How the Game Is Evolving: From Machines to Living Systems

This is post 2 of 23 in a series on “Systems Thinking: Managing Chaos and Complexity” by Jamshid Gharajedaghi (ISBN 978-0-7506-7973-2).

Previous: Series Introduction

The Devil Is Called Success

Here’s a fun fact to start with. When the Dow Jones Industrial Average turned 100 in 1996, only one company from the original 1896 list was still standing: General Electric. Every other company had fallen off.

Gharajedaghi opens Chapter 1 with a blunt observation. The thing that kills great organizations is the very thing that made them great. Their success. He calls it a devil, and honestly, it’s a pretty accurate name for it.

The chapter lays out five forces that turn winning into losing. They stack on top of each other like a pyramid. Each one is bad on its own, but together they form a system that eats companies alive.

The Five Forces That Kill Winners

Imitation is the most basic force. You build something great. Competitors copy it. Your advantage disappears. This has always been true, but technology made it way worse. Reverse engineering and fast communication mean your product innovation can be cloned almost overnight.

Gharajedaghi tells a great story here. A lift truck company in America had a 40% cost disadvantage compared to its Japanese competitor. They tried to cut costs by reducing direct labor. But the real problem? Their product used 2,800 parts. The competitor’s used 1,800. And the irony? The competitor was using technologies that the American company had invented. They just patched new tech onto old designs instead of starting fresh.

Inertia is the second force. The more successful you are with something, the harder it is to let go of it. Continental Can had 500 factories and 45% market share in three-piece cans. When two-piece can technology showed up, they couldn’t react fast enough. Gone in three years.

The pattern is always the same. First comes denial. Then comes patching. Patching wastes time. Competitors use that time to take over.

Suboptimization is force number three. It’s basically the idea that if something works, you push it until it breaks. Gharajedaghi references Danny Miller’s The Icarus Paradox here. Just like Icarus flew too close to the sun, companies take their strengths to extremes. Digital Equipment Corporation turned craftsmanship into obsession with tiny details. Polaroid turned innovation into tech escapism. IBM, Apple, GM, Sears, all fell into the same trap.

Change of the Game is the fourth force, and this is where it gets interesting. Success doesn’t just erode. It literally changes the rules. Henry Ford solved the production problem so well that production stopped being the problem. Suddenly the problem was marketing. Ford refused to see this (“any color as long as it’s black”), and Alfred Sloan at GM ate his lunch.

Then Sloan’s divisional structure became the standard. Everyone copied it. But when Ohno at Toyota created lean production, the game changed again. This time it was about flexibility and control. American companies were too busy celebrating to notice.

Shift of Paradigm sits at the top. When all four forces below compound, the entire way of thinking about organizations needs to change. Not just strategy. Not just structure. The fundamental assumptions about what an organization even is.

Three Ways to See an Organization

This is where the chapter really picks up. Gharajedaghi describes three mental models for understanding organizations. Each one replaced the last, and each shift was painful.

Mindless Systems (The Machine Model). This was the first model. An organization is a machine. It has no purpose of its own. It’s a tool the owner uses to make money. Parts don’t deviate. Everything is about efficiency, predictability, and control. This model was born out of necessity. The Industrial Revolution created millions of unemployed farm workers. The genius idea was to break complex work into simple tasks that anyone could do. It worked incredibly well. In one generation, it produced more goods and services than all of previous human history combined.

But machines can’t handle variety. They can’t adapt. When consumers started wanting different things, the machine model broke down.

Uniminded Systems (The Biological Model). This model treats the organization like a living organism. It has one mind (the brain/executive), and the parts have no choice. Think of a thermostat. It receives information and reacts. Your heart can’t decide to stop working for you. Your stomach doesn’t think the liver has a hidden agenda.

The biological model introduced growth as the primary goal, with profit as a means to achieve it. It worked well in paternalistic cultures where “father knows best” was an acceptable way to resolve conflicts. Japan, with its strong paternalistic business culture, made this model work beautifully.

But what happens when the parts start having opinions? Gharajedaghi paints a funny picture: imagine your thermostat develops a mind of its own and decides it wants to sleep on the temperature data before acting. Chaos.

Multiminded Systems (The Sociocultural Model). This is the current reality. Organizations are collections of purposeful people who each have their own goals, preferences, and ideas about how things should work. They’re not machines. They’re not organisms with one brain. They’re social systems held together by shared values and culture.

The challenge here is integration. In a machine, you assemble the parts once. In a social system, you’re constantly trying to align people who all want different things. And you can’t just remove choice to make things simpler. That would mean turning people into robots, and even if you could, you wouldn’t want to.

The Inquiry Problem

There’s a second paradigm shift happening alongside the organizational one. It’s about how we think about problems.

Classical science deals with independent variables. Change one thing, measure the effect, repeat. Analytical thinking. It works great when variables don’t affect each other.

But Gharajedaghi shows that variables become interdependent as systems get more complex. He tells a story about Ford’s Woodhaven Stamping Plant. They identified eleven areas for improvement and set out to reach world-class performance in three years. After 18 months, they hit a wall. Every improvement in one area came at the expense of another. The variables were no longer independent. The only way forward was to redesign the entire operation from scratch. Once they did that, they reached their goals in six months.

This is systems thinking in a nutshell. You can’t just analyze parts separately and add up the results. You have to understand how everything connects.

Six Competitive Games

The chapter maps six competitive games across the paradigm shifts:

1. Mass Production (Ford) solved the production problem through interchangeable parts and labor.
2. Divisional Structure (Sloan/GM) solved the growth and diversity problem through product divisions and “predict and prepare” planning.
3. Participative Management (Tavistock Institute) tried to handle the reality that workers have minds of their own.
4. Operations Research (Ackoff/Churchman) used math models to optimize interdependent variables, but still assumed passive parts.
5. Lean Production (Ohno/Toyota) achieved flexibility and control through cybernetics principles, lowering the break-even point by an order of magnitude.
6. Interactive Management (Ackoff) introduced design as the way to manage multiminded systems with interdependent variables.

Each game was a response to the previous one becoming obsolete. Each produced results that were ten times better than what came before. And each created a new set of winners who eventually became the next set of losers.

My Take

This chapter is dense but worth the effort. Gharajedaghi is essentially saying: every organizational failure you’ve ever seen follows the same pattern. Something works, so people do more of it, refuse to change, and get blindsided when the world moves on.

The most useful idea here is the distinction between the three system types. Once you see it, you can’t unsee it. Most companies talk like they’re multiminded systems (“our people are our greatest asset”) but operate like machines or uniminded organisms. That gap between rhetoric and reality is where most organizational pain lives.

The chapter also sets up the rest of the book nicely. If organizations are multiminded systems with interdependent variables, you need a completely different toolkit to work with them. That toolkit is what the remaining chapters will build.

Next: Systems Principles - Openness and Purposefulness