Systems thinking says that our problems emerge from a network of influencing factors and their relationships. We can use causal loop diagram to visualize them .
The example diagram shows that our sales increase when demand increases and that demand decreases when price increases. There are reinforcing and balancing loops that work in the same or the opposite directions. Delay between sales and capacity results in a non-linear relationship between them.
We can try to understand for example price elasticity using our simple model and data that we have gathered. Just correlation of factors is not enough. We need to understand the mechanism. We may also have a mechanism but not the effect. We don’t know for sure which one is the cause and which one is the effect. Does demand drive price or price drive demand or both. Timing and the numbers has an impact on the behavior of the system, because the relationships are non-linear and we have feedback through capacity in this example. We can use calculations and computer models in addition to tests and experimentation.
Testing the hypothesis
When we understand the system of influencing and contributing factors of our problem, we brainstorm to create interventions to the system that resolve the problem. For example we might get more sales if we give discounts to our customers. This would increase demand and sales as a consequence.
We need to be careful and test whether our sales are better with discounts than without because there are unknown factors in complex systems. We don’t know what will the competitors do. There might be opportunities in the business environment that we can’t predict. We can’t analyse forever. We have to act now.
We can use randomized double-blind study that the gold standard in medical research. We need to know whether the changes of our sales are due to discounts or something else. In an experiment we divide customers randomly into two groups: 1. those who get a discount and 2. those who don’t . This kind of A/B-testing is widely used.
Results depend on the sample and customer selection. Because there is a possibility of chance, experiments have be repeatable. In complex world they are not. Rules of our game change. We will never have all the data and we don’t know and understand all the contributing factors perfectly.
Because we can’t predict the outcome in uncertain world, we proceed step by step. We adapt after each step because, we cannot make a comprehensive plan. We are moving forward all the time. Error steps are possible and allowed.
Leaders are humble servants of others that catalyse the discovery of new problems and better solutions. Life in uncertainty is like life of a scientist and a gardener.
We tolerate and appreciate different opinions. Evidence-based solutions succeed and bad ideas fail quickly when we have freedom of science, discussion and communication. Censorship is detrimental to creativity.
- 2.David Snowden: A Leader’s Framework for Decision Making:https://hbr.org/2007/11/a-leaders-framework-for-decision-making
- Why did Titanic sink ? https://www.youtube.com/watch?v=38RlXdr4Np0 (4m39s)