By: Kay Plantes
It used to be that “systems thinking” was a specialty reserved for a select few intellectuals. Now that it’s clear every element of our work is part of a larger system that visibly and invisibly shapes our individual and organizational opportunities and risks, it’s time for all us, and especially those looking towards innovation, to become systems thinkers. Why? Understanding system dynamics provides insights into where innovation will have a high payback, explains Kay Plantes.
What is a system? Take a few simple examples: The cars we drive are systems and they are also components in other systems (our nation’s transportation system, the air we breath, and our economy in terms of jobs created here and elsewhere to manufacture cars). Your company is also a system in itself and part of the economic system. Systems are, in short, sets of processes in which both independent and interdependent elements interact to form a complex whole generating one or more outcomes. The outcomes of a system depend upon how the parts (e.g., with the market for locally grown food) interact and influences from the containing system (e.g., the overall economy).
When systems become complex, their outcomes are harder to predict. We can measure probabilities of different outcomes in a simple or even complicated system but not a complex one. (A car therefore is far more predictable than a human!) In complex systems, small changes in one variable can set off huge and unanticipated changes in outcomes when the underlying system is not stable.
While complex, unstable systems are the hardest to track, they are filled with significant innovation opportunities.
While complex, unstable systems are the hardest to track, they are filled with significant innovation opportunities. Let’s look at one – the U.S. health care system. Connect the following dots and you’ll understand the status quo is unstable, i.e., not sustainable.
- Health care costs are rising faster than income and the trend is expected to continue because three-quarters of costs arise from chronic diseases, which will increase in number and severity given obesity and aging trends in the U.S.
- Federal and state governments, the largest payers of health care costs, are already hugely in debt and curtailing spending. They will demand that individuals covered by Medicare and Medicaid pay more. They’ll also continue to squeeze payments to providers. At the same time, employers are dropping health care benefits or increasing employees’ share of health care costs.
- U.S. wages and incomes are largely stagnant in all but top income levels, making it harder to pay for health care, increasing the amount of uncollected (and uncollectable) charges at providers—and causing people to delay care until more expensive and unavoidable care is needed.
As more care is uninsured and government provider payments grow more slowly or decline, providers shift costs to private sector employers, inducing even more dropped coverage. More people are on government-paid insurance at a time when government can least afford it.
As upsetting as unstable systems can feel, and as uncertain as future outcomes become, they create opportunities for innovation. Anything a company or individual (or policy maker) can do to address opposing trends – to let steam out of the system, so to speak – will generate tremendous value. In essence, the unstable system works like a magnet, attracting needed innovations to how the system operates.
Consider the following winning health care innovations
- Wireless patient monitoring technology and data analytics is moving care for chronic diseases into less-expensive settings (e.g., out of hospitals and into the home) and leading to earlier and therefore less-expensive intervention (a prescription change versus an ICU stay).
- Initiatives that surround the chronically ill with teams of social service workers are reducing the need for higher-cost care. It’s a people-intensive strategy that turns out to have amazingly high payback.
- Corporations’ on-site health clinics, drug store chains, and low-income health care clinics use lower-paid clinicians (physician assistants and nurses) in lieu of doctors for basic primary care, lowering costs.
- Cutting-edge health care systems are organizing themselves across medical specialties, pulling inefficiencies out of their system, as MAYO is doing.
- Employers are creating consumer-driven health care plans that encourage more cost-effective use of health care providers.
- Medicare recipients can now get a free physical, encouraging earlier identification of diseases, when they are cheaper to treat.
Use mind mapping to identify variables impacting the system (e.g., a market) within which your organization operates. Then, identify trends underway in these variables. ID those trends that are in opposition. Then ask, what innovations might deal with two or more opposing trends? Those are your dig sites to unearth new ideas for your organization.
About the author
MIT-trained economist Kay Plantes is a strategy consultant and author of Beyond Price: Differentiate Your Company in Ways that Really Matter (Greenleaf Book Group, 2009). She writes a blog on business model innovation at plantescompany.com/blog.
Image: build a business system with gear from Shutterstock.com