Systems thinking in scaling business

I've spent a lot of time over the past nine years exploring leadership in growing businesses. One area I've been delving into more has been systems thinking.

It's a way of thinking about our world that can be tricky to understand for anyone but the most avid student.

But I know also that systems thinking is something I wish I'd understood more about earlier in my career. It provides a solid framework for interpreting what happens in growth businesses.

So what is systems thinking?

At the simplest level it's an approach that considers parts of a system and how they relate to each other. In most of my work, the system in question is the organisation of a business.

Donella Meadows?is an OG in the systems thinking world. Here's her take on systems:

1. Systems are made up of a set of?things.

In the case of a business those "things" could be the people who work there, customers, partners, technology platforms, policies, processes or indeed anything else that exists in the business.

2. Those things are all?connected to each other. A connection can be direct or indirect.

3. The connection between two things produces a?pattern of behaviour. This is a quality that is emergent as it's determined by the way those two things interact.

4. Because all the things are?interconnected, you can't view that pattern in isolation. Everything connects to everything else. The way each "thing" behaves is dependent on everything else.

Donella Meadows' book sets out systems thinking in detail.

This way of thinking about scaling businesses is better than the traditional linear thinking I learnt in my early career.

In linear thinking you'd look at the interaction between two things - A and B.

You'd assume that because you make a change to A, you can then predict what would happen to B.

Think about a growing SaaS business with a small customer success team (let's call this team "thing A").

The business invests in expanding this team. Linear thinking might lead to you to expect customer satisfaction ("thing B") to increase .

But with a systems thinking mindset you wouldn't make that assumption.

That's because thing B is connected to thing C and so on. The way A and B interact depends on C (and in turn all the rest of the other things in the system).

So in our SaaS business the sales and retention team ("thing C") works pretty independently.

As customer satisfaction started to grow, they might see that increase as a signal that prices can be hiked to grow revenue. This in turn drives down customer satisfaction offsetting the original gain in satisfaction.

That's a super oversimplified example. But it shows how thinking of a scaling business as a system opens up new perspectives.

Feedback loops

These are where an action that's taken returns back to where it started through a loop in the system.

In our example the newly expanded customer success team starts to experience delays in responding to customers. That's due to increased contact volumes complaining about the price increase.

There are two types of feedback loop to think about in systems:

• a?reinforcing loop?- where the original action is reinforced by the feedback from the system. In the SaaS example the complaints from customers might lead to the business hiring more customer success people to deal with the volume.
• a?balancing loop?- where the original action leads to a signal that moves the system in the opposite direction to restore balance. In our example this might be where the customer success team identifies the pricing issue early. It then works with the sales team to change pricing policy for existing customers, reducing the complaints.

This post is a useful more detailed look at feedback loops.

Leverage points

So now this is all sounding quite mind blowing. And it can be a real rabbit hole to get lost down. Bear with me.

A concept that I talk a lot about in my work in growth businesses is leverage points.

These are simply places within a system where a small change can make a big difference.

They're the things that are as close to the mythical "silver bullet" in the world of business as you get.

Understanding how your business works as a system better now means you're more likely to spot the leverage points. Then you can really start to work deliberately with those leverage points to move forward.

Here's a deeper dive into identifying and working with leverage points

Complexity

Most of what we do when scaling a business is seeking to drive change.

We define how we want things to be in an ideal future. We come up with ways of making that future a reality - closing the gaps between the ideal future and the present.

But complexity undermines the practicality of that view of how change happens. It challenges the belief that we can really understand the impact of the measures we put in place to close the gap.

Complexity encourages leaders to take a different mindset for change.

Through better understanding how and why the business works now, you can see what you might try to change next. You define the direction of travel, not the destination itself.

Another big thinker in this world is Dave Snowden. He says:

Managing the present to create a new direction of travel is more important than creating false expectations about how things could be in the future.

Check out more practical detail from Dave on how change works in the worlds of systems thinking and complexity.

It's quite easy to get overwhelmed when thinking about all this in practice.

I find?Cynefin?a practical framework for better understanding the current context.

It gives leaders insights and direction that is relevant to where you start from, not where you're going.

This article was originally published in my?email newsletter Build. To get full articles in your email every week,?sign up?here.