Companies as Living Systems

Systems Theory shows that organizations behave more like living organisms than machines. Companies, their functions, and teams are Complex Adaptive Systems that learn, adapt, and respond to their environment. They are far more dynamic than the linear machine model suggests.

The SODA Systems Theory model explains why a company cannot be reprogrammed with a better strategy alone, just as a person cannot become fit by watching workout videos. The strategy is essential, but real change requires action, feedback, and adaptation over time.

Like people, organizations are driven by purpose.
Like people, they must adapt to their environment to thrive and evolve.
Like people, they need essential resources to survive and grow.
Like people, they rely on connections to coordinate action, much like a nervous system transmits signals from the brain to the hand.
And like people, they are shaped by their accumulations, storing what they learn and what they earn, building strength or vulnerability over time.

This is the anatomy of a company as a living system. But what gives it a life of its own are predictable dynamics that lead to unpredictable results. Understanding these patterns reveals how to unlock powerful outcomes.

Systemic Purpose

Every person, team, and function has a purpose. When these align with the company’s overarching purpose, performance becomes predictable. When they drift apart, results suffer. Purpose can unite people around shared goals, yet intentions and real outcomes are not always the same.

Human systems are influenced by their environment. A person slows down on a blistering day. In the same way, industries shape how markets behave, markets shape how companies respond, and those responses ripple through departments and individuals.

Resources such as money, people, information, infrastructure, and materials are interconnected and must flow in the right combinations and at the correct times. Their management is crucial for sustained performance, much like air, water, food, and shelter, which are essential for a person's survival.

The first predictable dynamic that drives system behavior is Spotlight Logic.
Everyone makes rational decisions based on what they can see. Picture a person standing under a single overhead light, focused on what is illuminated while avoiding the dark areas beyond their view. Each team operates within its own spotlight, seeing its part of the organization clearly and believing its work to be most important.

Shared visibility is the key to aligning teams around a truly shared purpose. When isolated decisions occur across an organization, they combine into unintended consequences. The problem is not people, it is the lack of shared visibility. Understanding this can help prevent unintended consequences.

Systemic Flows

Workflows are an organization's lifeblood. They move resources in the right amounts, at the right time and place. They also carry outputs to their recipients and clear away byproducts and waste.

Research shows that an employee passes work through over fifty connections daily. In a company of one thousand people, that becomes fifty thousand daily connections, or twelve million per year. At one hundred thousand employees, the number surpasses a billion annual interactions.

These connections exist within structures such as org charts, software systems, and operational boundaries. They can be tight or loose, formal or informal, and serve many purposes, such as controlling access, consuming materials, enabling collaboration, or transferring information for decisions.

Timing and quality matter. In living systems, chains of communication and feedback form naturally around shared objectives. When the body needs energy, the stomach signals the brain; when it is full, it signals again. The chain keeps the organism balanced. In a company, marketing, sales, and operations form a similar chain to synchronize supply and demand.

The second and third predictable dynamics emerge from these chains: Intensifying and Neutralizing Connection Chains.

Intensifying chains amplify results. A virtuous cycle forms when satisfied customers share their experience, profits rise, and reinvestment improves the product, creating even happier customers. Yet the exact mechanism can amplify problems. Shrinking margins may lead to cost cuts that hurt quality, drive customers away, and deepen losses.

Neutralizing chains stabilize systems. A quality-control loop that rejects defective products prevents chaos. When aligned with the organization’s purpose, such chains create resilience. When misaligned, they become resistant, defending the status quo instead of progress.

The appearance of these chains is predictable. Their effects can be frustrating.

Systemic Outcomes

Outputs matter most because they reveal true purpose by their impact on those who receive them. When we smile or share something useful, people respond positively. When our actions feel self-serving or confusing, people pull away. The same applies to downstream teams, your company’s products in the market, and even your company’s stock performance or credit rating.

Once work connects across teams, another predictable pattern appears: Nonlinear Effects. Equal effort does not always create equal results. A 2-week sprint can spark momentum, while a massive initiative can massively consume resources without changing outcomes.

Imagine pushing a car. If the brake is on, it will not move. A light push sends it rolling if it rests at the top of a hill. The system’s state, not the amount of effort, determines the result. One state creates resistance, another creates readiness. Applying effort at the right leverage point transforms motionless work into meaningful progress.

The next systemic dynamic is Shifting Dominance.
Intensifying and neutralizing chains are always competing for influence. In a startup, intensifying chains that drive growth dominate. As the company matures, neutralizing chains for compliance and stability take over.

Dominance can also shift rapidly around whichever resource is most limited. When revenue drops, cost control dominates. When missing knowledge blocks progress, recruiting and training become the focus. When infrastructure is strained, capacity dictates strategy. The same company, people, and purpose behave differently because dominance has shifted to the most pressing constraint.

From these shifts emerges another predictable dynamic: Overcorrection.
Overcorrection is one of the leading causes of vicious cycles and is driven by latency, the total time from trigger to outcome. Even if every step runs perfectly, the full cycle may take months. During that time, the system reacts to incomplete information.

The longer the delay, the greater the overcorrection. When results are not yet visible, leaders fill the gap with the best logic available when results are not yet visible, often from within their spotlight. When facts about the outcome arrived, the situation had changed, and those reasonable decisions worsened the situation. Shorter latency between action and feedback reduces the magnitude of overcorrection and stabilizes the system.

Systemic Accumulations

Flows also create accumulations: how much money, information, materials, or infrastructure exist in your company, function, or team depends on whether the balance is growing or shrinking based on whether resources are flowing in faster or slower than out. When inflows exceed outflows, accumulations build up. When outflows exceed inflows, depletion begins. Like a body storing fat or muscle, these accumulations reveal a company’s health and preparedness. Healthy amounts of cash, knowledgeable staff, inventory on hand, and IT systems make the company resilient. Too much useless inventory or extended periods of brain-drain or negative cash flow make the company vulnerable. 

The most visible measure is size, but composition, allocation, and turnover also matter. Too much inventory ties up cash, and too little knowledge transfer leaves teams brittle. These accumulations represent memory and capacity within the system.

The final predictable dynamic is Self-Organization.
Consider a company that has operated for fifty years. None of its original people remain, yet the company continues to function, adapt, and evolve. Leadership guides purpose and strategy, but self-organization translates them into action.

A flock of starlings in nature follows simple local rules: maintain distance, match speed, and stay with the group. From these interactions emerges a complex, fluid pattern that no single bird controls. A company behaves the same way. When thousands of employees act on local information and incentives, behavior patterns emerge that shape the whole system.

Guiding the System

Seeing a company as a living system changes everything. You stop trying to fix it like a mechanic and start acting like a guide of a living organism. Systemic change does not come from detailed engineering at the top. It comes from shaping the conditions that allow healthy self-organization at every level.

That means aligning everyone around a shared purpose, connecting objectives across functions, measuring what truly matters, and reducing latency so teams can learn faster. When these conditions are in place, teams begin to form new connection chains that create virtuous cycles instead of defending outdated ones.

They start small, adapt, and scale what works.
That is how living systems grow and how companies truly transform.