“One essential characteristic of modern life is that we all depend on systems—on assemblages of people or technologies or both—and among our most profound difficulties is making them work.”Atul Gawande (The Checklist Manifesto)
Systems are everything.
Our body is a system of organs, chemical reactions, and energy. There are a bunch of little integrated things happening within us all the time. Every cell inside our body is a system, every organelle is a system, ever molecule is a system, all the way down to the subatomic level there are systems.
But it doesn’t stop there, we can see systems on the macro level too. Our neighborhoods, cities, countries, and the entire planet are all systems. Systems can even be as big as galaxies, or the universe!
Systems also exist on a conversational level. In some of my other posts, I talk a little bit about how people live in the physical world, but also in the world of conversation. Some of these conversations share our reality. An example of these types of conversations are businesses. “Where is a business?” is a tricky question. The business doesn’t necessarily lie in the people, or the physical headquarters, but in an agreement and understanding between two people. Similar to our bodies and communities –
“Businesses are complex systems that exist within even more complex systems—markets, industries, and societies. A complex system is a self-perpetuating arrangement of interconnected parts that form a unified whole.”Josh Kaufman (The Personal MBA)
Understanding systems, as an abstract idea, gives us the ability to apply our analysis and understanding to all other systems.
I learned a lot about systems when I was studying chemical engineering and used that knowledge to dive deeper into other fields.
I used my knowledge of systems to help me understand music, mathematics, medicine, social dynamics, education, economics, investing, writing, gaming, and so much more.
Understanding systems help us understand everything. Most systems have the same parts, can be analyzed and improved in similar ways, and follow the same set of rules.
“A complex system that works is invariably found to have evolved from a simple system that worked. The inverse proposition also appears to be true: a complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a simple system.John Gall (Systems Theorist)
Most of the systems we’ll encounter are complex. Way more complicated than we know, but according to systems theorist John Gall, all complex systems started from simple systems. This idea became known as Gall’s Law and is extremely useful when it comes to understanding systems.
Every system starts off simple and adds complexity over time.
I’ve watched this happen with the development of smartphones over the years. First, we started with just phones that just did good ol’ phone calls. Then we developed phones that could text, then play music, then browse the internet, then take pictures, then take videos, and now…they can do everything. My smartphone is my camera, periodic table, phone, tv remote, thermostat controller, and an infinite amount of other things.
The bottom line is that my devices are extremely complicated systems that can do a lot of amazing things, but they didn’t start off that way. In the beginning, they were just simple systems that did one thing, and over time we just added one thing here and one thing there and now we have miraculous systems.
I find keeping Gall’s Law in mind helpful when creating new systems. When I’m first starting something I just want to keep it short and simple, then add a little more over time.
How Understanding Systems Can Make Us Rich
I used Gall’s Law to create a money management system that allows me to accumulate wealth over time automatically, rather than constantly worrying about “trying to become rich” or “not having enough.”
The key is to start simple, then make it complex over time. I’m not going to go into too much detail here about how I manage my money (partly because my system has grown to be pretty complicated), but I will share the simple system I started to build my complex system upon. I put a percentage of my money in an investment account, and I don’t touch it. I don’t even have access to it unless I want to wait 3 days. I don’t want to touch the money, because I will need it later to build a more complex system later.
Now I know this doesn’t seem exciting or sexy, but this is how complex systems are built. One thing at a time, over a long period of time.
The key is to start with a simple system.
When I started my blog, I just tried to write 20 minutes every day and release 1 post per week. This is still the fundamental system of my blog today, but I write for 48 minutes per day 5 days a week instead.
When I started my YouTube channel, I just tried to make music for 20 minutes every day and release 2 beats per week. Over time, I started adding beat making videos, links to my beat store, and playlists of other videos. Now, my channel is much more complex than it was when I first started and I would not have been able to create that level of complexity right at the start. Trust me, I tried to and it ended in fire.
Components of a System
So what actually makes up a system?
Josh Kaufman does a beautiful job laying out how to understand, analyze, and improve systems in his book, The Personal MBA, and I highly recommend checking it out. Most of the stuff from this post are from his book. I’ll definitely be adding it to my Must-Read Book List once I get a chance.
If we want to build a simple system, then we have to know what the components of a system are. These 14 components can be found in every system, regardless of what the system does. We can find examples of each component in all industries.
Flow is easily thought of as the movement of resources through the system. Inflows move into the system. Outflows move out of the system.
Money is a common resource that flows in and out of business systems and water is a common resource that flows in and out of biological systems.
Stock, in the sense of systems, is a reserve of resources. Stock can be different for each system. For a business, stock can be money waiting to be used. For a restaurant, stock can be extra food in the back.
Slack refers to the amounts of resources available in the stock. On a personal note, I love slack. Slack isn’t inherently good, or bad. It depends on the system. For me, I’ve noticed that I make better creative work when I have more slack in my stock. I make better music and write better blog posts when I’m not up against the clock.
Constraints are what prevents systems from achieving their goal. Israeli author, Eliyahu Goldratt, suggests that all systems always have at least 1 constraint limiting their ability to reach their goal. Eliminate the constraints and performance increases, simple as that.
I remember taking a biology class in my 2nd year of college and my professor explaining feedback loops to me for the first time. He said that if we can wrap our heads around feedback loops, then we’ll understanding 80% of biology. He was so right, understanding the feedback loop made learning biology a lot easier, but it also provided a framework for understanding so many other things too.
A feedback loop occurs when the output of a system is also an input. An excellent example of this is with the heart and blood pressure. Blood pressure is an output of the heart, but it’s also one of the inputs as well. The human body needs to maintain a certain blood pressure to survive. If it gets too low, then the heart will pump harder to get it back up. The blood pressure is determined by the heart, but the blood pressure also provides feedback to the heart.
A positive feedback loop is when a system receives feedback and produces more of its output as a result. We can see this in the example with the heart and low blood pressure. The heart is pumping more as a result of the feedback.
A negative feedback loop is when a system receives feedback and produces less of its output as a result. Our bodies also have negative feedback loops (because they’re systems!). Typically when our bodies become hot we start to sweat to cool us down, but if we were to become severely dehydrated then our bodies would stop sweating in order to keep as much water inside as possible. Our bodies will also shut down our ability to pee, just to keep in that water too! The body stops releasing water as a result of the feedback.
This describes a system where the outputs are the raw ingredients of the input.
Advertising is a great example of this. We spend $1000 dollars to make $2000 dollars. Now we can use $1000 again to buy more advertisements and make another $2000. Rise and repeat.
After reading a bunch of business books, I realize that a lot of entrepreneurs use autocatalysis type of systems to build wealth.
This is everything else that that system isn’t. Usually, the system lies within the environment. There is typically some sort of flow between the environment and the system. No system exists in the vacuum…unless you consider the entire universe as a system.
This refers to the environmental constraints that determine which systems perpetuate or end.
The phrase “survival of the fittest” is what people usually think of when they think of selection tests, but “death of the unfit” is probably a more accurate phrasing.
Selection Tests are absolute. If a system cannot adapt to the test, then it fails. If the system can adapt, then it thrives. Simple as that.
Uncertainty is inherent to all systems. No one knows for sure what will happen in the future. But there is a distinction to be made from risk. The risk lies in the known unknowns, the things we know that we don’t know. Uncertainties are the unknown unknowns, the things we don’t know that we don’t know.
It’s helpful to keep in mind that we process the unknown the same way that we process threats. We literally see and respond to what we don’t know as a threat.
I know it’s hard, but try not to be completely afraid of the unknown.
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”Charles Darwin (1809 – 1882)
All systems have some dynamic quality to them — they are always changing. Knowing this, training ourselves to handle different kinds of circumstances is our best bet. If things are always changing, then we need to be resilient to match.
Some systems are linked to other systems. The more connected the systems are the more failures and delays will affect other systems. When we are dealing with systems, it’s crucial to keep in mind their effect on other systems and the systems that affect it. These connections are also known as dependencies.
The fewer dependencies the systems have, the lower the magnitude of effect on the other systems.
Some systems may not affect each other at all, but are both required to run a larger system. These systems are known as parallel processing.
Here’s a fun thought experiment that gets crazier the longer we think about it — the next time you get on a bus, think about all of the things that must have had to happen in order for the bus to get there on time. I promise, there is always more.
Counterpart Risk describes the risk associated with the other party not following through on their end of the deal. Most systems require multiple parties and there are consequences when one party can’t or won’t deliver on what they promise.
If we outsource a task to a contractor and they don’t deliver their end, our entire project will get held up. Spotting counterparty risk is crucial in preparing for potential undesirable events as well as identifying good deals. Finding ways to mitigate this risk helps us keep our plans on track and lowers the chances for our systems to get derailed.
However, counterparty risk tends to increase when people try to plan for them. The best way to deal with counterparty risk is to have a plan of action in the event that the other party does not deliver on their end of the deal.
These describe the consequences of the consequences of our actions, hence second-order. Every action has a consequence, and those consequences also have an affect on other things. Second-order effects are typically difficult to predict, stop, or reverse, but they always exist.
With this in mind, it’s wise to proceed with caution when we make changes to systems, especially complex ones. We may even get the opposite of what we expect.
We all know shit happens, and it’s no different in systems. Some days things don’t go the way we want. Especially in systems with high interdependence and complexity. The more interdependent and complex a system is, the more likely an accident is to occur.
Normal accidents can give us enormous insights into system interdependence and possible second-order effects.
Systems are everything and understanding their parts is crucial for building our own.
Gall’s Law shows us that we can create complex systems from starting small and gradually growing over time.
Each of the components I’ve gone over can be found in all (if not, most) systems, and I urge everyone who reads this to find other components of systems if possible. I’m not a systems theorist and it’s more than likely that there are other components I left out. These were the system components that Josh Kaufman went over his book, The Personal MBA, and they are a great foundation for building any kind of system you desire.
Identify these components in other systems. Use these as building blocks to create your own. What we can do with these tools is truly unlimited.