Systems Change

Impact
 Overview
In any systems innovation initiative gaining some assessment of how our actions are affecting
change in the system is of critical importance to understanding its current state and to guide our
future course of action. A change in system structure, rather than just its parts, implies a
paradigm shift in our ways of assessing, measuring and investing for systems change. Existing
thinking and incentive structures create strong drives for many projects to demonstrate
quantitative “impact” and outcomes on specific issues. The result is that we often try to
demonstrate systems change by demonstrating some quantitive changes for a specific issue.
However, measuring system change requires a paradigm shift in our thinking and assessment, as
we are interested in changes in structure rather than a change in parts. This means shifting from
quantitative metrics to qualitative assessment of network structure, its integrity, alignment
between parts, synergies, distribution, resilience, etc. This guide is designed to help you in
thinking through and developing your own metrics and assessment methods to ensure you are
tracking the metrics that matter in realizing whole systems transformation.
 Guide Contents

Measuring Investment Outcomes Learning

How to define the How to invest to How to focus on How to build the right
metrics that are catalyze systems outcomes to achieve feedback loops and
important change real impact at scale stay learning
 What Do We Mean By Impact?
"Impact" is the effect that one thing has on another. This term is
used in the context of a change initiative to assess what affects
our actions are having on the system we are interested in
changing. In a change initiative we hope to make progress in the
desired direction and we take actions to realize that. In order to
make decisions about the best actions to take we need to learn
about the effects of our past actions; whether they had a positive
or negative outcome on the system. Our aim here is to gain
relevant feedback about the state of the system to assess whether
what we are doing is taking us in the desired direction or not. To
do this we need to define what aspect of the system we need to
gain feedback about, we need to capture that information, amass
it and assess its overall meaning as a basis for decisions about
future investment and action.
 Assessing Whole Systems
Impact assessment for systems change differs qualitatively
from that of non-systemic impact assessment as we are now
required to account for the changes in the whole system
rather than changes in any of the parts. If our aim is to
change the context then our impact assessment needs to be
accounting for this rather than traditional metrics associated
with linear changes and specific outcomes. Systems thinking
is expansive and our assessments of systemic impact should
be likewise looking outwards, not narrowing our vision down
to a few key metrics but looking across the broader system
or systems. For example, if we were looking at an
educational system we would often rush to metrics like that
of test scores. However, when education is taken in its full
context we see that it is as much about what happens
outside of school as what happens inside and we would need
to be thinking about a broader set of factors.
 What is Systemic Impact?
The outcome of systems change is a change in pattern and emergent function. By systemic
impact, we are asking how have we changed the structure of the system to realize the emergence
of new functions and outcomes.

Non-Systemic Impact Systemic Impact

Change in parts Structural changes
Quantitative in nature Improve health of system
Aims for a direct outcome Multi-Dimensional
Key performance metrics Integration
Symptoms Emergent outcomes
 Measuring Collective Impacts
Systemic change is a collective effort. A such it requires a re-
alignment of our metrics for impact assessment from looking at
one organization or program to assessing the efforts of the
interaction between a collective. Too often the assessment and
investment structures we develop have an in-built assumption
that it is the parts that will realize change. This is demonstrated
by the design of our funding where we often hold a competition
between different projects to see which is the best and will get
funding to move forward. However, systems change requires
alinement between many actors, thus we need to build
accounting and investment structures that are design to
support and assess collective action. Map the System by the
Skoll Center is a good example of this, instead of inviting
participants to pitch their solution they get them to map the
system to find a way to bridge gaps and improve the alignment
of the actors.
 New Paradigm - New Metrics
The point of systems change is to change the paradigm, we aim
to shift the system structure to a new equilibrium to realize new
emergent functions and outcomes. This means that existing
metrics will likely be irrelevant. The metrics that we use today
are largely just measures of how well the existing system is
doing according to its own criteria. We typically measure how
well as system is working internally not how well the system
functions within its broader environment. For example, we
assess students based upon the content we think they should
be learning and not on many other criteria such as how well
they are equipped with the skills they will need in life. To create
relevant system metrics we have to revisit once again what a
functional overall system looks like and what are the indicators
of that.
 Measuring Context
The term "negative space” is used in art to refer to the context within which something exists. It helps to
illustrate the idea that in systems change we are measuring not for a specific aspect but the context out of
which it emerges.

Positive Space Negative Space

The object itself of Space around the object that gives
interest it context and meaning
 Linear & Nonlinear Causality
Measurements of impact have to engender some
assumptions about the nature of causality. Our existing
metrics are largely based upon linear assumptions - that
one thing can directly cause another. For example, more
investment in hospitals will lead to better health outcomes
for the population. The aim is to realize impact by finding
those specific factors that have the greatest effect on the
desired outcomes and to then change them directly.
Systems thinking concerns itself with nonlinear causality
meaning we do not search for direct cause and effect
relations but instead look to invest in the structure of the
system as a whole out of which the desired outcomes can
emerge. This is an oblique approach.
 Uncertainty
While linear causality holds out the promise of certainty of action
and outcome - of being able to easily assess and quantify impact
within a very limited sphere - the unfortunate fact is that it does
not tell us about the system as a whole. All our linear metricS of
the parts can be telling us that we are doing great things while at
the same time the whole system is falling apart. Systems change
emerges from the way the whole system behaves not from the
actions of any one project or organization. An assessment of the
whole requires us to embrace complexity, nonlinearity and the
messy uncertainty of open complex systems. We aim to help build
the health of the system to generate positive change. However, we
cannot draw a direct link between our specific interventions and
the outcomes, only say that our intervention contributed to the
health of the system that contributes to the desired outcomes. As
such Realizing positive systemic impact requires us to give up some
of our innate desire for certainty, control, and direct attribution.
Measuring
 Overview
Measurements are the foundations of our assessment. If we want to get real outcomes we need to
be assessing the things that really matter. This starts with the question of what are the outcomes we
are interested in seeing. To create a metric for the impact we have to first define what exactly it is
that we are hoping for with our system change initiative. The aim of systems change is not to solve
for a particular problem but instead in proving the health of the system as a whole. What we care
about in systems change is the overall health or quality of the system. To realize this system change
is about a qualitative change in the structure of the system. Our primary aim should then be to track
qualitative changes. We are looking to assess change in structure rather than a change in the
metrics associated with the parts.
 Quantitative Qualitative Change
Change In Parts In Structure

Properties System
of Parts Structure
 Quantity and Quality
Quantity tells us about scale; numbers measure things and
their properties. Quantity is important because it tells us about
the reach of an initiative. However, this is not sufficed as
quantity alone will only tell us about amount it will not tell us
about the nature of the connections. Thus a focus on quantity
can lead to scale but also fracturing. We may spend billions of
dollars funding thousands of different health initiatives across
Africa with each of those initiatives doing great work, but
without synergies between them, without them being
integrated and coordinated as a whole, they will achieve only
suboptimal outcomes. To get real impact we need to assess for
quantity and quality. Quantity tells us only about scale, while
quantity and quality tell us about real impact.
 Quantity vs Quantity
During linear processes of change the context stays constant, meaning we have a single frame of reference
for defining and measuring changes to the parts in a quantitative fashion. In contrast during a transition, it
is the context that is changing and thus quantitative changes to the parts tell us little. Measuring for change
in the whole system is about assessing the qualitative changes in structure.

Quantitative
(Partial change)

Qualitative
(Systems change)
Nonlinear
Order of magnitude
Quantitative
(Partial change)
 Measuring Patterns
System change does not attempt to tackle specific
symptoms but instead change the structure of the system
to make it more resilient and sustainable. As such what we
wish to measure for with system change is not the change
in any part of the system but the quality, integrity, and
function of the whole system. This is a different kind of
metric to traditional impact measures one that accounts for
the change in structure and pattern - metrics relating to
changes in connections rather than parts. We are interested
in the emergence of new macro-level functionality that is
the product of the alignment between the parts. Likewise,
we need to assess the nature of the connections as higher-
level functions will only be realized given positive synergies
between parts. We need to assess the overall network
structure, is it centralized or decentralized, resilient or
fragile.
 Measuring System Health
Key factors to assess and track in a system change initiative

Integrity Synergies Alignment Adaptation

How integrated is the How well are the How aligned are the actions Degree of agility, flexibility
overall network. A parts working together. toward an overall function. and resilience of the system.
measure of the degree A measure of the degree A measure of the capacity to A measure of system
of equality in the system of cooperation realize collective actions sustainability
 Integrity
If the different organizations, people and functions are disconnected then there is no grounds for
alignment and emergence. Thus the first factor we should be assessing for is how connected are the
different parts of the ecosystem. Integrity requires a degree of equality and recognition that all are part of
the same overall system - high levels of inequality will work to disintegrate the system. If the structure of
the system is disintegrated then our first initiatives should be around building connectivity.

Low Integrity High Integrity

Lack of coordination Conditions for emergence
 Synergies
If the parts are interconnected then we need to ask how well are they working together. What
is the degree of competition vs cooperation? Each organization has different capabilities and
resources and it is our job as systems innovators to work on building the positive synergies
that enable them to function constructively together. Here we want to assess whether the
different initiatives are complementary or competing with each other.

Negative Synergies Positive Synergies

Competition and conflict Cooperation and differentiation
 Alignment
Alignment is a measure of the system's capacity to function as a whole. What is the degree of
alignment between the different initiatives in the system? If it is low then we need to work on
influencing the members towards adopting shared protocols, standards or objectives and
building new models that incentivize towards alignment.

Low Alignment High Alignment

Absence of collective action Potential for emergent functions
 Adaptation
How flexible and adaptive is the system? Are the parts able to adapt locally? Is it loosely
coupled with limited dependencies leading to resilience or has alignment been realized
through the imposition of a brittle top-down structure that is likely to break? This can be seen
as a measure of the system's sustainability.

Inflexible Adaptive
Ridged structures Flexible adaptive system
 Data
Any kind of assessment is going to require the collection and
use of data in some way. However, there are different ways of
working with data. If we are looking for changes in systems
structure then we will want to be collecting data about the
patterns of connections rather than the properties of parts,
as per usual. A reductionist analytic approach that is focused
on data from the parts will often point to conclusions that
disregard the complexity of the situation at hand. This is
because this approach does not take into account the full
scope of interrelationships in a system and is thus likely to
lead to misguided decision making that creates unintended
consequences. To avoid these blinds spots we need to
complement data about parts with contextual information.
 Data About Context
With a reductionist approach, we essentially try to
eliminate context; the aim is to measure changes in parts
within a constant environment. However, with systems
change it is precisely context that we want to assess. For
example, a mayor of a city might want to know how well
their city is doing so they may look at 10 key indicators,
income per capita, access to jobs, health care, etc.
However, with systems change we want to know the
health of the system which is the whole context. Rather
than a set of KPIs, this kind of information is captured
more in a question like "how do you feel about the
neighborhood where you live?” it is qualitative.
 Insight from Nora Bateson
"In each of these systems, vitality is produced by multiple processes in contextual
interaction. To study a jungle is to recognize that the jungle itself is not an isolated
“thing” but instead exists in the interrelationship between soil, foliage, animals,
weather patterns, bacteria and so on. The same contextual linkings can be found in all
living systems; approaching the system without an understanding of this holism will
create short circuits in the complexity and countless unintended consequences. Making
sense of the vitality of a complex system is an inquiry into its way of making contact. A
study of the relational patterns gives entirely different understanding of the way in
which a system is cohering."
 Warm Data
Although statistical data is useful, it is also limited due to the
common practice of de-contextualizing the focus of inquiry which
inherently creates blind spots in our decision; making because of the
places in-between the discrete bits of data. The term “warm data” is
used to refer to data about context. Warm Data attempts to mitigate
the limitations inherent to statistical analysis by centering the inquiry
around connections and context. For example, to understand a
family, one must understand not only the members as individuals but
also the relationships between them, i.e. the warm data. Warm data
is used to better understand and improve responses to issues that
are located in the relational dynamics. For example, understanding
and applying metrics to systemic risk requires relational data and
needs to take into account the structure and features of the overall
network. Warm data can be explored farther through the use of
network analysis where common metrics for assessing network
structure and dynamics already exist.
 Key Considerations
In your assessment are you measuring for the parts or connections?

Are you assessing for systems integrity, synergies, alignment, and resilience?

What data are you using, is it contextual or de-contextualized?

How can you re-contextualize it?

Are you doing ethnographic assessments?

According to who’s criterial are you measuring, yours or the people in the system?

Are your metric transparent?

Investment
 Overview
The point of assessing impact is ultimately to aid us in making better decisions about future
activities and initiatives. It should inform us as to where we should be investing our time and
resources going forward based on the current state of the system and upon what has or has not
worked in the past. Here again, a systems innovation approach changes the paradigm. It may be
easy to find an organization tackling poverty or water issues that will be looking for money to fund
important work and for them to demonstrate some linear impact. However, this linear approach of
direct impact is not what we are looking for with systems change. Investment for systemic change is
nonlinear making it a bit more complex. Our aim here is to use these resources strategically and
synergistically with other capabilities in the system to build a network that can realize the higher-
level functions we are looking for in our ecosystem building initiative.
 Regenerative Finance
The first thing to note is that systems investment engenders a very
different logic to that of conventional investment. While financial
investment, in general, is based upon on maximization of returns
to investor logic, systemic investment is about maximization of
returns for the system itself. System change is a generative
process, the aim is to create thriving regenerative systems. We are
not extracting but creating. Likewise, it engenders the intention of
creating a healthy and resilient system. This systems approach
starts with a recognition that finance is only one part of the
broader set of factors that needs to come together and work
synergistically to realize these changes. Here investment does not
exist in an isolated logic of finance but must recognize multiple
other systems and forms of value that it aims to stimulate and
enable. This is a recognition that money alone will achieve little,
we have to reconnect and integrate it with many other systems if
we are to achieve the synergies required to catalyze change.
 Investment Approaches
Funding system change requires moving away from a traditional reductionist approach towards an
integrated approach - investing not in parts but commons

Reductionist Wholistic
Funneling down Expansive
Single value Multi-value
Reduction process Multidimensional
Investing in parts Invest in connection building
Aim to find the "best" Synergistic combinations
Selection of few Integration of many
Private investment Investment in the commons
 Money & Innovation
When the aim is not financial returns but to stimulate systems-
level innovation investment needs to be highly strategic in
approach. The issue arises that innovation and money are
essentially two opposite things. Thus if we are not careful the
money we invest can work to reduce the innovation capacity of
the system. When we have money we tend to use it to solve our
problems, when we don’t we are required to innovate. Likewise,
systems change involves high levels of intrinsic motivation where
finance can have a crowding-out effect attracting the wrong
people. Without awareness of these issues, the blunt use of
money can be counterproductive. For finance to be used
effectively, we need to either invest in the creation of the right
context or set of projects in the right places in the system where
innovation has reached a level of maturity to have a solid model
for scaling.
 Minimizing Need for Investment
Innovation is in many ways the opposite of money so before
we start if we want to realize systems innovation we should
look to reduce the requirement for capital; we should start
with the question of how to do our selves out of business.
How can we take a project and not invest in it but restructure
it to minimize the required funding? While traditional
investment is simply looking for a good vehicle that will
maximize returns on their capital, impact investing is looking
to maximize outcomes for all stakeholders. This can be done in
two ways, by investing capital that the project needs or
inversely de-investing the project itself, meaning we take the
project and restructure it so it can achieve the same outcomes
$ with less capital investment, thus making our investments go
farther. The fact that we are trying to maximize output not
inputs or returns on investment, opens the space for
innovation in how we realize those outcomes to reduce the
cost of operations.
 Warnings
This restructuring should be our first assessment when considering an
impact investment to maximize innovation potential and minimize
capital requirements. An important factor to consider here is that
most startups fail because they take on too much investment too
soon; they scale becoming dependent upon burning cash, when the
investment cash ceases, they go extinct. Many entrepreneurs think
they are building the next great thing, but the data tells us over 90%
of them fail. The basic formula is: A founder gets an idea, they take on
lots of investment, they build a solution they think everyone will
want, once created they try to sell it, nobody wants it, they run out of
investment money, the startup dies. This goes for startups as well as
many non-commercially oriented projects. According to the Startup
Genome Project, up to 70% of startups scale up too early, this they
believe accounts for up to 90% of failed startups. Premature scaling
means too much investment, too soon. The key take away, be careful
with money, it is a blunt instrument that can create as well as destroy.
 Repurposing Finance
Not only should we start with an aim to minimize the need for
investment but also start with an assessment of the finances
that already exist in the system that could be repurposed.
There is no shortage of money in capital markets, the question
is how to turn that into something that not only creates
financial returns but also beneficial to broader social, economic
and environmental systems. This is a lot about accounting and
information so that the impact of an investment can be seen
clearly and demonstrated to the investors. The aim is that they
factor this into the decisions under which they are choosing
where to invest so that they invest in a wind farm rather than
another oil platform. Although we should note that the
repurposing of these large flows of investment is not going to
catalyze systems change but what it can do is redirect the flow
of resources into the new system once it is up and ready to be
operationalized.
 Insight from Dominic Hofstetter
“[Select] investments based not on their individual merits but on the aggregate value they can
generate at the portfolio level. This requires building capabilities to engage the relationships and
feedback loops within the investment portfolio, make sense and learn from what emerges, and
share portfolio-level risk and reward across different investor groups. It also implies working
with and through multiple different types of capital—private, public, philanthropic—in a blended
and coordinated way, using new mathematical frameworks and indicators to measure
performance and inform decision-making, and operating within structures that promote
diversity, multiple disciplines, and norms and incentive systems geared for long-term
sustainability."
 Funding Ecosystems
Most impact investing just looks at the direct effects of each
individual organization they invest in. Our aim as systems innovators
is to move away from the idea that solutions can be a product of
many parts doing good things and shift the approach to the idea
that the outcomes we desire are rather emergent functions of
whole systems. The creation of this is more about the synergies
between the elements rather than the sum of the properties of the
parts. So what does this mean for investors? It means funding for
ecosystems level outcomes and the key aspects that lead to this;
integration, synergies, alignment, adaptive capacity. This is about
selecting specific investments based not on their individual merits
but on the aggregate value they can generate at the portfolio level.
In funding we are looking across the ecosystem asking how our
financing can strengthen it through investing in bridging gaps,
improve network integrity, building synergies, working to align
different projects or develop resilience.
 Example of Ecosystems Funding: The Convergence Stack
Outlier Ventures is a VC company based in the UK which aims to support the development of
decentralized technologies and economies through supporting the convergence of different
technologies such as blockchain, IoT, Cryptocurrencies, big data, etc. They do not invest in ad-
hoc technology projects but have structured their portfolio in terms of a literal stack of highly
synergistic technologies; what they term ‘The Convergence Stack’. This is a set of interlinked and
open-source technologies spanning hardware, software, networking and applications that
support a more secure, private, accessible internet with the ultimate hope of accelerating the
emergence of the next generation web as an equitable digital infrastructure. They don’t do this
alone but "the stack will be realized in concert with a diverse set of stakeholders from academia
as well as early and later-stage startups, to the largest corporates, supported by forward-
thinking regulators and governments.”
 Systems Awareness
Systemic investment is complex in the respect that it requires a shift
away from the single point investments of one-off stocks, bonds, or
projects, etc. that is prevalent today towards a model that is
multidimensional in its approach. It starts with a recognition that
finance alone cannot solve anything and for it to be of value in
changing systems it must be balanced with and integrated with
other initiatives working along different dimensions of the system.
Systems investors need to integrate and align their interventions
with other actors working for change; oftentimes, these being
public sector actors or philanthropic organizations. Too often we
treat finance as a blunt instrument, but it needs to be highly
strategic not in terms of specific outcomes and organizations but in
terms of the overall dynamics of the system, it needs to involve a
high degree of awareness of what is happening in the system if it is
to work synergistically with the other initiatives in the way needed
for finance to be of value in actually changing a system.
 Catalyzing Change
Investing in systems change is not about direct inputs and
outputs but instead searching for the leverage points in an
ecosystem where our finance can catalyze change. Moreover,
systemic investors don’t need to provide all the capital
required for a system’s transformation, they only have to lead
it to a tipping point, after which the system’s feedback loops
will cause it to self-organize around a new basin of attraction.
What matters is not direct outcomes but instead the
investments impact on the overall transition dynamics. This is
not a once-off process but requires patient capital to disperse
investments over time as well as the ability to dynamically
adapt the asset allocation mix in response to the changes in
the system during the transition and the new leverage points
that may emerge.
 Creating Economies
Rather than one-off interventions, our aim should be to
improve the state of the value flows in the system. We
should be using our finance to trigger self-sustaining
economies in the system rather than creating
dependencies. If our aim is to create thriving systems then
we aim to create self-sustaining systems where people can
provide for their own needs not dependent on us to give to
them. As always systems change is about enabling context,
and systemic investment is about investing in enabling
context, here this refers to investing in the development of
self-sustaining economies for the production and exchange
of the different kinds of value that are needed to create a
thriving system, rather than any specific outcome.
Outcomes
 Overview
Key to real impact is a focus on outcomes rather than the means through which we realize those
outcomes. What matters at the end of the day are outcomes and we have to learn to start with
these rather than the existing set of constraints we may face in trying to realize them. As the
famous saying goes: "Fall in love with the problem, not your solution.” Most of what we do is
focused on the constraints of inputs and the internal workings of systems rather than the outcomes
they deliver. When talking about health care or education we start with budges and other
constraints rather than starting with what is really needed by the people using the system. Starting
with outcomes creates the space for radical innovation as it enables us to let go of the current
means we are using and start to think about any possible means as long as it gets to the required
outcomes. When we focus on outcomes this opens the possibility for us to redefine the problem
and redefining the problem can redefine the whole means through which we get there, i.e. change
the whole paradigm we are currently using to realize outcomes.
 Scale & Impact
Designing systems change around outcomes is a way of ensuring
that scale is coupled with impact. Often scale is achieved at the
loss of actual impact due to the reduction in quality resulting
from scaling. We find something that seems to have a real impact
at a small scale and then we invest in it, intending to scale the
impact, however by scaling we introduce a set of incentives into
the organization that are not properly aligned with the desired
outcomes. We get larger through a set of incentives that reduces
the quality of what we do so the impact does not increase.
Quality is what ensures that the value is delivered. While scale is
often just about reach, impact is the real value delivered, thus
real impact and outcomes are a function of both scale and
quality. If we focus on real outcomes delivered to the end-user, as
evaluated by the end-user, then we can incentivize for systems
that realize impact through scale and quality of delivery and start
to get the results that we wish for.
 Outcomes Economy
The outcomes economy is defined by the ability of
companies to create value by delivering solutions to
customers that in turn leads to quantifiable results. In
such an economy, companies compete on real measured
outcomes instead of product features. Within this services
model companies shift from competing through selling
products to competing on delivering measurable results
that are important to the customer. We can redefine any
of our systems that provide for human needs by starting
with the end-user and asking what is the real value
delivered to them within a particular context, at a
particular time.
 Examples
As example, we can think of an auto company, changing
the problem from “people want cars” to “people want
mobility”. This would allow them to do away with their
whole auto company and production systems that create
cars and instead just create an app for connecting drivers
and users to deliver the service. Instead of creating another
charity for feeding homeless people we could create an
impact currency for doing this which opens the space for
anyone to come along and create a new solution that
delivers that outcome. For example, create an app that
connects restaurants that have leftover food with those
who need it; which would reduce food waste, feed people
and possibly create jobs.
 Servitization
A service, in its traditional meaning, is an act of helping or doing work
for someone. A service system is a configuration of technology and
people designed to deliver functionality to the end-user. The term
servicization refers to the economic transition from an economy or
business model based around the production and consumption of
things to one that is based around the function those goods deliver,
i.e. the outcome. In a services economy, the focus is not on buying
and owning goods but instead on buying access to the services
provided by those goods. When we couple this with the networking
and coordination capabilities of information technology a whole new
form of economic and business model can emerge; one that is based
around connecting and organizing products into systems that deliver
functionality without the demand for anything new, except
coordination. These information-based services build new value
propositions by simply intelligently connecting things and unlocking
the resources that were locked up by the silos created by a product
based ownership model.
 Social Impact Bonds
The outcomes economy is a huge source of potential for
disruptive innovation as anyone who can deliver real outcomes
in any industry has the potential to radically disrupt the whole
value chain and even reshape the whole industry. Social impact
bonds are a good example of this. Consider the NGO Educate
Girls, who create a social impact bond that pays for the
educational outcomes that the girls achieve; if they achieve
better than average then the providers are paid otherwise not.
Thus instead of funding another school, teachers and
educational material - which are all inputs - here they are
funding the outcomes which incentivize for more and better
outcomes. With IT and new data sources, we can now collect
data about outcomes directly from the end-user in real-time
about their real experience, not a statistical aggregation that
just tells us about averages.
 Dematerialization
One of the main reasons that servicization makes sense now is due to
reductions in marginal cost enabled by information and services. The physical
ownership of things is inherently rival, excludable and zero-sum, placing an
absolute limit on how low the marginal cost can be reduced when producing
something. But when we switch to a services and information economy this is
no longer true. Services and information are about organization, not physical
things and information can often be duplicated at virtually zero marginal cost.
While producing an extra apple and selling it will always cost something extra
a new student can be enrolled in an online course at virtually zero cost. Thus
we should always be asking how can we shift what we are doing into the
information realm. This is what servicization does, it turns things into services
that can be represented as information, thus we dematerialize what we are
doing, which reduces costs and can enable us to focus more on outcomes
rather than inputs and costs of production. It is a design pattern that
dematerializes what we are doing so that we can do more with less to
achieve greater impact.
Feedback
& Learning
 Overview
Systems change is a kind of change that involves huge degrees of uncertainty and thus highly
experimental. We are typically operating in open dynamic environments where the complexity is too
high for us to have any fixed plan. A systems change initiative is a search for a new pattern that might
work. Traditional managerial approaches do not apply in this context. As such Systems
entrepreneurship is not so much about creating a solution but instead a process or methodology for
searching for a new way of doing things. This is the concept of the "lean startup" where unlike a
traditional organization that is focused on execution and efficiencies, a startup is by its nature a
temporary endeavor where the focus is on finding a new way of doing things. This means that we
should be designing our initiative as an experiment, not thinking about a particular solution but
instead focus on creating a core learning engine at the heart of our project to move it forwards
through experimentation.
 Iteration
When people think of innovation they think of the big idea that
changes everything. The reality of innovation is that it is not
linear, it is not one idea and then everything changes, it is a
very circuitous path from that initial seed of an idea to having
an impact in the world. Complex systems cannot be designed
at will, but must be evolved through endless iterations. The
same of a systems change initiative, it has to evolve through
constant experimentation, iteration, and learning. We do not
know what will work, thus we need feedback. We may have a
brilliant idea initially but as Edison said, genius is 1% inspiration
and 99% perspiration. Innovation is much more about this 99%
of hard work that goes into testing, measuring, learning and
iterating to continue to improve your solution by small steps as
well as big leaps. Perseverance and iteration are the key
ingredients and we have to design systems to maximize
iteration and learning not think that we have the solution
already.
 Changing Funding Structures
To invest in a way that incentivizes for learning huge structural
changes have to take place in the way we currently do things. For
example, traditional grants from foundations or from governments
are often at odds with lean approaches. To start with they require a
detailed design upfront in the form of a grant proposal, which
follows a waterfall model, a linear planning and execution process
that makes it very difficult to change or adapt according to learning,
while funders are often micromanaging to minimize risk rather than
experiment to maximize learning. At the same time, funders often
work in narrow silos, by sector, by geography or by demographic.
Just as software developers long since realized that the waterfall
approach is not good for complex projects so too should investors
and funders. Agile approaches have arisen as much more productive
at empowering the people doing the work to learn to adapt and
take the appropriate action as needed, without being pinned down
by bureaucracy and long term fixed plans.
 Experiment
The idea is to not make big investments but to treat our projects
like a scientist treats their experiments. We create and frame
our hypothesis about what might work, we build an experiment
to test it, we measure the results gathering data to see what
happened, if it seems to be successful we improve upon it, we
also learn something that feeds back to inform and shape our
new hypothesis. We need to have a hypothesis about what
might work, what might deliver value and be a sustainable
business model, and a growth hypothesis as to how we might
scale. All of these are the product of simplified models we hold
about what is in reality often a highly complex environment
within which we have to operate. The gap between our
simplified model and the complex reality is at the start huge and
the way to close that is not through more theories or
hypotheses but through experimentation, feedback, iteration,
and learning.
 Agility
When the solution is unknown and we have to experiment and
innovate - even potentially make major pivots - then the key factor
we should be maximizing for in our project is agility. Here we can
think about agility as our capacity to restructure our whole initiative,
project or organization based upon new insight or new feedback. To
get a fully agile system we need to surface all the supporting
infrastructure, including our assumptions, and make those open to
revision as best we can. Achieving agility means staying asset-light.
Here again, we can see the trade-off between innovation and finance
as starting with a large investment will inevitably lead you to build out
large fixed structures to harness and channel those resources. With
our system innovation initiative, we should be putting agility first and
foremost and this means minimizing capital demands and reducing
fixed structures until necessary. Start with an MVP that is very asset-
light. For example, if you want to change health care, start with a
LinkedIn Group for free and iterate from there, see who you attract
and what works.
 Action Research
Our initiative should involve the coevolution of action and
learning as “there can be no learning without action and no
action without learning.” Action learning is a process that
enables us to better navigate the complexities of systems
change. Action research is a method and philosophy that
seeks transformative change through the concurrent
process of taking action and doing research, which are
linked by critical reflection. This approach aims to move
beyond reflective knowledge created by outside experts
looking over sampled data, to an active moment-to-
moment theorizing, data collecting, and inquiry to better
respond to the emergent nature of complex change
processes.
 Ecosystems Learning
Learning not only applies to our selves and our project it refers
also to the whole ecosystem of actors that we are working
towards changing. A systems change project should be
restructuring a system so that it has the right feedback loops for
learning about itself, where it is, and where it is trying to go.
Large scale problems such as poverty and environmental
degradation require substantial societal learning in order for
lasting change to occur. Societal learning is a process of changing
patterns of interactions within and between diverse organizations
and social units to enhance capacities to develop new knowledge
and apply that collectively for the development of the whole
ecosystem. Here again, agility within the overall ecosystem is
required so that it has the feedback loops to make those changes
in practice that it discovers through learning.
 Version 1.1
A Systems Innovation Publication
www.systemsinnovation.io
info@systemsinnovation.io
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