson explained the company’s unique culture is due to the fact that “everyone has intentionally chosen to come to Patagonia… because they believe in our mission”. Patagonia has successfully found ways to amplify positive feedback loops and direct the self-actualising nature of individuals and teams as nested systems inside Patagonia towards a mission and purpose that is focused on and nested within a global imperative, the environmental crisis.?

Trust and flexibility have been key in Patagonia enabling this, passionately empowering its staff and providing them with the trust to creatively and flexibly pursue the goal of creating solutions for the environmental crisis. Staff operate with a huge degree of autonomy allowing for the emergence of internal and external interventions that support them in their mission even when they aren’t obviously connected. One example of this is their Great Pacific Child Development Center, which looks after 80 children and employs nearly 30 staff members, it allows parents to eat with their children at lunch or after school hours and spend time together doing activities on site. The entire operation costs $1 million dollars a year to operate. Patagonia’s Human Resources department calculated that their Ventura site recoups 91% of its cost through tax breaks (50%), the value of retention (30%), and employee engagement (11%). Coming in at just .005% of Patagonia’s operating expenses, senior leadership believes the ROI of this investment certainly justifies the expenditure as it answers the needs of their employees by providing support to balance work and life, which in turn enables staff to be the parents they need to be whilst fulfilling their purpose and role at work.

This kind of investment feeds back into the business and its people and can be seen throughout Patagonia’s structures, from 45 hours of self-directed training per year to the two-month Environmental Internship Program which offers all Patagonia employees the opportunity to work with an environmental group of their choice while continuing to earn their paycheck and benefits, to their famous ‘Let my people go surfing’ policy which encourages flexible hours so that staff can pursue their passions when the surf is best or the weather is great and still be trusted to deliver results. These aren’t just great working benefits they enable staff to take care of themselves so that they can do the heavy work to deliver positive results for the company, whilst taking care of the environment, these activities harness and amplify employees’ passion, expose them to a diversity of experiences and thinking and inspires them to develop new products for the company, which has lead them to become the number one market share holder in the outdoor apparel market.

Patagonia obviously also pursues more direct interventions as a 21st-century company striving to meet its mission. They have put a significant amount of effort into improving the sustainability and fairness of their supply chain. 87% of the materials they use are from recycled sources and where materials can’t be sourced from recycled materials they ensure those materials are organic and use best practices to be as sustainable and ethical as possible. This relentless pursuit to be better also drives innovation at the company having patented innovative ecologically safer materials like a rubber wetsuit made from a desert shrub and textiles made from protein-based silk. This pursuit isn’t just about Patagonia’s material and carbon footprint but also about workers' rights Patagonia is working to improve wages, increasing cash bonuses and providing health programs to all workers throughout its supply chain. Patagonia has increased the percentage of Fairtrade production from 24–45% and is continuing to seek improvements. In addition to this Patagonia works hard to keep its products out of landfills. They collect and refurbish their old gear and encourage customers to buy second-hand clothing instead of buying new, keeping clothes out of landfills and preventing new articles from being made.

“We have to be cautious about growing too big. A company doesn’t last 100 years by chasing endless growth…so we’re focused on longevity, not expansion.” - Yvon Chouinard.

As Patagonia continually strives to improve itself and answer its mission it has clearly recognised that these issues are complex and require new and creative ways of thinking and being to tackle them. This is evident in their long-term strategies, Patagonia is both abnormal and incredibly cautious in its approach to growth. Deciding instead to focus on their longevity and ability to have a continued impact “We have to be cautious about growing too big. A company doesn’t last 100 years by chasing endless growth…so we’re focused on longevity, not expansion.” - Yvon Chouinard. Part of their ability to be different is in Patagonia’s structure, it is privately held and not beholden to maximizing profits for shareholders so has instead emerged as an adaptable company that can be responsive to how human and environmental systems change around it. The structures, values and culture that Patagonia has grown will allow it to be a catalyst for transformative change in its industry and beyond for decades to come.