Credit card billing systems are a useful way to explore systems thinking.

Credit card billing systems are a useful way to explore systems thinking.

The world made up of interlocking systems. At more finite level, such as a company or product, understanding systems is crucial for being effective and efficient.  For example, have you ever observed a team spend time researching, prototyping, piloting and then implementing a change to improve a product’s delivery rate, only to find that the process change yields little to no big picture impact? The second or third time you make this observation it drives the point home that optimizing steps within a system doesn’t always translate into better overall performance.  We need to think of the system as a whole.  Systems thinking pushes us to take a more holistic path.

A system is a group of interacting, interrelated, and interdependent components that form a complex and unified whole.  Russell Ackoff, the management guru, defined a system as “an entity which is composed of at least two elements and a relation that holds between each of its elements and at least one other element in the set. Each of a system’s elements is connected to every other element, directly or indirectly. Furthermore, no subset of elements is unrelated to any other subset.”  A critical core to these definitions is that a system is a number of related components that interact.  I add that the core of most (if not all) systems operate within a larger systems ecology that they interact with and which provide feedback and guidance.

There are several defining characteristics of a system.  They include:

  1. Every system has a purpose and operates within a larger system.
     Example: The purpose of a credit card billing system is to account for charges and to send cardholders a bill on a monthly basis. However, if there is no mechanism for using the card, authorizing charges or recording transactions, the system has no value.
  2. All of a system’s parts must be present for the system to carry out its purpose. In other words, if you removed any one of the components, the system would fail to meet its purpose.
    Example: A billing system without the ability to print or export the bill is not done.
  3. A system’s components have a specific order.
    Example: In the credit card billing system, charges need to be authorized and then posted before they can be included in a bill.
  4. Systems interact with their environment and generate feedback.
    Example:  A credit card billing system will interact with interact with the calendar, interest rates and many operational components to operate effectively.
  5. Feedback provides a mechanism to make adjustments.
    Example:  The number of customers in a specific billing cycle is typically adjusted based on load.  If everyone cycled on the last day of the month, processing would never complete on that day.  Load balancing is a feedback mechanism.

Systems thinking is an approach to problem solving that emphasizes the whole process, including the environment the system operates within. It leverages the five characteristics of systems as a framework for analysis and action.  Feedback from both inside and outside the system are control mechanisms that ensure the system performs as expected.  The overall impact of a change to an individual component will be affected by the performance of all of the components in the system.  For example, completing the framing of the house will only get the finished house done sooner if the contractors performing the following steps move their schedules up. In this example, feedback from all of the other contractor’s schedules is needed to determine whether completing the framing more quickly will have value. Would it make sense to pay carpenters overtime to complete the framing earlier if the houses completion date was not affected? Systems thinking is the understanding of how things fit together, are influenced, and generate influence.  It is a framework for understanding the big picture.

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