Systems Thinking (Part 1)

“No matter how large and successful an organization is, if it fails to adapt to change, then, like a dinosaur, it will become extinct.” — Russell L. Ackoff



A purposeful system is a set of interacting or interdependent components forming an integrated whole, working towards a common purpose. Systems thinking is a collection of skills and formal methods for examining and understanding systems. A business is just one type of system and shares the general properties, for example, rather than the sum of its parts and processes, its performance is a “product of the interactions”[1] of its parts and processes. Some of the most important work in applying systems theory to business thinking (shaping what many consider to be the business excellence paradigm) was by Dr Ackoff. Accordingly, much of the content on this page is based on what he taught. The nature of systems thinking and its contrast with non-systemic thinking can be demonstrated by looking at a simple system in three different ways:


Mechanical Watch Parts

Figure 1: Reductionism — The components of a system examined separately


1. Traditional business thinking is heavily based on the principles of “reductionism”, that is, the process of analysis based on taking something apart and studying the individual components separately (e.g. we might take apart a mechanical watch and examine the gears and springs). This approach helps us to learn about the fine details of a system’s components (e.g. the shape and material of each gear) but gives us little understanding of the whole system (e.g. once it’s taken apart, it is no longer “a watch”).

Changes to the system originating from this perspective can have beneficial effects on the individual parts, while having adverse effects on the wider system. Analysis or decisions which only use this perspective are termed “anti-systemic” to highlight the lack of consideration for the linkages and potential consequences elsewhere in the system.


Mechanical Watch

Figure 2: Systems thinking — The whole system and its purpose


2. Systems thinking entails taking our investigation in the opposite direction, to understand the whole system and its purpose (e.g. providing a portable and accurate display of the time), which is usually defined by looking outside of the system in question (e.g. the users of wrist watches). Only by considering the purpose of a whole system can we assess its true performance (e.g. what are the needs of users and how well does the watch meet them?).

The behaviour of a system is an attribute of the whole and not of any individual part (e.g. there is no single part of the watch that can tell us the time[2]).


Mechanical Watch Clockwork

Figure 3: Systems thinking — The interactions and inter-dependencies between the components of a system


3. Systems thinking is also concerned with the interactions and inter-dependencies within a system that help in or hinder the achievement of its purpose (e.g. we gain a better idea of how a watch works if we just take the cover off and see it operating[3] rather than completely taking it apart). By looking at the inter-dependencies and interactions within a system we can gain a better understanding of the role each part has and how it influences others.

Note that while we can see the interactions of the parts from this perspective, that is not enough to tell us why they are configured in a particular way (e.g. if we only look inside the watch, we could analyse how it works for an eternity without ever understanding why it is built to run at a specific and constant rate).


We need to remember that systems thinking does not replace but coexists with the reductionist approach (e.g. understanding the purpose of a watch is one thing, how it works is another, and being able to build the individual parts is another still). What is important, is to be fluent in both holistic and reductionist thinking skills, so that we can choose the right approach for the situation, as we will see next.


Systems Thinking in Business

Obviously a business (a social system) is quite different to a watch (a mechanical system) but both share some properties due to their systemic nature and we can squeeze a bit more out of the metaphor.

For example, at what level should we assess the performance of a watch?

  • The parts: How fast is each gear spinning? (Oh, that one is faster!)
  • The interactions: How well is force transferred between the gears?
  • The whole: Does it provide an accurate display of the time?

Which of these is important? With traditional business thinking managers often focus on the performance of individual parts, for example, how well a particular team does its task. This takes attention away from looking at the business as a whole (the inter-dependencies between teams) and as part of a broader system (the market being served by its products or services). A team can simultaneously be doing a great job of its assigned task while inadvertently be causing headaches for other teams or hindering the performance of the business as a whole. Take a moment to recall when you have seen these happen.

A convenient example of how this inward-focus cannot prevent serious trouble can be found in the history of the Swiss watchmaking industry. Known for making excellent mechanical watches they had a longstanding competitive advantage due to their manufacturing expertise. However, what mattered to customers was not so much how well the individual parts were made but rather how reliable and accurate the display of the time was (closely related, yet very different). Skilled Swiss workers could make mechanical watches that were very reliable and accurate, however, this could also be achieved at a significantly lower cost with quartz watches. In the 70s and early 80s the market for low-end mechanical watches essentially disappeared and the “Quartz Crisis” claimed 60,000 of the 90,000 watchmaking jobs in Switzerland[4]. In a twist of fate, mechanical watches have bounced-back as luxury items, while quartz watches are now in trouble because mobile phones have become the timekeeping device of choice for many consumers. The point is that, what ultimately matters is providing a product or service that meets the needs of customers — improving the quality of existing offerings is important in meeting those needs but is alone insufficient for staying in business in the long run[5].

Note that the above examples have discussed several systems; “a watch” sold by “a watchmaking business” in a “market for watches”. This illustrates how every system is related to a wider system. While looking “in” and getting the details right is important, business leaders need to dedicate enough time to looking “out” and ensuring the business is pursuing the right goals[6].

Ackoff emphasised the need to look at businesses systemically as “You rarely improve an organization as a whole by improving the performance of one of its parts”. Unfortunately this is one of those concepts that we can only see the full value (and implications) of after we thoroughly understand it. Returning to the watch metaphor; If we are not happy with the performance of some of the parts we might decide to replace them. After all, if we have the best parts, then we’ll have the best watch right? So we source the “best”[7] parts that we can and put them all together. What have we got? Well, we probably don’t even have a watch, “for the obvious reason that the parts don’t fit”[8]. Or perhaps they do fit but the watch no longer keeps time because the elasticity of the springs is wrong and so forth. Now think for a moment about how the different parts of your organisation work together. Where is there collaboration? Where is there conflict? How do these affect the whole?

Ackoff was also an outspoken critic of the reductionist approach to teaching in business schools[9]. Business students learn about accounting. They learn about marketing. They learn about strategy and so on. These are of course all important skills within a business but they are taught in separation, so like the individual parts of the watch we saw earlier, understanding each does not add up to a holistic understanding of a business. Many of you would have witnessed the result: “A corporation’s external boundaries are generally much more penetrable than its internal ones” wrote Ackoff — specialised functions are often focused on protecting their interests and agenda within the company. The good news is that it does not have to be that way; ideas like Deming’s system of profound knowledge give us a glimpse of how powerful multiple disciplines of knowledge can become when they are brought together rather than being kept separate.

So where does one start? As Ackoff wrote, “To enable a system to perform effectively we must understand it” and a good place to start is to study the situation as a whole[10]. Legend has it[11] that Taiichi Ohno (The grandfather of Lean) would draw a chalk circle on the factory floor and instruct plant managers to stand in it for days at a time until they “saw” something in the plant for themselves. In that regard Ohno was a systems thinker, as he had them study the system in its operation. The practice of systems thinking is a habit, the habit to step out of the reductionist mind-set and examine the broader situation. It might seem obvious but we don’t do it nearly enough. This habit of taking time to understand before acting is also the basis of a disciplined approach to change.



If you’re a business leader, take another look at the three photos earlier. Which of these perspectives of your organisation do you spend most of your time with? To assess this objectively, I suggest that you keep track of your activities for a whole week (If you would like some help with this then let us know).

There’s more to come (Systems thinking in business excellence. Common methods and tools) but this is a good point to wrap up part one. Just remember, a handful of gears does not a watch make.

Next: Systems Thinking (Part 2)


Optional Footnotes

1. ^ Ackoff would often use the phrase “product of the interactions” to highlight the necessity of considering interactions between components when studying a system. He used the word “product” metaphorically, as multiplication of a series of numbers will produce a zero if any one of the numbers is a zero; this can be true of purposeful systems in that problems with the interactions between the parts can lead to a failure of the system to achieve its objectives, regardless of how well each individual part is performing.

2. ^ Strictly speaking, a system has essential and nonessential parts; we could remove parts without interfering with the main purpose of the watch (telling the time) but this would likely affect the fulfillment of another need (e.g. aesthetics).

Alternatively, we can say that a wrist watch has many sub-systems which achieve its various capabilities. The strap and associated parts keep the watch securely in place on your hand. The horological mechanism keeps and displays the time. The case protects the mechanism from being damaged. It was only when I pondered this point that I realised the word “portable” was needed in the purpose description. Take away portability and a grandfather clock would meet the purpose!

3. ^ Few mechanical watches are actually easy to look inside. Fortunately there are many animations such as this one that explain how they work:

4. ^ Some history about the Swiss watchmaking industry and the Quartz Crisis can be found here:

5. ^ If one wants to split hairs, a disciplined approach to quality improvement generally does include an assessment of customer needs (e.g. Voice of The Customer (VOC)), however this can be of limited help if an improvement effort is already focused on an existing offering. It follows that VOC information should be shared within organisations, so that it can inform both the improvement of existing offerings and the design of new offerings.

6. ^ One of Ackoff’s frequent sayings was: “it is better to do the right thing wrong than the wrong thing right”. A business (or any other system) that is pursuing the wrong goals will not become more successful through better internal efficiency, as this just means “doing the wrong things righter”. Instead one must start by improving a system’s external alignment (e.g. with the customers) so that it is pursuing the right goals. Even though initially this might mean doing “the right thing wrong” (e.g. inefficiency), subsequent improvement efforts are much more likely to take overall performance in a desirable direction.

This has significant implications for business improvement, as even an impeccably executed improvement project can have poor outcomes if the change implemented is anti-systemic in nature. Invariably, anti-systemic changes will not give sustainable benefits. While perhaps this is a matter of choice, many project sponsors are not informed of the full implications of changes being made, leading to disappointment.

7. ^ The word “best” is a bane to business thinking (it stops the search for “better” options, which almost certainly exist), as is the thought-terminating cliché “best practice” (unprovable, harmful, and a manipulative euphemism for “do as we say and don’t ask or think about why”).

8. ^ Ackoff would often use the example of car parts fitting together to illustrate the importance of systemic thinking. This is a nice short video with Ackoff that includes his car analogy as well as a concise definition of systems and why they matter to businesses:

9. ^ Ackoff lamented the fragmented approach to education: “Business schools are security prisons of the mind”. In Re-creating the corporation (pp.16-17) he wrote: “One of the greatest disservices of formal education lies in the fact that students are induced to believe that every problem can be placed in [a specific] discipline”, yet, “It is not uncommon for problems to be best solved in domains other than the one in which they were first identified”. Ackoff’s point was that even from a narrow point of view, solutions which seem appropriate can be found for just about any business problem, however, to make better decisions one should look at a situation from multiple perspectives simultaneously.

10. ^ Studying a system can be as simple as observation, but may involve building models of the system, collecting data, etc. As John Seddon describes the first phase of improvement, “the only plan is to get knowledge”. This can take us in any number of different directions, which can be uncomfortable for people more used to following a prescribed step-by-step approach, however, if one starts with the approach pre-selected, they will fail to “see” everything that doesn’t fit in with that approach (The term for this is inattentional blindness).

11. ^ I have seen this repeated many times in secondary sources (i.e. people who did not work with Ohno directly) but struggle to find a first-hand account; Ohno himself does not mention it, at least in the books that I have read. However, Ohno often emphasises the importance of first-hand observation, so the idea of chalk circles certainly fits in with what he taught.

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Marcin Kreglicki

Business Excellence & Improvement Consultant at Effective Perspectives Consulting
Marcin is a business improvement specialist with a passion for helping businesses be more effective. He advocates the application of evidence-based approaches to change and giving leaders an understanding of business excellence concepts relevant to their company. In support of his professional work, he is currently carrying out research on the barriers to holistic thinking in business decision-making.

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About Marcin Kreglicki

Marcin is a business improvement specialist with a passion for helping businesses be more effective. He advocates the application of evidence-based approaches to change and giving leaders an understanding of business excellence concepts relevant to their company. In support of his professional work, he is currently carrying out research on the barriers to holistic thinking in business decision-making.

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