Every week someone smart makes an expensive mistake. A career decision, a business call, a relationship. We all have the right intentions, but we end up with a wrong mental model of the system we're in.
Systems thinking is the ability to see that pattern before you act. And in a world where AI is replacing smart people [music] faster than anyone predicted, this is the most important skill you can have. I learned it the hard way.
homeless teenager, monk in training, eventually a CEO and board member in companies worth billions. This skill of thinking in terms of systems changed my life. It will change yours, too.
So, grab a pen. Let's go. When there's a huge fire burning, the firefighters see what we cannot see.
To most people, fire and smoke are something to avoid, but to a firefighter, they're information. Thick black smoke could mean fuel or plastics or chemicals burning. White or gray smoke could mean moisture or a fire that's being starved of oxygen.
Why obsess over every such detail? [music] Because if they open the wrong door or break the wrong window, they could be the ones feeding the fire versus containing it. That thinking is systems thinking.
[music] is your ability to see hidden patterns from parts that you can observe. The simplest way to understand a system, at least to me, is a set of connected parts that keep producing a pattern. Your company is a system.
Your career is a system. Your marriage is a system. Go to any coffee shop today and you can observe this system.
There are customers, a menu, a cashier, a barista, an espresso machine, all the parts. And these parts are connected by the idea of order flow. The customer chooses, the cashier enters, barista prepares, customer receives a coffee.
So that's the system that's running in a coffee shop. And this is why it matters because once you start observing, you have a way to go deeper. Move from parts to connections to patterns.
So if it was just easy about parts and connections and patterns, then why do many of us get confused when we think in terms of systems? Well, there are three reasons for that. First, they don't know what kind of system they're in.
There are four types of systems, and we'll cover that in this video. And each one has its own approach to arrive at a solution. So if you don't know what system you're in, you won't be able to think your way out of the problem or you'll bring a wrong approach to the right system.
The second reason is what's known as the cobra effect. So in early 1900s, British officials in India were worried about the growing population of cobras in Delhi. So they created what seemed like a reasonable policy.
They paid people a bounty for every dead cobra. Simple enough, right? But then the government started seeing something very counterintuitive.
There were more cobras than ever before. Why? Because [music] some people figured out how to game the system.
They started breeding cobras so they could bring more dead cobras to the police and get paid more. So the whole policy that was designed to reduce the number of cobras in the city ended up increasing that number. This is a perfect example of what's called the incentive problem.
When you attach a reward to the wrong thing, people optimize the system for the rewards and ignore the goal that the system was made for. Humans make systems messy. So that's the second reason why we all get confused about it.
And third, we stay confused because some systems have feedback loops that are delayed. So you can act now, but the impact of your actions won't be available for you to observe for a very long time. Here's an example.
For most of the 20th century, cigarettes were part of the culture. Movie stars smoked, doctors smoked, soldiers smoked. People smoked everywhere.
In restaurants, on airplanes, in offices. The satisfaction arrived in seconds. Relief, pleasure, your ability to focus again, social bonding.
But the damage arrived in decades. It wasn't like you smoked one cigarette and suddenly had lung cancer. So those are the three confusing aspects about any system.
Go to a grocery store or a coffee shop and ask three questions about what you cannot see. What are the hidden parts? How are they connected?
What patterns keep repeating? And once you start asking these questions, you can start thinking in terms of systems. And now let's understand the four types of systems.
We'll start with the easiest one, clear systems. In the 80s, Van Halen was one of the most amazing rock bands. But the most legendary story about that band was not about them.
It was about M&M's. Their live shows were enormous. And they had a 400page contract with all the details about the stage setup and the electrical requirements and the safety protocol.
And in that contract, there was this tiny little line buried deep in the document. And it said there had to be a bowl of M&M's backstage with every brown M&M removed. And you might think this is some rockstar nonsense.
Maybe Eddie didn't like brown M&M's, but that wasn't the point. If the band walked backstage and found brown M&M's [music] in the bowl, they instantly knew that the venue probably had not read the contract super carefully. And if the venue missed that tiny detail, maybe they also missed something dangerous in the stage setup.
By looking at a bowl of M&M's, the band could figure out the state of the entire system. That's the benefit of a clear system. In a clear system, the relationship between cause and effect is directly observable or you can determine it easily.
It's clear, it's obvious. Follow the steps and you can predict the [music] outcome. Let's say if you're cooking and following a recipe book, that's a clear system.
You know exactly what to expect. You know that if you follow the steps, you'll end up with something delicious. Your job is not to be clever or innovative.
Your job is to be very precise, to follow the process of that clear system. A surgeon scrubbing in before the operations is not being obsessive. They have a clear system.
There is a precise protocol. Hands, wrists, forearms, 2 minutes minimum. So what do you do when you are in a clear system?
This is where checklists become super powerful. Watch any brilliant surgeon or an experienced pilot in action. They will all have a checklist.
It's not an insult to their expertise. [music] They are paying respect to the fact that they're only humans born to make [music] mistakes. And when you find your own version of M&M's in the bowl, you already know something [music] is broken.
So that's the clear system. Let's go to the next one. A patient walks into an emergency room and says, "My chest hurts.
" Three words, but 20 possible causes. One of them could kill him in the next hour. The symptom is clear.
The cause is not. That is a [music] complicated system. The key difference between clear system and a complicated one is the relationship between the cause and effect.
In a complicated system, it's hard to understand the relationship between the [music] cause and the effect. What you need is analysis or expertise to uncover those connections. Let's say if you're buying a house and choosing a mortgage.
Now, that's a complicated system because the answer does exist, but it's not obvious immediately without an expert helping you out through the process. What's the right loan structure, the fixed versus adjustable rates, [music] the right terms and duration for your unique situation? And complicated systems show up everywhere in the world of medical diagnosis, financial modeling, tax planning, enterprise architecture, aircraft repair, acquisition diligence everywhere.
And all of them are going to require experts. You need a doctor, you need a CFO, a lawyer, a broker, a mechanic, someone who knows where mistakes can hide in plain [music] sight. So what do you do when you're in a system that's not clear but complicated?
The right move here is to slow down and analyze or find the right expert. Also, not just any expert, [music] but the right specialist. A cardiac surgeon won't know what to do with someone suffering from lung cancer.
But some systems are harder than even complicated systems, a [music] complex system. That's where we go next. When I was serving as the chief operating officer at a large tech company in New York, [music] we decided to acquire a wonderful company from the Midwest [music] and it was our biggest acquisition.
On paper, it made so much sense. The company was amazing. The people were wonderful.
They had complimentary products. But within the first 60 days, it was obvious that the two cultures were so dramatically different that it was going to be very difficult to integrate these two companies. The company we acquired was very formal, very hierarchical, very conservative when it came to risk-taking.
And we wanted to move very fast. We were informal, a little more cowboy than we needed to be. So many leaders from that organization left in the first 90 days.
We had to shut down some of the products. What was meant to be our greatest opportunity became the biggest distraction. So that's a great example because integrating two companies is what's known as a complex [music] system and complex systems are more difficult than the complicated ones because in such systems cause and effect are only visible in hindsight and in those situations hiring experts doesn't help much either.
For instance, let's say if you're working in your company to implement AI across the entire business. Now you hire the right consultants, the right experts and they will build you a road map and they will choose the right tools and the right models, execute the process. That is a complicated system but it's doable all good and then you have to ask your people to change how they actually work to accept and adopt these new AI tools that you've built.
And suddenly you've graduated from complicated systems to complex systems. Will that change management be successful? No one knows because in that situation the answer can emerge only over time and you'll know the results only in hindsight.
You know every mother and every dad knows this. You cannot raise a teenager with a standard operating procedure. Raising a teenager is also a complex system.
What worked last week may fail this week. You don't know why your teenager is changing. Their body is changing.
Their brain is changing. Their priorities are changing. It's not a clear system.
You cannot raise a teenager with a checklist. And it's not a complicated system because you cannot hire an expert who can help [music] you. It is a complex system.
So what do you do in that case? You can try small experiments and you adjust in [music] real time. All you can do is try to stay directionally right, not precisely right.
So do the experiments and course correct over time. But there is a system where none of your experiments would work either. That's our fourth and final system, the chaotic system.
In September 1982, seven people in Chicago died after taking Tylenol capsules laced with cyanide. Now, nobody knew how widespread the danger was. Nobody knew which bottles were safe.
Nobody knew if there were more deaths coming. That is a chaotic system. Johnson and Johnson, the maker of Tylenol, didn't have time to analyze or ask experts or go through any checklist.
None of that. All they could do was go into crisis mode. They warned the public.
They pulled 31 million bottles of Tylenol off the shelves. Their strategy was stabilize first, ask later, understand later. So when you are in a chaotic system, the link between cause and effect is impossible to know.
It's broken. Information is incomplete and it's always changing. The only move is to act first, stabilize first, and then when the ground finally stops moving, you can start asking what happened and why.
And if you're trapped in one of these chaotic systems, the biggest mistake you can make [music] is analysis paralysis. People want the full picture before they can act. All of us do.
But chaos has no interest in teaching any of us. It's like an earthquake. [music] The moment it hits, there is no pattern to respond to.
All you can do is act as quickly as you can and create safety. So now we have the four systems and a thought process on how to behave if you're in one of them. First clear system.
Cause and effect are obvious. Follow the stable process. Checklist can help.
No need to improvise. Second, complicated systems. Cause and effect exist, but they're sometimes hidden.
What do you do? You slow down, take time to analyze, find the right expert. Complex systems.
Here the cause and effect are only understood in hindsight. So run a lot of tests, stay adaptable, course correct. And finally, number four, chaotic systems.
This is where the link between the cause and effect just completely breaks down. Act immediately, stabilize first, create safety, and then try to understand it. So those are the four systems and four protocols.
But real life does not come with labels. Nobody walks into your door and says, "Congratulations, today we're going to deal with a complex problem. Yesterday was a complicated system and that's why you need a diagnostic tool to figure out which system you're in the middle of.
You need a framework. I call it Dart. D is for deconstruct.
Break the problem down into subp parts. Are the parts stable or constantly shifting? Before you decide anything, you have to see what the system is made of.
A is for analyze. This is the most important part because you're going to ask what's the connection between cause and effect. Is it obvious?
Then you in a clear system. Is it discoverable through analysis? Then it would be a complicated system.
Is it emergent and constantly changing and you can get to it only in hindsight? That could be a complex system. Or is it completely broken?
That's a chaotic system. This single question tells you which system you're in. And once you know, you'll know what to do next.
R is for recognize. Here you ask, have I seen this before? Even if you haven't seen the exact pattern before, have you seen something similar in any system?
Recognizing patterns within the system and across systems is a great skill to have. And finally, T is for [music] test. Run the smallest test you can before you can commit to a full response.
And remember, in a chaotic system, there is no time to test. And once you know the nature of the beast, you know how to deal with it. But there is one most crucial aspect of systems thinking and that's where we go next.
Each system that you live inside is quietly training you to. That is the biggest feedback loop most people never see. The hard part is that from inside the system you usually cannot see what direction is taking you.
It's like sitting in a train compartment at a platform and you feel the train beside you beginning to move and for a moment you genuinely don't know if it's your train that's moving or theirs because from inside the train the sensation is identical. But for someone standing on the platform there is no confusion. So when you're inside the system you have to figure out how to have the perspective of someone who's on the platform.
Metaphorically speaking there are three ways to do it. Mentors, data, and time. A mentor is someone on the platform who's outside of your world, who has no stake in your story.
They can see your train from [music] the platform. Second one is data. You know, numbers don't care about your narrative.
Your biggest asset is data that shows you what the system is actually doing versus what you believe it's doing. That's how you get on the platform. And finally, time is the biggest truth teller.
Always compare yourself with what you were doing a year ago, a month ago, a week ago. Mentors, data, time, any one of them can tell you if you're thinking about systems correctly, in which direction your train is moving. And this is the lesson that I learned the hard way.
You know, when I was a teenager, I used to tell myself that I wanted to serve millions of people. And that's why I ran away from home and trained to become a monk in an ashram. And only later when I started getting honest feedback from others that I realized I wasn't running toward a life of meaning, I was just running away from my father, from everything else that I was afraid of.
I was a very shy young man in my early 20s who severely lacked any confidence and any communication skills. Of course, I got very lucky. I had great mentors.
I had honest data and I had friends who told me the truth and I always wanted to be better than myself and those were the only tools I needed for systems thinking. The conventional wisdom in business says that you have two options and there are binary options. You can build a Ferrari or you can build a Toyota.
A high margin luxury product or a high volume everyday product. Most of these binary choices are just limits of system design, not limits of reality. Take Apple.
They make 350 iPhones every minute. Not every hour, every minute. a luxury product at mass market scale that shouldn't exist but [music] it does because Steve Jobs and Tim Cook spent 20 years building a system that world had never seen before.
They refuse to make that binary choice. By the way, if you're thinking about improving every week, you can join our newsletter community. The newsletter delivers one insight, one tool, and one practice link in the description.
And it's totally free. It's hard to be consistently better than others. [music] It is not difficult to be consistently better than yourself.
The hardest system to redesign is the one you build inside your own head. The story you've accepted about who you are, what you can become, what limits you put on yourself, that story is part of your system as well. And like any story and system, it can be re-imagined completely.
You can be both a Ferrari and a Toyota at the same time. The world will meet you at your level of audacity and hope. Thank you and I love you.
