Introduction in systems thinking using business in the digital age as an example

INTERCONNECTED

Business, education, modern cities, digitalization, environmental protection, transportation, sociology, psychology, food security, health security, cybersecurity, economics, politics, marketing, technology, etc.

At a closer look, you can observe that every "problem" from the list above is chained together with all others, creating complex interdependencies and interconnections.

Introduction systems are thinking systems dynamics and emergent human organizational frameworks.

Let's use the business in the digital age to introduce you to systems thinking, systems dynamics, emergent human organizational frameworks, and artificial intelligence tools to understand and manage complexity.

Imagine a business like a living organism. External conditions and internal are chained together so the organism can keep its structure.

To understand the origin of de modern problems, we need to travel back in history to see how the 2022 world problems have a 450-year origin point.

In The Renaissance, science was born as we know it today, and it created a way of inquiry that we call the scientific method.

The Analysis Method

It introduces a method called analysis that comes naturally to us. You can see it today in children, giving them an object they had never seen before. What process will they go through? The first thing they do they take a thing and take it apart. Then they try to understand what the parts do. And they explore each of the parts and repeat the same process.

This process assumes that you can separate things from the environment and divide them into parts. Knowing the details of parts taken separately, you can transfer that knowledge into understanding the whole.

Linear Reductionism

This paradigm of science, called linear reductionism, is the origin of the Industrial Revolution.

The word reductionism comes from the fact that it reduces everything to fundamental parts like DNA, atoms, cells, etc., assuming you have a complete understanding once you know the basic blocks of knowledge.

The linear word comes from the graphic representation of variables: a line and, later, a sinus.

Our entire culture and organizational structures are built on analytical thinking.

If you go to a university to study business MBA, courses are broken down into parts: digital marketing, finance, human resources, etc.

The courses that you learn are for each domain separately. The assumption behind this process is that the pieces (disciplines) can be assembled back into an understanding of the business as a sum.

Analysis shapes education, science, business, corporations, and daily life. Data in different forms represent it. It became a synonym for human thought.

How do you run a business? You divide it into departments or contract external services like web design, digital marketing, human resources, etc. You arrange to run each department or service separately. Then you try to integrate the running of the departments or services into a whole based on some parameters. It's an analytical process.

Albert Einstein said: We cannot solve our problems with the same thinking we used when creating them. Humanity underwent a complex cultural transformation shortly after World War Two.

Synthetic Holism (Systems thinking)

Most importantly, a new way of viewing the world was introduced in the 1950s, incorporating and challenging the linear reductionism paradigm and the method called analysis.

The way of inquiry was called Syntethical Holism, also known as SYSTEMS THINKING.

It introduced a real-life meaning to the word system and a method called synthesis (understanding), complementary and procedural, opposite to the principle of analysis (knowledge).

Since its introduction, the aviation industry, corporations, governments, modern medicine, and engineering have used this paradigm to handle complexity. The word system is used today in the everyday cultural language, but there is no social understanding of what a system is and the impact on daily life that this produces.

What Is A system?

Let's start with a few examples of systems: a car, the human body, a tree, and a business.

A Car

The fundamental property of an automobile is that it can take you from one place to another. No single part can do that: a wheel, a gearbox, an engine, etc.

If you disassemble a car, you would no longer have a car, even if we kept every piece in the same room.

The car is not the sum of its parts but the product of its interactions. In other words, once we take a car apart, it loses its fundamental function.

Suppose you want to build a car with the principle that you choose the best parts in the market from other automobiles: the engine from a Ferrari, the gearbox from a BMW, the touch screen of a Mercedes, etc.

You bring all the pieces to the same garage to assemble them with the best mechanics. You will not have a car because the parts don't fit. This observation has enormous implications for how we see things in daily life.

The Human Body

The fundamental property of the human body is life. No separate organ, the heart, the lungs, the brain, or the eyes, has this property. The eyes do not see the whole human sees. The brain doesn't think the whole human thinks. If you take the human body and disassemble it, it loses its essential property life, which cannot be recomposed from the pieces once lost.

Modern medicine performs surgery on body parts to solve a specific problem with the condition that the property of life is to be preserved. Improvements of the parts, if made separately without keeping the property of the whole in function, will create the collapse of the whole.

A system is a whole that results from the interaction of the parts, not their sum. Systems lose their essential property if you take them apart. The property of the whole is not found in any of the separate parts.

The conclusion is that you cannot understand the nature of a system by analysis. The analysis concept is to isolate things from the environment and divide them into parts.

Synthesis (Understanding)

A new method of inquiry was introduced called synthesis (understanding), which is opposite to analysis and reveals that understanding a system is outside the system, not inside. The searched answers are in superior systems that contain the system you want to understand.

In the case of a tree, the environment becomes the primary factor in understanding, and just by separating the tree from the environment, the understanding is reduced. In the case of a polar bear, its white fur is an adaptation to the environment in which it lives. The procedure of synthesis is counterintuitive. Let's imagine you see a car from the future for the first time and do not know what it is.

The first step is to search for external systems like road systems, the fuel system, the natural environment, etc.

The second step is to understand the systems as a whole.

The third step is to disaggregate the understanding of the whole into parts by identifying their role or function in the containing system: a wheel is designed so it can work on a road, and a windshield wiper is to be used in case of rain.

The car was initially developed for six passengers. No amount of analysis inside the car will help you find out why. Modern problems start by directly applying analysis to systems.

The search answer is in the external social system. The average family was 5.6 members at the beginning of the auto industry, and this number became 3.2.

Analysis reveals how a system works once the synthesis procedure defines the system function and boundary. To repair an automobile, you must analyze it to find what part isn't working.

SYNTHETIC HOLISM (SYSTEMS THINKING) sees things as a complex whole of interconnection, which, once broken apart in pieces, loses essential parts of understanding.

The principle of systems thinking is to expand to include as many things as possible and uses the knowledge of linear reductionism inside its paradigm. It works from the projected future goal back to the present action.

Linear reductionism builds the future from past knowledge that it's assumed could be transferred through teaching in pieces. Its core features are:

• The analysis method.

• Hierarchies.

• Linear cause-effect.

• True or false logic.

• I am creating an opposition between things through distinctions of x vs. y.

Let's move this to a modern entrepreneurial business to see how system thinking gives you a different perspective.

What is the difference between a chess game and a business?

A chess game has fixed rules. Fixed number of players. Fixed goal. This is called linear, defined by the phrase: playing the game does not change the game's rules.

A business has no clear defining rules or shape. The business changes, as defined by the phrase: playing the game changes the game's rules. This is called a nonlinear system. Another example of a nonlinear system is the weather.

One observable characteristic is that predictions become less accurate when you go more than ten days into the future. Let's see other properties of systems by talking about the modern entrepreneurial business.

The first implication is that understanding a business lies outside the business, not inside. The answer is in external systems that contain the business you want to understand.

Financial, political, educational, economic, and social systems reveal why a business is a way it is in a specific part of the world.

Using the synthesis procedure, big companies located in the countries with maximum benefits of the external systems desegregate the knowledge into parts (departments) to help their defined function reach its goal. As a process, a business is similar to designing a car for mass production.

The first step is to create the whole car blueprint. In this process, you create the parts to produce the defined whole function and solve conflicting problems between the parts.

The departments of a business are similar to delimitated pieces of a car represented by marketing, finances, and human resources, which creates a logical reductionist assumption that you can copy and transfer the departments, procedures, and parameters from a portion of a business into another business in reverse, having the same benefits.

Once departments or services are pulled out from the initial whole, they become scattered parts losing interconnections. This resulted in standalone services without connection and no precise shape or form, especially in digital fields adapted for businesses that fit the maximum benefit of the external systems.

The fields of activity or services created in the last 15 years became standalone global domains that expanded fast as independent and developed through copying parameters and procedures by ex-employers of big companies who became entrepreneurs or freelancers. Examples include web design, development, SEO optimization, programming, robot process automation, management methodologies, etc.

Because digital services became fragmented into smaller and smaller parts, now entrepreneurs without the maximum benefits of external systems interact with scattered digital services in reverse. There is no systemic whole for the word "business" or procedures to start incorporating and adjusting the digital domains for entrepreneurs.

The entire process of digitalization of business for entrepreneurs is backward. The digital fields are improving themself from the parts with no whole.

Improving parts independently in systems from parts to the whole will have the worst effect because they do not fit.

For example, a digital marketing agency uses a PPC Advertising Google Ads Campaign to increase sales. The parameters proposed by Google measure everything reporting to a PPC Advertising Campaign as a standalone service. The PPC advertising campaign creates simultaneous triggers in other parts of the business, like customer support, technical servers, web design, etc., which you cannot identify as triggered by the marketing strategy requirements because of how cause-effect works in systems.

Nonlinear Causality

Every small subpart and action in a business can trigger a chain of reactions to improve or collapse the whole. This is called nonlinear causality. The small and invisible things are the root cause of the improvement and collapse of a system. Each system's procedures and parameters will trigger different behaviors in another system (business).

An example of nonlinear causality is in the human body, where a small vein blockage triggers a chain reaction that could make the whole lose its essential property life.

Nonlinear causality goes in many directions chaotically when a factor triggers it. In this reaction, most of the body organs will be affected: the heart, the brain, etc., until this process leads to loss of life. Identifying the blockage as the root cause in reverse depends on the degree of understanding of the whole human body as a system.

To create models for the entrepreneurial business, I use the concept of rhizomes borrowed from biology represented by plants such as ginger. Their roots are like a network that can connect any point to any other point. This introduces a notion of network nodes that could be extended infinitely and connected in any possible way.

With the help of personal management software InfraNodus, I create models for business with text network analysis extracted live from google, social media platforms, scientific papers, and books.

This construct is called Rhizomatic Mind Map, and I will use it to reveal hidden connections between different branches of knowledge assisted by artificial intelligence GPT-3 Insights Recommender. The word TBMOM from this project is meant to describe the entrepreneurial business in the digital age as a systemic nonlinear whole which is represented as rhizomes.

Feedback loops

Feedback loops are a way of mapping relations for behavior between different parts or variables of systems. They are positive or negative, similar to direct proportionality and inverse proportionality from reductionism.

The positive and negative effects happen simultaneously and nonlinearly in the whole network and depend on the feedback loop patterns formed in a system.

A key lesson of feedback loops is that changing one variable in a system will mandatory affect other variables in that system and other systems.

An example is an assumption that increasing sales only positively affect a business.

Systems archetypes

Systems archetypes, also known as systems traps, describe counterintuitive actions when identifying system feedback loop patterns.

Drifting Goals, Shifting the Burden, Limits to Success, Success to the Successful, Fixes That Fail, Tragedy of the Commons, Growth, Underinvestment, and Escalation are solutions used in any fields like politics, education, economy, business, ecology to fix problems in systems.

The Mechanics Of Money

To understand other properties of systems, let's talk about the mechanics of money in a company, which is a social problem because it induces the idea of wealth and success as a business goal through increasing sales without explaining the consequences of owning one.

Suppose a company increases sales in a year from 300000$ to 1000000$. Let's assume that the profit also increased from 15000$ to 50000$ (5%). Let's express the same thing with an equivalent statement. To make 5% as a profit, you need to spend 95% of sales.

So the increase in sales caused the increase in spending from 275000$ to 950000$. But also something else happens. Of the 95% of the income, more than 75% are usually repetitive payments that must be paid in the future to make a profit in the present. Salaries, rents, car leasing, and digital maintenance services will have repetitive monthly obligations in the future.

The 50000$ that a company has declared as a profit is, in reality, much lesser, limited by the customers' delayed payment. This is called a cash flow problem.

A reasonable amount of money collected from the profit is something like 35000$, which is the only cash to reinvest. Other cash resources could be from investors or selling a company's property like cars, buildings, etc.

The more sales increase, the more triggered requirements create other mandatory requirements in other parts of the business, which are in opposition and dependent on external factors.

Obligations of payment in the future are orders of magnitude higher than the profit you make now. The total sales used by entrepreneurs, and digital marketing, to define their success to their fellow entrepreneurs or the general public is not necessarily an indicator of success.

This is due to the behavior of systems and their evolution, which is described in the Systems' Adaptive Cycles, Systems Homeostasis, Systems Self Reflection, Systems Sustainability, Systems Addictions, and Systems Backfiring Mechanisms.

Systems Adaptive Cycles

Systems Adaptive Cycles is a model for how temporal changes proceed through 4 phases in systems: growth(exploitation) (r), conservation (k), release (Ω), and reorganization (α).

You can see the first exploitation stage (growth) in a technology startup that benefits from the economy of scale. This phase builds interdependencies and networks based on positive feedback loops, which lead to fast exponential growth.

The second stage is the conservation stage, in which a system is at equilibrium and reaches a high level of complexity.

A business became well known and considered successful as a brand. The third stage is the release stage, caused by the external and internal dependencies created by the first two stages.

In other words, business success creates rigidity and is the cause of its collapse. This happens because the system has a high concentration of connections and dependencies on several nodes, which are influenced by external factors, making the whole rapidly collapse.

The last stage is reorganization, where systems can adapt to new environmental conditions.

Systems Dynamics is a derivation of Systems Thinking based on the emergence characteristic of systems used to understand the dynamics of social relations.

Emergence is the characteristic of a group of complex systems to drive to a collective property that no study of individual systems will reveal. This you see in the case of ants, bees, or human relations when individuals drive to collective behaviour that you will not find by studying the separate individual.

The collective behaviour of humans leads to the creation of cultures based on their fundamental thought patterns, traditions, spiritual beliefs, etc. After several cycles, the culture shapes the individual from birth, transferring the values and boundaries through educational systems.

Spiral Dynamics (Integral): was created by the psychologist's Don Beck and Christopher C. Cowan, and it's based on the work of Clare W. Graves.

Grouping social values, traditions, religions, emotions, the nature of human organizational evolution, and conflict is created by the pattern of collective thought, which are coloured and graded in different stages. Connecting hierarchical frameworks like Maslow's Hierarchy Of Needs to emergent frameworks like Spiral Dynamics Integral gives you a better understanding of why conflict occurs.

Sources:

Peter Senge The fifth discipline

Donella Meadows Thinking In Systems

Russel L Archoff: Russell Ackoff - U.S. Navy two-day training in Thinking, Understanding, and Learning https://www.youtube.com/watch?v=IK0iv...