The Wisdom and Folly of Systems Thinking

By Michelle Holliday and originally published on

I’ve just read an article that excites me and irritates me in equal measure. This is usually a sign that there’s something profoundly valuable there. The article is called The Programmable Enterprise. In it, Esko Kilpi brilliantly articulates the dynamic, responsive, evolving nature of living organizations. But he also falls into the common trap of using the misleading language of the machine. And in focusing exclusively on the “networked” nature of the organization, he overlooks the fullness of what it’s capable of.

He’s not alone. I write about this tendency in my book, The Age of Thrivability. The systems thinking that underlies Kilpi’s proposals (and those of many others) is, I argue, “a limited and temporary bridge.” What’s truly needed is living systems thinking. With this, we recognize that an organization, like any living system, “consists of interwoven relationships between distinct, locally acting parts that together make up a coherent whole. Those relationships,” I write, “include responsiveness to changes from context and from within the system itself. And this generative — and regenerative — process is set in motion and sustained by a self-regulating and self-integrating property [that is life].” Only with such a comprehensive view are we able to support the organization in “tak[ing] on full, dynamic creativity and intelligence.”

I will share Kilpi’s article below, with my own comments inserted in bold italics. His insights are important. And the places where I feel he strays or falls short are useful invitations into further exploration and conversation.

The Programmable Enterprise

The firm of the future may be ten million people working together for ten minutes

Corporations are the dominant mechanism by which economic activity is organized. (True… but this language may keep us stuck in mechanistic thinking, missing the fundamental role of people and life.) Whether there are opportunities for social innovation in the corporate world is hence a key question for the prosperity and well being in the emerging post-industrial society.

Over the past years, intelligent technologies, peer-to-peer cryptocurrencies and the Internet have laid the foundation for a very small size and a very low-cost enterprise with the potential for managing very large numbers of business relationships. The impact of these new actors is still hard to grasp because we are used to thinking about work from a different perspective.

Our thinking arises from a make-and-sell economic model. Most managers still subscribe to this and think that the core of creating value is to plan and manage a supply chain. A firm is accordingly seen as an entity that is separate from the people who work there. After specific financial investments have been made, the firm is defined by the ownership of the assets and the power that the people who made these investments have. As a result of this model, the relationship between the company and the contributors of financial capital is very different from the relationship between the company and the people who work there, the employees. (This whole paragraph is spectacular!)

We are passing through a technological discontinuity of huge proportions. The new programmable economy demands new approaches to value creation. (I find the phrase “programmable economy” enormously misleading. Life — and living organizations — can’t be programmed, like machines. But conditions can be put in place — structures and systems — that support consistent yet adaptive patterns of action and reaction.) In the mass-market economy, the focus was to create a quality product. With increased global competition that is not enough any more. The focus changes to a joint process of defining and solving contextual problems. (Yes! An organization is an ecosystem that must sense and respond to its context.) You and your customer necessarily then become cooperators. (Yes, again! It’s an ecosystem that includes the people working within, as well as customers being served — and more.) You are together creating value in a way that both satisfies the customer and ensures a profit for you. (Is that all? Is profit all that we want from our efforts to satisfy customer needs? What about learning, relationship, meaning, and transformation of self and system?) New economic spaces beyond incumbent firms are emerging.

You could perhaps call the new reversed sequence an “on-demand-chain.” It is the opposite of the make-and-sell model. It is a dynamic chain of relationships and interdependences. (This is a great way of describing the dynamic, interactive, responsive nature of an organization.) It starts from interaction with the customer and leads up to the creation of the on-demand solution. As Steve Jobs put it in a different context: “you start with the customer experience and work backwards to the technology. You can’t start with the technology and try to figure out where you’re going to try to sell it.”

The programmable enterprise is able to dynamically integrate contributions from its entire network around the problem definitions of each individual customer context. The on-demand-chain means continuous change. Because the organization is in effect a process of continuous organizing, software needs to take the role of managers in organizing and coordinating work. (“the organization is a process of continuous organizing” — YES! “Software needs to take the role of human managers” — Maybe sometimes, but this can’t be universally true… unless, by “software,” you mean any kind of supporting systems and structures, including meeting formats, policies regarding transparency, language, topics considered worthy of attention, and more….) Human managers become a bottleneck.

A programmable enterprise connects and scales up learning and makes the whole network smarter with every individual interaction, thus creating network effects. The benefits for the network partners are then not only financial. The most valuable thing is to have access to a common movement of thought. It means to be part of a network where learning scales up faster than somewhere else. (Yes!)

The contributions of post-industrial workers cannot be understood as fixed-wage generic inputs, but they can easily be understood as risk investments, in the very same way as we have understood shareholders’ financial contributions. We should ask whether the current social construct of allocating risks and rewards between different contributions is inevitable for some reason, or whether it is an outdated industrial era artifact that should be redesigned? (Interesting ideas here!)

The programmable view understands enterprises as contextual interaction, rather than seeing them as entities outside of that interaction. (The living systems view is able to see them as both — and also as the individuals who comprise it. You are a collection of cells and organs. You are also a dynamic process of contextual interaction. And you are a convergent, living whole, with emergent characteristics and capabilities that lie a level above individual cells and even individual interactions.) The programmable view sees firms as continually evolving live networks. (Love the word “live” here!) Work is not job roles, but context specific contributions. (Yes!) The challenge for the firm is to be inviting to as many applicable contributions/investments as possible, from as many people as possible. (Yes!) The firm of the future may be ten million people working together for ten minutes.

Smart contracts, modern cryptocurrencies and distributed trust systems enable a truly decentralized organization structure. (Fascinating! And at the same time, I can see this working for initiatives that require ten minutes of contribution. But to create something transcendent, to create a living organization together, I think more humanity, more human interaction, more rootedness together in place is needed.)

By scaling up learning and creating network effects, the networked (living) business increases its intellectual capital as the nodes of the network do the same. The (living) network acts as an amplifier of knowledge far beyond the capabilities of any traditional firm or any traditional education establishment. The opportunity we have is in artificial intelligence and crypto-currency enabled organizational forms that don’t mimic the governance models of industrial firms. (There’s a third option — one that applies technology in support of life’s natural tendency to learn and adapt.)

A firm, then, is not a bundle of assets belonging to owners, but a bundle of dynamic, smart contracts between people. (It is this and more. Thinking of it only as contracts risks making it transactional rather than transformative.) The goal is to help individuals into relationships that balance complementarity, the growth of (human) capital and symmetric claims to long-term financial returns. The industrial worker was compensated with a salary. The post-industrial worker wants equity. (And so much more!)

What do you think?

Permission to republish granted by the author.

Featured Image/graphic link added by Enlivening Edge Magazine.