The Case for Systems Thinking in the Age of Platforms
The objective of this post is to point out the fact that within the economics of platforms, there is a need to complement human-centered design principles with systems thinking principles. Why? Because this practice will give us a more holistic model for thinking through business strategy. Basically, systems thinking is a way of viewing systems from a broader perspective than usual. It involves analyzing more than one event at a time to understand the full dynamics inherent to a particular system.
With the rise of platform-based businesses — businesses that connect people through technology and create an ecosystem that allows value to be created and exchanged — and their apparent success and failures, one is forced to think about platforms, their impact, and their holistic architecture in the complex world of digital-era supply and demand. We need to go beyond the usual approach and address the overall strategy of the business.Given the economics of platforms and the socio-economic shifts that will occur from the platformification of different services, this is a worthwhile topic to explore, especially with the growth of AI-powered digital platforms.
Technology startups are trying to tackle it, investors are making big bets on it, and innovation commentators have well-formed opinions about which trends matter and which don’t. In the midst of this, value creators (founders and product developers) are being asked to follow a lean startup human-centered design process with regards to everything — even when creating platforms with all their multi-sided network effects.
But is there a need for a complementary mindset? I think so.
This is in no way meant to reduce the efficacy of human-centered design (or design thinking) — but quite the contrary. I believe that the best way to create products that will solve real problems is to follow the human-centered design approach; the relentless focus on customer experiences, pain points, and usage patterns is a sure and tested approach to product development. But like all foundational models, there is always a need to adopt complementary approaches.
Thus, when we think about platforms, we need to go beyond the usual approach and address the overall strategy of the business.
In their remarkable book, Platform Revolution, Geoffrey Parker, Marshall Alstyne, and Sangeet Choudary, highlight the how of platform design, their feedback loops, as well as the causal and mitigating factors inherent to the positive and negative same-side and cross-side effects of platforms. With the complex and multi-faceted effects of platform-based-solutions, I suggest we ask what should be added to the design-thinking model to allow for a more holistic discussion around platforms? And such a holistic discussion, I suppose, would bring some clarity to the successes of the winning platforms of the world — the Airbnbs, Ubers, and Upworks.
Take Uber’s two-sided network for example: David Sack’s famous napkin sketch of the different elements of Uber’s business model is enhanced with the representation of negative feedback loops. However, this is not a post about Uber’s platform from the standpoint of network effects, it is instead to make the case for systems thinking.
Human-centered design has come a long way since B. Lawson’s 1980 publication “How Designers Think,” we have more or less entered the era of design thinking where the focus has shifted into problem- and solution-based thinking. It derives its strength in its uncompromising commitment to identifying and solving pain points experienced by the user as a way of deriving value. However, design thinking practitioners should not miss out on the need to view the solution as a piece with specific and interdependent attributes within an entire system — one that allows the solution to be delivered in its systemic wholeness.
Systems thinking expands on the fundamental work that design thinking delivers. It puts product developers and venture creators in a better mindset to think through the different elements within the context of the overall ecosystem. In an article that discusses the merging of design thinking and systems thinking, researchers, John Pourdehnad, Erica R. Wexler, and Dennis V. Wilson discuss a key element that shows the essence of systems thinking:
“Systems thinking replaces reductionism (the belief that everything can be reduced to individual parts) with expansionism (the belief that a system is always a sub-system of some larger system), and analysis (gaining knowledge of the system by understanding its parts) with synthesis (explaining its role in the larger system of which it is a part).”
The systems approach can be broken down into systems philosophy, systems analysis, empirical systems research, and systems engineering. The premise of systems philosophy should not be mistaken as a mere ideological approach, but rather as the basis of a scientific approach to thinking about social systems and their economics. The evolution of systems thinking has provided us with enough conceptual constructions and empirically verifiable support of the approach that we (the practitioners) do not have the luxury of leaving it to the philosophers or academics. We must begin to apply it to real business issues and their attendant complexities.
So what does all this mean in the context of platform building? The design-thinker, therefore, must be compelled to think of platforms as being free, perfect, and instant — in the words of authors Andrew McAfee and Erik Brynjolfsson. The design thinker needs to evolve into a systems thinker that analyzes everything in terms of participants, value units and filters; in terms of pull, match, and facilitate; in terms of positive and negative network effects. The designer has to think about the chicken and egg dilemma of building platforms: When there is a producer and a consumer and you cannot have one without the other, which one do you have first?
The shift from design thinking to systems thinking is not only an approach peculiar to systems but one that is essential in all product development. When thinking about solving direct and identified pain points, one must also be rigorous in thinking about the broader ecosystem — hence the need for systems thinking as an evolution of design thinking.