Systems Thinking: How can it be used to enhance regulation?

A system is a set of inter-connected elements that form part of a larger, unified whole, which is typically more complex than the system’s individual elements. 

Systems exist in a broad variety of different contexts, including natural systems (the micro-organisms, insects, animals, plants, land and water that exist in a particular local environment comprising an ecosystem), technological systems (components that transform, transport, store or control materials, energy or information for particular purposes) and socio-economic systems (comprising people, institutions, culture, practices and services).  The scale of a system may also vary, ranging from extensive global systems (such as, the global financial system) to much smaller systems (such as the supply of electricity to customers within an embedded network).

Systems thinking is an inter-disciplinary approach that helps to understand the behaviour of a system.  It provides a framework to describe and investigate a system, particularly the nexus and relationship of components of the system, the boundaries between the system and the external environment, as well as the functioning of the system within the environment of which it is a part.  In practical terms, systems thinking involves breaking down a system to identify and understand its component parts as well as rising above the detail of the system’s elements to better understand how the system functions as a whole.

Systems thinking offers important benefits for regulation.  In particular, the profound understanding of a system that such an approach can yield can assist with the identification of the causes and consequences of risks to the system which, in turn, helps to ascertain how system outcomes could be improved using regulation.

The OECD (2011) has noted that understanding key characteristics of complex systems is important for anticipating events that may require regulatory intervention and identifying where those interventions should or could occur to maximise effectiveness.  Yet, reliance on systems thinking is relatively under-developed in the context of regulatory theory and practice.

Viewing regulation through a systems lens

At its essence, regulation is a means to change individual or organisational behaviour to solve social, environmental and economic problems.  Systems thinking enables such problems to be considered in the context of the specific system in which they have arisen.

For example, in the context of early childhood care and development, evidence indicating that certain cohorts of children are consistently failing to achieve established developmental standards could be considered in the context of the existing system in place to support the delivery of early childhood care and development services.  This system would include the entities responsible for providing such services and their staff, the recipients of the services, the facilities in which the services are provided, the regulatory framework governing the provision of such services, and any bodies established to oversee the implementation and application of the regulatory framework in practice.

A detailed understanding of each of these system elements, including the forces and pressures exerted on the system (such as social and economic drivers affecting demand and supply) can help unpack the role each element plays in the system, how each element could cause risk to the system or be vulnerable to risk, and the consequences for the system if risk were to materialise in the context of one or more elements of the system.  In turn, this understanding can assist in determining which element is an appropriate candidate for regulation and, also, how that element should be regulated.

Adopting a systems lens in this way means that a narrow and compartmentalised view of a problem is avoided and, rather, account is taken of the entire system in which the problem has emerged before a solution is developed.  More practically, “deconstruction” of the system at risk can help identify the weak links within the system, how such weakness could be addressed, the impact that regulatory intervention could have to resolve the weakness, and assessing the impact that regulatory intervention could have on the system as a whole.

Ways in which a systems approach can enhance regulation

In summary, systems thinking has a potentially important role to play to enhance regulation in the following main ways.

• What to regulate: A systems approach can help identify which aspect or aspects of a system should be regulated to minimise risk to the system.

• How to regulate:  Such an approach can provide insights regarding how to regulate – specifically, the nature and form of regulatory intervention that is needed to protect the system from risk by tailoring intervention to the relevant element of the system.

• How to evaluate regulation:  A systems approach can also assist in evaluating existing regulation to determine whether the existing regulatory regime is effective in mitigating risk to the system as a whole.

•  How to improve regulation: The results of an evaluation using a systems approach can also reveal how regulation could be changed or supplemented to better manage system risk.

The practicalities of applying systems thinking to regulation

In terms of how, in practical terms, a systems approach could be applied to enhance regulation, this will necessarily involve a mapping of the system at risk, an analysis of the stressors to which the system may be subject, and an examination of the likely interaction between the system and those stressors.

This may be a big ask of policy and law-makers and regulators, particularly in cases where large-scale systems are at play.  These exercises to deconstruct and map a system are not normally followed (at least not explicitly) in making, evaluating and reforming regulation.  Nonetheless, if done well, they are likely to yield a regulatory regime that is, and continues to be, fit-for-purpose.

References

OECD (2011) Future Global Shocks: Improving Risk Governance, OECD Reviews of Risk Management Policies (OECD, Paris, France)

OECD (2017) Systems Approaches to Public Sector Challenges: Working with Change, OECD Reviews of Risk Management Policies (OECD, Paris, France)

Coglianese, C. (2012) Measuring Regulatory Performance: Evaluating the Impact of Regulation and Regulatory Policy, Expert Paper No. 1, August 2012 (OECD, Paris, France)