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How to Use Systems Thinking + Strategic Thinking

Issue 40: January 27, 2022

One of the common complaints about the ongoing explosion of startups is that they tout a solution … as it turns out in many instances, to a problem that usually doesn’t exist. We envy their innovation, admire their flexibility and applied agility, but entrepreneurs often don’t look deeply enough to understand if there is an actual problem that their solution seeks to address. It’s not just the innovators. Many of us don’t see beyond our own creative development and therefore, like entrepreneurs, fail to see that the solution is really looking for a problem to solve.

Our excitement energizes us with the potential, which can influence us to overlook our own gaps in understanding how the solution applies to a real-life problem. For example, in the case of the stock market, we invest heavily in selected companies following the lead of the “experts,” with the assumption that they see potential that we don’t. We rally behind the investments as we seek to follow and align with the leaders. In business, this is a perfect example of undermining how a solution fits in the larger system by not correlating critical thinking to a set of real and well-formed outcomes.

Falling in love with a solution misses the point if it is searching for a problem and therefore a reason to be in business – particularly if the solution is out of context with your own organization. Failing to identify and define the real problem is like shooting in the dark. Without skill and practice, you might get lucky and hit the bullseye. But how many times did you miss altogether? In today’s rapidly changing society, each miss comes with consequences impacting short-term sustainability and long-term viability and growth.

First things first: What problem are you actually trying to solve? Does the problem really exist? Is how you or others define the problem reflective of the systems (including the environment) which your organization serves? And lastly, how are you trying to solve the problem?

There is a school of management that believes solving problems with strategic thinking and constructs is the answer. Another believes that systems thinking is the more relevant and actionable way to solve problems and be competitive.

We believe that the confluence of both schools of thought is necessary for a dynamically changing environment. Most important to the foundation of this confluence is defining the context and the systems that comprise the external and internal environment that the organization exists within and is influenced by. At 2040, we focus on the importance of aligning factors and variables in the context of macro (globe, region, country, and locality), meso (organization) and micro (individuals representing customers and employees) systems. Each of the three systems is distinct but also influences and impacts the intersections and dependencies across all systems. When you add the layers of shared purpose and market orientation to these three systems, you have a complete picture of the operations, capability, capacity, and orientation of the organization for change and transformation.

But watch out! Our own biases, perceptions and behaviors often influence how we see and construct any system. Our human defaults inform and structure how we define strategy and what we consider strategic thinking. What happens is that we become so comfortable with our “solution” that the problem is rarely defined on a level that recognizes all the factors and variables across systems. Why? Because the span of information and various viewpoints needed to appropriately define and assess the problem isn’t within the capacity or inherent knowledge of one individual or even a group of individuals. It takes understanding the confluence of systems with the wisdom of strategic thinking using contextual analysis, objective data, and shared knowledge.

It’s complicated, no doubt. But given technology, changing societal norms and behaviors, evolving customer demands, speed to market, and a plethora of competitive forces, the exercise of understanding systems and strategic thinking is all the more critical.

So, what’s the difference between systems thinking and strategic thinking?

Systems Thinking vs Strategic Thinking

Strategic thinking is making direct decisions to achieve defined outcomes (not outputs); whereas systems thinking looks at the entire system. Systems thinking examines how the mesosystem (organizational system) in the context of the macro and microsystems, provides an understanding of the contextual reality encompassing the factors and variables that are driving and influencing change. According to Pearl Zhu, “Systems thinking looks at things by looking at the whole with the parts benefitting the whole.” She adds systems thinking informs strategic thinking. “Systems thinking is more synthetic, descriptive and dynamic; strategic thinking is more analytical, decision-oriented and directional. A strategy is enhanced by systems thinking because it looks at each part of the organization (business lines or functional areas) in relation to the profitability and long-term success of the whole organization.”

Zhu says, “Strategic thinking is about where you are, where you want to be, identifies the gaps and creates the alternate approaches to anticipate and provide solutions.” Systems thinking looks at the whole picture holistically and involve the sequential alignment of a series of steps to fulfill the strategy.

Let’s put it into perspective. How often does a leader or board set a direction with a vision that is aspirational without context to the capabilities, opportunities, challenges or gaps in the present-day organizational system? How often does a leader’s or board’s pet project take center stage, consume valuable resources, and present a solution that is designed as a falsely defined problem? These situations often result from a leader or board seeking to make their mark.

The perceptions of the collective or individual often run counter to true reality in terms of how the problem is defined and predicated on what basis and set of facts. Systems thinking in the workplace is a way of viewing an organization holistically and being able to examine and connect the linking parts, which reflect the systems within systems that organizations exist within. By examining your organization systemically (representative of the macro, meso and micro systems perspective), you will be able to create efficient processes and avoid practices with unintended, and potentially negative, outcomes that don’t address the real problems that exist. A highly effective strategic and systems-oriented organization creates sustainable, relevant, contextual, and fully defined outcomes and goals. It also has standard processes for identifying and describing necessary ongoing tasks and organizes the workforce in a systemic and consistent structure, including defining people’s roles to avoid overlapping responsibilities or ambiguous functions.

Far too often, organizations measure outputs, which represent the level of effort applied to any given situation. The result of this metric is the failure to align to outcomes and the contribution to strategic direction in the context of the system, shared purpose, and market orientation. These mandates form the basis to evaluate, identify and define the true systems in the context of the strategic direction. Systems thinking can uncover gaps, omissions or false premises of the purpose or orientation which can then lead to improved strategic thinking.

We hope you see the synergy between strategic and systems thinking as self-evident. Zhu adds, “You cannot have a strategy without first understanding the system, and you cannot have a system without first developing a strategy.” Strategic and systems thinking are complementary processes in running today’s complex and connected organizations. Let’s further unpack the theories and schools of thought with a bridge to practice amplifying how they interrelate and provide value to any change, transformation, or organizational adaptation to a market.

Strategic Thinking

Strategic thinking looks at the business goals and how to reach these goals ensuring each is defined as outcomes, not outputs. Strategic thinking is about why and what you want to achieve in a particular context and the whole configuration of interconnected and continuous interacting components and systems, explains Zhu. Strategic thinking can be aspirational, but it must identify and define the real problems seeking solutions correlated to the organization’s realistic capabilities.

Cecilia Lynch, founder, CEO at Focused Momentum defines strategic thinking as “the ability to focus on the ultimate goal and work backward to ensure alignment of action to this goal as one plans or resolves problems. By orienting thinking to longer-term goals, strategic thinkers ensure the deeper exploration of stakeholders, new alternatives and possibly reexamination of options previously dismissed.” Another way to look at it is that strategic thinking incorporates and embeds systems thinking in the development of planning and embraces critical thinking to objectively represent organizational context and capability. Strategic thinking requires that a long-range view of success is defined and can be shared broadly and deeply across the organization, i.e., the organizational system.

Systems Thinking Decoded

2040’s definition of contextual analysis views systems from three distinct perspectives (macro, meso and micro) that include overall structures, patterns, cycles, intersections and influence across each perspective. Systems thinking requires a practice of critical thinking: analyzing the relationships of environmental factors and variables that exist among the system’s parts which then enables understanding a situation for better decision making.

So, what is a system? It is a set of parts that interact and affect each other, thereby creating a larger whole of a complex thing,” as defined by An organizational system (meso system) consists of many parts: employees, management, capital, equipment, and products. Moreover, systems thinking is a shift from traditional organizational decision-making and breaks systems into parts, factors and variables by analyzing the entirety of the system. Supporters of systems thinking, including 2040, believe that how we have historically created strategy is inadequate for our dynamic world. We did not have the information or tools to fully understand the true factors and variables that define and influence the problem we sought to solve. In today’s data-rich, interconnected and information expansive society, we can more deeply and appropriately leverage systems thinking.

Systems thinking examines the interactions of the parts in a system to reveal larger patterns. If the patterns are positive for the organization, decisions can reinforce them; and if the patterns are bad, decisions can change the pattern. Zhu adds, “Systems thinking as a practice promotes a better strategic awareness: It encourages looking at the wider aspects around any problem space and then understanding the effect of imposing boundaries within that space.” We would add that systems thinking reveals true capability and capacity — particularly in the context of how an organization should operate, what resources it consumes and its route to further its strategic direction.

Consider our previous newsletters on assessing an organization’s readiness for change or transformation, measuring what matters and decision making. Each surfaces the criticality of fully understanding the organizational system to determine if it has the complement of skills, knowledge, capability, and capacity to achieve its desired outcomes. Once again, aspiration is a wonderful exercise and it can offer inspiration to a goal or strategic direction, but if it exists in contradiction to the organizational system (skills, knowledge, capability, and capacity) then it remains in the ether and will never be realized.

Actualizing Systems Thinking

Jonathan H. Westover, Ph.D. has suggestions on making systems thinking operational in an organization. He states that “good organizational change and development require a systems-thinking mindset and an interdisciplinary, holistic approach to tackling complex organizational challenges.” From an actionable perspective, he adapts the elements developed by Leyla Acaroglu, a systems-thinking educator, to create a systems-thinking mindset and construct. We have augmented the concepts to include the macro, meso and microsystem constructs.

  • Interconnectedness and synthesis relate to the dynamic relationships between various parts of a whole and the process of creating synergies among parts of the company. This mindset shifts from linear to circular. Circular, in 2040’s definition represents not just a single circle of connected and dependent parts, but overlapping circles that surround, connect and reveal values, activities and actions.
  • Emergence relates to the outcomes of synergies that emerge as the elements of a system interact with each other in nonlinear ways including the consideration of factors and variables that comprise and influence the system. In the workplace, this often takes the form of the push and pull that happens due to organizational politics, individual goals and objectives for personal gain and competing priorities. Organizations with a systems-thinking mindset will see this as an opportunity for revealing “truth” that can inform potential new or enhanced collaborations and innovations.
  • Feedback loops provide guidance for making adjustments as you learn more about the interconnectedness of the elements of the system and their outcomes.
  • Causality refers to the flows of influence between the many interconnected parts, factors and variables within the internal and external systems of influence. In the workplace, a skilled systems-thinking organization will ensure mechanisms for multiple feedback loops that provide upstream and downstream constructive criticism (explore our article “Leading with Courage”), is effectively communicated to individuals and teams.
  • Systems mapping is a tool that systems thinkers can use to identify and visually map out the many interrelated elements of a complex system, which will help them “develop interventions, shifts, or policy decisions that will dramatically change the system in the most effective way. By visually laying out the key inputs and outputs connected to the set outcomes, all stakeholders can visually see and more deeply understand the nonlinear complexity of the given system, which can help you make appropriate adjustments to workplace policy, practice and associated systems in your organization.”

Why Systems Thinking Matters

Academicians Marion A. Weissenberger-Eibl, André Almeida and Fanny Seus write that in an increasingly complex business environment, organizations need to reassess their strategic choices on a regular basis. Today, organizations struggle to collect and efficiently interpret the relevant information related to their business environment. Market information is often analyzed, however, influences from the broader environment (e.g., society) are often neglected. Organizations often lack a systemic approach to their strategy development process, and environmental influences are only considered selectively and are limited. Organizations need to be seen as systems that are embedded in a complex environment of systems. To develop a successful strategic orientation, a systematic screening of the environment must be coupled with a thorough analysis of the organization’s internal circumstances, e.g., capacity and capability, competencies skills and knowledge).

According to Zhu, systems thinking “promotes a better strategic awareness: It encourages looking at the wider aspects around any problem space and then understanding the effect of imposing boundaries within that space.”

Westover states, “Contemporary organizations operate in ecosystems full of interconnectedness and constant feedback loops. Mapping such complex systems helps organizational leaders navigate into adaptive strategies. The ultimate gain is the ability of organizations to be responsive to the changes in ecosystems and to be prepared to fine tune and adapt parts of their organization on the fly. With this understanding, systems thinking provides clear benefits to organizations. It helps in framing complex problems, which are often being misdiagnosed when using linear thinking. It shows alternative directions for improvement with respect to the organization’s inner and outer connections. It gives a significant advantage in increasing the organization’s capacity for change and, as a consequence, to fulfill the vision of organizational sustainability. Although it requires some talent and a deeper understanding of complexity and ambiguity, systems thinking can be successfully introduced and utilized to strengthen organizations.”

Weissenberger-Eibl, Almeida and Seus state that organizations need to develop strategies to ensure their long-term competitive capacity, especially in turbulent environments. Typically, managerial decisions are only as good as the available information and the capacity of the decision-makers to process it. They add it is essential for an organization’s survival to adapt quickly and break away from old patterns. Applying a systemic approach overcomes limited decision-making and information processing and reduces biases in strategy development. Ultimately, the success of an organization depends on how well it fits and adapts to its environment. In today’s complex business and market environment, it is hard for organizations to maintain an overview and gather information about their continuously changing environments without a holistic approach and using systems thinking to chart the strategic direction and way forward.

Getting it Right

In short, solving the right problems result in realistically measured outcomes, ensuring short-term sustainability and charting an achievable path to long-term growth and market relevance. At 2040 we help clients differentiate how systems thinking and strategic thinking look at the overall picture and is an essential tool. The test of good leadership is to know how to form the foundation reflective of both schools of thought. We are here to help master adaptability and agility and mitigate ambiguity, via systems and strategic thinking. We can ensure results reach the bullseye, not dissipate as random shots in the dark.

20Forty Continue Reading

The Truth about Transformation

Book Preview Excerpt

Organizations, whether private companies, non-profits, charities or governments seek to transform to take advantage of new opportunities, including technological advances. Often, technology is the major driver of change that results in transformation. As a result, the organization often fails to achieve its objective and goal to truly transform. You see, technology remains an enabler, not a silver bullet. True transformative change requires understanding of the human factors at play, human conscious and subconscious behaviors, how humans inter-relate and how society itself and all of its members are changing.

Our workforces are changing, the expertise we need is becoming harder to acquire and roles are shifting. In addition, before and because of Covid in 2020, the world around us is becoming very different, a new reality is taking hold, one that will fundamentally change who we are, how we work and yes, how we seek to ensure organizations transform for today and for the future.

The Truth about Transformation, a new book by Kevin Novak, will soon become available. Enjoy a short preview.

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