02

A system is "a set of interconnected elements", and insight is the ability to see through "elements" and "connections". Systems in the real world are ever-changing and complex, but if you cut off all the details and remove all interference items, from an "abstract" perspective, any complex system is built on its inherent simplicity. How to understand? All systems, in abstract terms, except for "elements", are four "connections" between "elements": causal chain, reinforcing loop, regulating loop, and hysteresis effect. Under the influence of these four connection relationships, the element will continue to change, and we give it a new name "variable".

The five simple structural modules of variables (element), causal chain (connection relationship), reinforcing loop (connection relationship), regulating loop (connection relationship), and hysteresis effect (connection relationship) are built All complex systems. Without abstraction, you cannot think deeply. Next, we will learn how to thoroughly analyze these five abstract "structural modules" and gain the ability to think deeply.

Give an example to illustrate these five structural modules.

Background: What a city can do to promote economic development.

From ancient times to the present, the economic development of a city is inseparable from the prosperity of its population. Economic development and population are two factors, and these two factors are variables. In addition, what other variables are these variables related to? Economic prosperity, urban population, births, deaths, urban immigration, urban congestion, and the spread of disease are all variables.

So many variables, it’s too complicated. We can use causal chains to connect. The number of births brings about an increase in the urban population, and the number of deaths brings about a decrease in the urban population; economic prosperity brings about an increase in urban immigrants, and an increase in the urban population brings about a reduction in living space and the spread of diseases.

As the urban population increases, more people create wealth and promote economic prosperity; economic prosperity brings more urban immigrants, which increases the urban population and creates wealth again. This cycle of "cause strengthens effect, and effect strengthens cause" is the "reinforcement loop."

The increase in urban population will lead to overcrowding, and the reduction of living space will make it easier for diseases to spread; the spread of diseases will reduce the birth rate and increase the death rate, which in turn will reduce the urban population. This cycle of "cause enhances effect and effect inhibits cause" is the "regulatory loop".

It will take more than 20 years for a child to be born before another child can be born; it will take decades for new people to die; diseases will spread; these all have a lag. Between cause and effect, it is easy for people to get lost in phenomena and difficult to make judgments. By the time we get from cause to effect, a lot of time has been wasted.

By wearing insight glasses, through appearances, and using 5 simple structural modules, you can build a complex system, then find the key and make changes. This is true for urban economic development, and even more so for corporate governance. Next, we will continue to learn each structural module, understand their usage, return to the business world, and develop our own business insights.