We live in a time when we are getting better at improving parts, but worse at understanding wholes. Our organizations, social systems and economic models have long been built as if the world could be understood by breaking it down into its components. But the reality we are facing; climate crisis, social tensions, technological leaps, it demands something more. It demands that we learn to innovate at the system level.
System innovation is about creating change in how entire systems work, not just in their parts. To understand what this means, we can see it as a four-fielder with two axes. On one axis we distinguish between managing parts and managing systems. On the other we distinguish between planning and innovating. Together, these four fields form different ways of relating to change.
Planning the parts, classic efficiency
In the first field we find what many businesses are best at: planning and optimizing the parts. Here, the work is about improving individual components. Organizations focus on processes, production flows and resources. It is this thinking that has given us the assembly line, lean management and quality systems.
This is important and has created enormous productivity. But the problem arises when optimizing parts is done at the expense of the whole. A company can become extremely efficient at producing something that in the long run harms the environment or society. A school can streamline its teaching without improving learning. We become so focused on sharpening the gears that we forget about the machine as a whole.
A telling example is in agriculture. By planning for the highest yield in each harvest, we have developed agricultural systems that are very efficient, but in the short term. At the same time, the soil is depleted, biodiversity decreases and the climate impact increases. The parts are optimized, but the system is weakened.
Planning the systems, the limit of control
The next field is about planning systems. Here we work with control, rules, incentives and structures. Political decision-makers, authorities and large organizations often operate here. You try to understand the whole, but do so within the framework of planning and control.
This can work well in stable environments, but the world is changing rapidly. When conditions become uncertain, such as with climate change or digital transformation, planning is no longer enough. Systems are alive, they influence and change through interactions. Trying to control them too tightly can instead create unforeseen consequences.
An example is the energy system. When we planned it based on fossil energy, it functioned stably for decades. But when renewable sources such as solar and wind came into the picture, the logic changed. A system built for planning suddenly became difficult to manage. This is where innovation is needed, not just planning.
Innovating the parts, the core of product and service development
The third field is perhaps the most familiar in business. This is about creating new products, services and technologies. This is where most innovation processes take place today. Companies experiment, test, create and improve. Design thinking, agile methods and user-centered innovation are powerful tools in this field.
But while this is important, it risks being limited. When we innovate parts without changing the systems they operate within, we get stuck in old structures. An electric car company can create amazing vehicles, but if the infrastructure and energy system do not follow suit, the benefits will be limited.
A similar example can be found in healthcare. New digital tools for patient data have the potential to revolutionize healthcare, but as long as reimbursement systems, legislation and organisations are built for analogue processes, development is slow. We innovate the parts, but the system stands still.
Innovating systems, the next level of change
The fourth field, and the most challenging, is about innovating systems. Here we do not just change parts or governance, but the very logic of how the whole works. This requires actors to collaborate across boundaries and to question fundamental assumptions.
Systems innovation is about changing relationships rather than components. This could be creating circular economies where waste becomes resources, building mobility systems where ownership is replaced by access, or developing food systems that benefit both the climate and health.
A clear example is the transition to the sharing economy. When companies like Airbnb or carpools change the way we consume resources, it is not just a new service, it is a new system logic. Another form of system innovation is the local energy communities where households share and produce energy together.
Why we have the least experience in innovating systems
Innovating at the system level is difficult because it requires cooperation between many actors who have different goals, power and time perspectives. Systems are complex, often self-reinforcing and difficult to overview.
In addition, we are rarely rewarded for system innovation. Our organizations measure success in short-term results. There are few structures to share risk, investment and profits in changes that affect several sectors at the same time.
But the biggest challenge is perhaps mental. We are trained to solve problems by dividing them up, not by seeing the whole. System innovation requires a shift in thinking, from linear to circular, from control to interaction, from competition to collaboration.
The city as a system
Think of a city. If we improve traffic by building more roads, we optimize some things. But the system may respond with increased traffic flows, more emissions and longer travel times. If we instead plan the entire transport system, we might introduce public transport, cycle paths and parking fees. That is planning at the system level.
But if we go further and innovate the system, we can start to ask: do people really need to travel as much? Can work, housing and leisure be organized in new ways? This is where system innovation begins to take shape. We are not just changing flows, but the very logic behind the need for movement.
Methods for system innovation
System innovation requires a different kind of tool. It is not about creating ideas in isolation, but about exploring connections, patterns and dynamics. Methods such as systems mapping, backcasting and scenario analysis help us understand the relationships. Design thinking contributes a human perspective, while systems thinking helps us see long-term consequences.
An important element is to start on a small scale. System innovation does not have to mean changing everything at once. You can create prototypes of future systems on a small scale, so-called “living labs”. There, new forms of collaboration, instruments and business models can be tested before they are spread.
From managing to shaping
System innovation marks a shift from managing the world to shaping it. We move from optimizing to redefining. From improving the parts to reshaping the whole.
It takes courage to leave the comfort of planning and control and instead move towards experimentation and interaction. But that is also where the solutions of the future are found. When we learn to innovate at the system level, we can create change that lasts, not just improvements that wear out.
System innovation is therefore not just the next step in development. It is a necessity to meet the challenges of our time. We have already learned to manage the parts and plan the systems. Now it is time to learn to innovate the wholes.
