Is There a Need for Inventory?

“Time after time I’ve done an analysis of a company, and I’ve figured out a leverage point — in inventory policy, maybe, or in the relationship between salesforce and productive force, or in personnel policy. Then I’ve gone to the company and discovered that there’s already a lot of attention to that point. Everyone is trying very hard to push it in the wrong direction!”

In this episode of Made You Think, Neil and I discuss Leverage Points: Places to Intervene in a System by Donella Meadows. In this article, Meadows goes through her twelve “leverage points” in which you can affect change in your company or any complex system, from least to most effective.

“Magical leverage points are not easily accessible, even if we know where they are and which direction to push on them. There are no cheap tickets to mastery. You have to work hard at it, whether that means rigorously analyzing a system or rigorously casting off your own paradigms and throwing yourself into the humility of Not Knowing. In the end, it seems that mastery has less to do with pushing leverage points than it does with strategically, profoundly, madly letting go.”

We cover a wide range of topics, including:

• All of Meadow’s 12 Leverage Points
• Positive and negative feedback loops
• The NRA and gun control
• How individuals can change the system in small and big ways
• Brexit and the Eurozone
• The paradigms that shape our thinking

And much more.

If you enjoyed this episode, be sure to check out our episode on The Goal by Eliyahu M. Goldratt for its meta-theory of business, and our episode on Finite and Infinite Games by James Carse, about how employers and employees can create, change, and play in systems.

Be sure to join our mailing list to find out about what books are coming up, giveaways we're running, special events, and more.

Links from the Episode Mentioned in the show:

• The Titanic [10:43]
• Paleolithic diet [12:40]
• Ketogenic diet [12:40]
• The Bike-Shed Effect [14:17]
• Evernote [23:20]
• Rule of 3 and 10 [23:19]
• American Eagle [25:15]
• Zara [25:35]
• Cryptocurrency [30:15]
• Apple Inc. [35:00]
• The Big Mike – Banana Species [39:00]
• Slippery Slope Argument [41:47]
• Veil of Ignorance [42:00]
• The Selfish Gene Hypothesis [47:25]
• Intuit [54:00]
• 9-9-9 Plan [54:20]
• TurboTax [55:40]
• QuickBooks [55:40]
• The Florida Shooting [01:05:15]
• National Rifle Association — NRA [01:05:20]
• Net Neutrality [01:05:30]
• The Riddle of the Gun by Sam Harris [01:09:15]
• Game Theory [01:09:55]
• The Daily Wire [01:14:13]
• The Ben Shapiro Show – Podcast [1:14:13]
• Justworks [01:24:00]
• MomTrusted.com [01:24:47]
• AirBnB [01:35:50]
• Uber [01:35:50]
• Scott Galloway Says Amazon, Apple, Facebook, And Google should be broken up [1:39:22]
• Socialists of New York [1:53:59]
• Flatgeologists [02:01:50]

Books mentioned:

• The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt and Jeff Cox [2:57] (Nat’s notes) (book episode)
• The Way of Zen by Alan Watts [3:00] (Nat’s notes) (Neil’s notes) (book episode)
• Finite and Infinite Games by James C. Carse [04:31] (Nat’s Notes) (book episode)
• Gödel, Escher, Bach: An Eternal Golden Braid by Douglas R. Hofstadter [07:36] (Nat’s notes) (book episode)
• Into the Cool: Energy Flow, Thermodynamics, and Life by Eric D. Schneider and Dorion Sagan [07:23]
• The Black Swan: The Impact of the Highly Improbable by Nassim Taleb [16:49]
• Antifragile: Things That Gain from Disorder by Nassim Taleb [16:49] (Nat’s notes) (book episode)
• ​ 12 Rules for Life: An Antidote to Chaos by Dr. Jordan B. Peterson [23:59] (Nat’s notes) (Neil’s notes) (book episode)
• Banana: The Fate of the Fruit That Changed the World by Dan Koeppel [39:25]
• Merchants of Doubt: by Naomi Oreskes and Erik M. Conway [40:29] (Nat’s notes) (book episode)
• Hiroshima Diary: The Journal of a Japanese Physician by Michihiko Hachiya [01:04:30] (Nat’s notes) (book episode)
• The Sovereign Individual by James Dale Davidson and William Rees-Mogg [01:47:50] (Nat’s notes) (book episode)
• Sapiens: A Brief History of Humankind by Yuval Noah Harari [01 :49:24] (Nat’s notes)
• The Structure of Scientific Revolutions by Thomas Kuhn [02:01:07]
• Darwin’s Dangerous Idea by Daniel Dennett [02:02:00] (Nat’s notes) (book episode)

People mentioned:

• Donella Meadows
• Elon Musk [3:10] (on this podcast)
• Bill Clinton [11:23]
• George H.W. Bush [11:23]
• Jordan B. Peterson [47:26] (on this podcast)
• Herman Cain [54:20]
• Emperor Hirohito [01:04:50]
• Ben Shapiro [01:14:04]
• Donald Trump [01:23:05]
• Adolf Hitler [01:43:23]
• Margaret Thatcher [01:44:40]
• Joe Rogan [01:48:23]
• Thomas Kuhn [02:00:35]

Show Topics

02:01 — Meadows is a corporate consultant, who helps companies increase productivity through what she calls “leverage points”. Her focus is on companies, but it really could be applied to any system. Even the podcast itself!

3:17 — How people try to change complex systems by focusing on the wrong parts, or intervening in the right parts, but in the wrong ways. Meadows’ list of ways in which you can intervene from least to most effective.

6:53 — Each intervention point makes sense in connection to the others. Looking at them in simpler system helps understand their role in complex systems. The bathtub analogy.

10:30 — The 12th point: Constants, parameters, numbers. A person occupying a role doesn’t have as much leverage as the role itself. It’s easier to change small parameters than it is to change a broader picture. Eg.: changing the soda you drink instead of changing your whole diet. The Bike-Shed effect.

16:00 — The 11th point: The sizes of buffers and other stabilizing stocks, relative to their flows.  The check account metaphor; the amount of money that’s usually left in your account, doesn’t come in or out. That’s your buffer, and can be changed. The size of your buffer can really affect your system. It can increase your security, but also liability. Tradeoff between creativity and redundancy.

20:41 — The 10th point: The structure of material stocks and flows (such as transport networks, population age structures).  This rule is harder to immediately apply to the business case.

The pipes metaphor; it’s sometimes necessary to set up a system entirely from scratch, or rebuild it, because it’s almost impossible to reach your goals with what’s already present. The rule of 3 and 10.

24:05 — The 9th point: The lengths of delays, relative to the rate of system change. The importance of consumer feedback. Systems with long loops of feedback, such as politics, have trouble self-regulating. At the same time, when there’s lots of immediate feedback, you risk overshooting.

35:08 — The 8th point: The strength of negative feedback loops (...). A negative feedback loop means a system that can turn itself off, such as a thermostat, which’ll stop working once the room reaches the desired temperature. It’s important to have a failsafe that’ll intervene on the event of a worst-case scenario, even if it’s rarely necessary. You can very easily miss the long-term effect of actions that don’t affect the short-term, such like monocultures (the or overworking yourself.

41:00 — Fake news. Ways you could keep fake news from spreading, and how that could slide into censorship. Social media and censorship. The ultimate goal of any company is always to make money.

48:21 — The 7th point: The gain around driving positive feedback loops. Positive feedback loops feed and grow on themselves (the more people have the flu, the faster it’ll spread), but a system with an unchecked positive feedback loop will destroy itself. At some point, a negative feedback loop must kick in, such as what’s happened with the birth rate in western countries.

51:07 — Poverty and wealth as functions of positive and negative feedback loops. Ways you could effectively lessen poverty. Taxing laws and lobbying.

56:00 — Tangent about payment methods.

58:00 — Adjusting positive feedback loops depends on the ultimate goal of the system. How to use commissions as incentives.

01:01:29 — The 6th point: The structure of information flows (who does and does not have access to information). Access to information, and how it affects people’s and company’s behaviors, and creates accountability.

01:05:01 — Accountability in the age of the internet. The NRA and gun control. The NRA as a symptom of America’s pro-gun mentality, not the source of the issue.

01:10:28 — Arguments for both sides of the gun control debate. Initiatives to lessen the instant fame acquired by mass shooters. Comparing different country’s policies without thought to the countries’ different situations.

01:17:12 — Misinformation on the topic of guns in the public and in media: what guns are actually available to the public, which models were used in mass shootings.

01:21:00 — Clickbait. McDonalds’ fries and baldness.

01:22:43 — The 5th point: The rules of the system. The rules of a system are more influential than the people who must play by the rules. Being both an employee and a boss. Benefits and health plans for employees, and how to attract and retain talent.

01:29:18 — The rules of a system can work as incentives and disincentives.

01:30:19 — The 4th point: The power to add, change, evolve, or self-organize system structure. The level to which people can change the system. Utilizing platforms in ways the creators had not originally intended. Unexpected behaviors from children and puppies.

01:33:33 — Religion and superstition. Bottom-up and top-down systems of power.

01:35:15 — Uber, AirBnB, free market and diversity in the market.

01:37:23 — The 3rd point: The goals of the system. The highest level related to the system itself: its ultimate goal. The goal of keeping the market competitive must trump the goal of each company to accumulate profit. Companies that have little to no competition at this point.

01:41:51 — Changing one player in the system doesn’t affect much, except when one individual player can drastically change the goals of the system. Trump, the Conservative Party and Russia.

01:44:20 — Brexit, the UK’s economy, and the Eurozone. City-states and how do you decide the borders of a country.

01:48:36 — The 2nd point: The mindset or paradigm out of which the system — its goals, structure, rules, delays, parameters — arises. The mindset from which the system’s goals come from. Shared mythology and cultural paradigms in today’s society. Digital goods vs physical goods. Shared paradigms as a basis for cooperation and shared goals.

01:58:41 — The 1st point: The power to transcend paradigms. Ever-changing paradigms; your paradigms, as well as scientific paradigms, will keep changing. Not one holds all the truth.

02:05:30 — Wrap-up and sponsor time!. Perfecto Keto is perfect if you’d like to pursue a ketogenic diet! Their matcha MCT oil powder is highly recommended. Kettle & Fire will give you 20% OFF on their delicious bone broths — beef recommended for cooking, and chicken for a good, hot wintery drink! Four Sigmatic: get your mushroom coffee or your hot chocolate, all 15% OFF through our sponsored link. And you can always support us by going through our Amazon sponsored link and checking out our Support page.

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