Module Code and Title: Strategic Systems Thinking (ST4S39-V1)

Title of Assignment: “Systems thinking essentially seeks to understand phenomena as

a whole formed by the interaction of parts” (Stacey, 2011)

Student Name: Steven Waithaka

Enrolment Number: 74108748

Tutor: Bernardo Batiz

Date: 07 August 2019

Table of contents

Contents
1. INTRODUCTION ............................................................................................. 1
2. SYSTEMS AND STRATEGY .......................................................................... 2
2.1. Systems Theory .............................................................................................. 2
2.2. Strategy ........................................................................................................... 3
2.3. The descriptive and prescriptive schools of thought on strategy ..................... 4
3. STRATEGIC SYSTEMS THINKING ............................................................... 6
3.1. Strategic Thinking ........................................................................................... 6
3.2. Systems Thinking ............................................................................................ 9
4. COMPLEXITY PERSPECTIVE ..................................................................... 11
4.1. Complex Adaptive Systems. ......................................................................... 12
5. THE PRACTICE OF STRATEGY.................................................................. 13
5.1. Tools for Strategic Business Environment Analysis ...................................... 14
5.2. Strategic Change and Risk Management ...................................................... 15
5.3. Strategic Risk Management .......................................................................... 15
6. CONCLUSION .............................................................................................. 16
REFERENCES .......................................................................................................... 17

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1. INTRODUCTION

Initially, there were very simplistic approaches towards leadership and management of

organisations. Approaches such as SWOT Analysis, Growth Matrix and Bolton

Consulting Group Matrix had a simplistic view of organisations. With developments and

advancement of technologies such as cyber and social networks, scholars were faced

with the interrogation as to whether such approaches are still valid in today’s world that

is volatile, uncertain, complex and ambiguous.

Managers and decision makers in organisations as well as scholars have come to the

realization that the world we live in, work and do business is a complex, dynamic and

ever-changing eco-system. To be successful as a leader in today’s world, one needs a

mindset that appreciates this phenomenon and the need for strategic thinking. In the

organisation I work in, leadership is ever more alert to the fact that an organisation does

not operate in a vacuum rather in a system where everything affects everything else.

This text attempts to discuss the statement “Systems thinking essentially seeks to

understand phenomena as a whole formed by the interaction of parts” as postulated by

Stacey (2011). The essay critically discusses the statement by looking at Systems,

Strategy, Strategic Systems Thinking, Complex and Adaptive Systems, Practice

Perspective, Modelling and approaches to strategy.

In sum, this essay attempts to show the fit between theory and practice by looking at the

organisation I work in as a system consisting of parts. In this essay, secondary research

methodology has been applied.

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2. SYSTEMS AND STRATEGY

2.1. Systems Theory

In his text, Modern Management Theories and Practice, Olum (2004, p.17) postulates

that the study of management, organisations and leadership has been greatly impacted

by the systems theory. His definition of a system is one that consists of an agglutination

of parts and factors that inter-play to achieve a shared goal, mission or objective.

He enunciates that an organisation, just as a system, consists of inputs (labour and

material resources), processes (planning, budgeting and production) and outputs

(products and services). In his view, these parts are interrelated and through their

interactions, affect each other.

Bertalanffy (1954) defines a system as an entity that exists through mutual interaction of

its components. In the context of this definition, organisations can be seen as consisting

of different parts/units that work together but of which cannot inherently exist or work

individually or in isolation.

I work in an international development organisation that provides challenge funds to

startups and small enterprises to act as catalysts for change in agribusiness and

renewable energies adaptation in rural African communities. The parts of the

organisation include the board, senior management, finance unit, programs unit, human

resources and administration units.

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2.2. Strategy

Anthony W. Ulwick (1999, p.4) defines strategy as a simplistic plan as to what and how

an organisation anticipates achieving its objectives or given mission. Caves and

Ghemawat (1984) elucidated a strategy to be an anticipatory plan designed to realize a

given outcome. In tandem, Porter (1996) defined strategy as the way through which

organisations positions themselves uniquely and valuably in the market by carrying out

certain set of activities.

Johnson (2011) enunciates that a corporate strategy is the long term direction of the

organisation realised through alignment of resources to a dynamic operating

environment to achieve a competitive edge while meeting the demands of the market

and meeting stakeholder expectations. Ansoff & McDonnell (1990) as cited in

Mainardes. E. W et al (2014, p.47) emphasized that organisations must have four levels

that guide strategy: objective and targets, product strategy and marketing,

organizational concepts, operational policies.

In all these definitions, strategy for organisations entails assessing the

market/environment, aligning resources to achieve customers demands while meeting

stakeholder expectations in the constantly changing environment over the long term. At

the organisation I work in, management has developed a 10 year strategic plan aimed

at positioning the company as a thought leader, investor and policy maker in

agribusiness, renewable energies and one that offers pragmatic solutions to rural

African communities with view of alleviating poverty through sustainable development.

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2.3. The descriptive and prescriptive schools of thought on strategy

Mintzberg (1999) analysed the three prescriptive and seven descriptive schools of

thought on strategy stemming from 1950s that have been evolving over the years as

scholars discover newer considerations and ideas.

These schools of thought have been discussed below in light of whether they supported

a systems approach and looking into their cause for failure or success

1) Design School: A Process of Conception

This school worked on SWOT analysis with focus on organisation strengths and

opportunities while working to minimize weaknesses and threats in the business

environment. The strategy process was however not analytical or intuitive in

formulation.

2) The planning school: A formal process

The scholars of this school build on the design school by suggesting a formal

approach to strategy process which incorporates steps, checklists and goals that

are easy to fathom. In so doing, strategy formulation shifts to planner staff rather

than the leaders.

3) Positioning school: An Analytical Process

This school is based on the statistical analysis of the environmental factors affecting

the strategy. This approach obtains data and breaks it down to useable components

that the organisation needs.

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4) Entrepreneurial School: A Visionary Process

This school theorizes strategy to be fully driven by the CEO or the leader. It shifts

strategy formulation from analytical approach to one that is dependent on the

leader’s intuition. This shifts the burden of implementation to the leaders.

5) Cognitive School: A Mental Process

According to advancers of this thought, cognition is imperative to developing a

creative strategy thus shifting strategy to a more mental process rather than a

factual one.

6) Learning School: An Emergent Process

This school stems from the perspective that formulation of strategies cannot be

separated from its implementation. This implies that senior leadership cannot

formulate strategies without the involvement of everyone involved in its execution.

7) Power School: A Process of Negotiation

Scholars in this school advance the thought that organisations are seen to be

composed on internal (micro) and external (macro) powers. Micro power is the

power held by the strategy formulators over the staff, systems and other internal

factors affecting the organization. Macro power is the control held by the entity over

external factors such as competition and the external environment. The organisation

uses these powers to its advantage in formulating and negotiating strategies.

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 8) Cultural School: A Social Process

This school suggests that leaders should negotiate for strategy that is culturally

acceptable. The challenge with this is that sometimes drastic strategies need taking

while the culture and society does not accommodate such drastic changes.

9) Environmental School: A Reactive Process

This school postulates for contingency in planning to cater for eventualities should

the initial strategic plan not work.

10) Configuration School: A Process of Transformation

This school views organisations as dynamic systems tweaked to respond to specific

factors in the environment it operates in.

3. STRATEGIC SYSTEMS THINKING

3.1. Strategic Thinking

O'Shannassy (1999, p15) defined Strategic thinking as a dynamic approach to solving

strategic problems by thinking of a firm’s future in the frameworks of strategic

management in consideration of individual and group factors. It is therefore the process

for planning towards achievement of an organisation’s goals and mission through

formulation of effective strategies that take into account external and internal factors

acting on the organisation.

According to McMillan et al (2006, p.3), strategic thinking takes place in a changing

environment that considers the future and possible future outcomes.

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Mintzberg (1989) theorized the strategic thinking model to constitute of five ideals as

illustrated below

Illustration 1: Mintzberg’s strategic thinking model

Hashim (2016, p.5) developed a strategic thinking approach that he modelled per

illustration below.

Illustration 2: Hashim strategic thinking approach

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Step 1: Understanding the present and conceptualizing the desired future of the

organisation.

Step 2: Diagnosing the business domain by analyzing and understanding the

organisation’s internal factors/actors (resources, skills as well as their relationships.

Step 3: Obtaining insight by thinking critically about threats and opportunities, products,

technologies, markets and resources.

Step 4: Developing foresight by modelling scenarios that account for key variables and

strategic issues

Step 5: Mapping the future by critically and creatively identifying the path to the future

Step 6: Maintaining focus by keeping to the chosen course of action

Conway (2009, p.2) views strategic thinking as a re-design of traditional planning

models and conceptualizes strategic thinking to consist of three steps: strategic

thinking, strategic decision making and strategic planning as shown below.

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 Illustration 2: Conway’s strategic thinking approach

Richard Whittington et al, (2007, p.5) seeks to clarify that strategies are developed

through formal methodologies and tools, but less attention is given to the messiness of

interpersonal relations and political processes. This goes to reinforce the position that

strategic thinking needs to be done in a space that appreciates the environment as

consisting of interdependent and inter-related parts.

3.2. Systems Thinking

Jackson (2008, p.3) defines a system as a complex whole, whose functioning depends

on its parts and interactions between those parts. Arnold et al (2015, p.670) enunciates

that in systems thinking, three factors are at play: characteristics, inter-relations and

objective. In this context, Senge (1993) defined systems thinking as a way of thinking,

describing and understanding the factors and inter-relationships shaping behaviour of

systems.

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In their book, System Thinking Basics Johnson and Anderson (1997) identify 5

principles of system thing: (1) Big picture outlook (2) balance in short-term and long-

term perspectives (3) appreciation of the complexity, dynamism and inter-dependency

in systems (4) factoring for immeasurable and measurable factors and (5) appreciation

that all parts in a system is influenced and influences other parts.

According to Boeckmann and Haise (2013, p.28) systems thinking approaches

advocate for a non-linear holistic approach in quest for solutions and opportunities. In

their study, Boeckmann and Haise (2013) identified some advantages to systems

thinking. These include: -

 It provides a framework for providing clarity to organisation’s complexities

 Rules for systems thinking are static and basic hence easy for leaders and

mangers to comprehend

 Systems thinking provides a better approach at adopting new solutions to

problems in an organisation.

 It simplifies complex scenarios and problems thus providing clarity in the

evaluation and analysis of an organisations environment.

 Systems thinking helps in making superior decisions for problem solving whilst

focusing on goals and outcomes

 The holistic approach to solutions from a inter-related parts perspective enables

leaders and managers to have all angles factored and covered.

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4. COMPLEXITY PERSPECTIVE

In their article, Mingers and White (2009) postulate that the complexity of today’s

organisation’s environment is one characterized with complex interlinks and non-linear

interactions between parts. Such environments thus become unpredictable with

possibility of drastic changes and never attain equilibrium.

According to Salazar et al (2009) the need for a systems approach towards strategy

stems from the dynamism of today’s organisational environments. He distinguished

systems theories from complex adaptive systems as illustrated below.

Illustration 4: Systems theories vs Complex Adaptive Theories

In their article, Strategy as Simple Rules Eisenhardt and Sull (2001) argue that when

organisation environments were simple, complex strategies would work but with

increased complexity, simplest of strategies are needed. The increased complexity in

today’s organisation brigs the need for simpler solutions.

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4.1. Complex Adaptive Systems.

With increased complexity, it is important for leaders to adapt their strategies and

thinking to keep up with the changes

Kelly (2011) introduced inter-dependency and inter-connectivity as factors bringing

about complexity of systems in that each action of each part affects all other parts in a

ripple effect. He gives an example of a collapsed bank that has effect on its customers,

regulators, investment funds, pension administrators and subsidiaries. This wave effect

goes to reinforce the complexity of the world as all organisations are part of a whole

system.

Organisations cannot function in isolation without considering the other parts within that

system and effects on the system as whole. Adaptive leadership advocates for shift

from equilibrium in that when a system is out of equilibrium, it thrives but when

maintained at equilibrium, it fizzles out and dies Prigogine and Nicolis (1997). In their

argument, an organisation pushed out of equilibrium forces leaders to be creative in

their quest for pragmatic solutions which in turn brings growth.

Kelly (2001) argues that co-evolution of strategies in line with the changing complex

environments brings greater success than adaptation to the changing environment. The

ever-shifting equilibrium can only be got when leaders and managers are conscious to

the changing social, legal, economic and demographical environments and adapt their

strategies accordingly.

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5. THE PRACTICE OF STRATEGY

Johnson (2011) advances two types of strategy; deliberate and emergent. He

postulates that deliberate strategy entails concerted rational and analytical efforts for

strategy development based on tools, techniques and existing frameworks for analysis

and evaluation. In contrast, emergent strategy is one not based on long term planning

but one that results when deliberate actions for strategy have not worked.

In his book, Strategic Management Reston (2011, p.24) identified three schools of

strategic management:

a) Planning school that is based on Ansoff’s matrix on product placement in a

defined market

b) Positional school that is based on Boston Consulting Group matrix aiming at

placing an organisation’s products in a market that is favorable.

c) Resource school as advanced by Robert Grant that gives a higher weighting to

evaluating the internal environment.

According to Porter (1980), for any business, there exists internal and external factors

which jointly affect managers’ decisions. He identified external factors such as

regulations, economy, demography, ecosystem and politics, culture and society.

Derric (2007) further identifies other actors such as markets, producers, suppliers and

intermediaries as micro-environmental forces that are able to exert greater influence on

the organisation than its macro-environment. Strategic systems thinkers must evaluate

their decisions in the wholesome space of all these actors/parts.

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5.1. Tools for Strategic Business Environment Analysis

Jarrat and Stiles (2010) advance SWOT analysis and BCG as tools that managers and

leaders can use to analyse this complex and dynamic environment.

Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis is a popular

technique through which decision makers evaluate a firm’s internal and external

environment by identifying their strengths, risks and opportunities. This technique

advances that leaders should maximize on their advantages (strengths and

opportunities) while minimizing their disadvantages (threats and weaknesses).

At our organisation, this tool is preferred by managers as it offers a rather simplistic

approach towards strategic decision taking. Managers evaluate threats such as

fiduciary losses and reputational risks when evaluating investments opportunities while

looking at the potential development impact of the investments. The tool does not

however, model the effect of other unseen and unmeasured factors such as bilateral

relationships between governments and donors in the countries of investments whereby

failed relationships lead to a donor directive to divest or reduce funding to countries

where such relations are strained.

Bolton Consulting Group matrix considers the market growth rate and relative marker

share to enable managers balance cash flows among various product units while

maintaining overall health of the products portfolio. This method is not favored by

managers at our organisation, a non-profit entity, as it is predominantly designed for

profit-oriented entities that seek to manage product line profitability while maintaining

overall firm’s profitability.

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5.2. Strategic Change and Risk Management

Through strategic thinking, leaders are provided with tools and techniques for managing

change and its effect to the organisation. It equips them to steer organisations through

the planned process for change as benefits to the implementation can be modelled and

evaluated before actual implementation.

On the other hand, these change modelling tools do not consider variables that cannot

be quantified beforehand such as employee resistance to change, runaway effects of

change on employee motivation or customer opinions on changed products. Leaders

and managers should therefore have contingent plans to cater for unmodelled

behaviour in the market.

5.3. Strategic Risk Management

Vivian (2006) defines risks as uncertain events that would cause a negative effect on a

business should they materialize. She postulates that managers should develop

strategic plans that address and mitigate against these risks.

Strategic risk management thus entails identifying and responding to those factors that

pose risk to an entity’s strategic plans and decisions. At our organisation, there is Risk

and Assurance Unit that is tasked with the development of a strategic risk register that

is continually monitored, updated and evaluated.

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6. CONCLUSION

From the study, the complexity of today’s world and business environment alike has

resulted from the increased number of independent factors that interact in a manner that

is interdependent of each other yet one that is very unpredictable. These connections

bring about complexity.

Watt (2018) postulates for analytical thinking and understanding of the composite parts

forming and organisation as well as the interlinked organisations within that system.

From this realization, schools of thought on strategy have also come to the appreciation

of the complexity of our world. Organisations are now seen as having interdependent

parts which act and relate with each other. It is also understood that organisations also

form part of a much bigger external system.

A successful strategy helps businesses adapt to changes in the markets and economy

without negatively affecting other parts of the economy or market such as employees,

climate, biosystems, ecosystems, suppliers or regulators. Such effective and

sustainable solutions cannot be got from trying to find solutions for problems by

evaluating them as peculiar to the organisation but by appreciating the effect that the

chosen solution will have not only in the organisation but in the other sub-systems such

as markets, economy or the world in general. Strategic systems thinkers will look at the

environment as consisting of parts and hence tailor solutions that work for the whole

system of parts. We need to look at the factors acting in that system, their variety and

relationships. We also need to appreciate that the greater their variety, the more the

interconnections and the more complex the system is.

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