Value of Systems Thinking in Developing Corporate Strategy

Systems Thinking and Corporate Strategy

All businesses strive to thrive and grow, which allows all the involved stakeholders to benefit. The way they achieve this is by remaining flexible; this entails constantly researching both internal and external environments to identify strengths, weaknesses, threats, and opportunities. This prompts a company to lay a corporate strategy geared toward mitigating the threats and leveraging the opportunities. Systems thinking is significantly valuable to companies during the development of corporate strategy.

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            Before delving into the value of systems thinking in corporate strategy development it is imperative to define the two concepts. Systems thinking refers to a way of viewing and talking about the reality that allows for better understanding and working with systems to enhance quality (Kim, 1999).  In an organizational setting, systems thinking refers to a holistic approach to thinking and talking that focuses on the way the individual constituent parts of a system interrelate and how they work over time within the context of systems (Monat, Amissah, & Gannon, 2020). On the other hand, corporate strategy refers to a continuous process carefully tailored to changing conditions (Pidun, 2019). Pidun elucidates that when clearly defined and executed, a corporate strategy allows an organization to establish the overall value, set strategic goals, and motivate employees.

            Companies need to constantly develop long-term strategies to facilitate long-term competitive capacity. However, the quality of the developed strategies is dependent on the available information as well as the capacity of the decision-makers to process it (Weissenberger-Eibl, Almeida, & Seus, 2019). As such, system thinking is significantly valuable in developing corporate strategy. System thinking allows the decision-makers to approach corporate strategic thinking holistically where they focus on the interrelation between all the parts of the system to overcome the limits of information processing and decision-making as well as reduce bias (Jackson, 2016). Notably, in this context, the organization is the system. System thinking allows for analysis of the interdependencies between all the influencing factors in relation to how they impact the various constituent parts of the system (Kim, 1999). Thus, systems thinking allows a company to identify the gap between the actual and desired state as well as the interrelated factors that must be aligned to achieve the desired outcome.

            Systems thinking is also valuable in that it facilitates the alignment of all the key components of corporate strategy development. The four key components of the corporate strategy include visioning, objective setting, resource allocation, and strategic tradeoffs (Jolly & Can, 2015). According to Monat, Amissah, and Gannon (2020), systems thinking allows a company to set high-level direction (vision), turn the vision’s aspects into a series of objectives, influence the resource allocation decision, and prioritize hence the strategic tradeoff. System thinking allows for precise alignment of all the four components of corporate strategy development because it utilizes feedback. Notably, feedback in this context refers to the transmission and return of information. Feedback allows a company to identify gaps and analyze all involved interrelated factors (Kim, 1999). Hence, it informs the corporate strategy development process from an evidence-based perspective.

            An event whether positive or negative can grow into a vision or strategy by using feedback, loops, and labels. For instance, a company may be facing low productivity. Analysis of the cause of this event shows that this is caused by decreased employee engagement. The feedback prompts the company to develop a strategy to improve employee engagement which entails an employee motivation framework consisting of both intrinsic and extrinsic motivators. The strategy leads to improved engagement, which in turn leads to improved productivity. The increased engagement level will at a point cause burnout leading to a decrease in employee engagement, hence decreased productivity. This will prompt the company to begin the cycle all over again, hence a balancing loop. According to Kim (1999), a balancing loop continually tries to keep a system’s performance at a certain desired level of performance.

To sum up, systems thinking is significantly valuable in corporate strategy development. It allows for a holistic approach to corporate structure development whereby a company strategizes based on the analysis of all the interrelated parts of the system as opposed to a single or some of them. This allows for the development of strategies that are free from the constraints of information processing, limitations of decision-making, and bias. Moreover, it allows for the creation of strategies that leverages the balancing loop hence allowing a company to have corrective actions geared to continually trying to achieve a desired level of performance. Hence, it facilitates the long-term success of a company.

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