Pancakes and Systems Thinking: Odd Bedfellows?

Embracing Complexity: The Business of Soufflé Pancakes

I’m mostly a savoury cook, except for crepes and indestructible rock cakes. This year, for my son’s birthday, I decided to out of my comfort zone and bake him a cake. Voila! I've seen better-looking cakes, but for what it counts, he loved it, and it was a tasty graduation into the world of baking.

Baking for fun is one thing, but baking as a business is another. Modern business is complex and involved. A modern street vendor selling Japanese Soufflé Pancakes begins their day with an Instagram Live, using a contrast filter to showcase the steam rising from the golden-crusted cakes. He breaks a cake in half. The black handling gloves provide the contrast to reveal its fluffy cream-white centre. As he takes a slow, tantalising bite, keeping his mouth slightly open to evacuate the heat, his mouth whistles–woo. With his eyes smiling widely, he smacks his lips and moans with gastronomic delight. His audience is captivated and enticed. As he waits for his first customer, he examines engagement stats—impressions, clicks, views, locations, and durations—to help refine his customer targeting strategies. He may be selling pancakes, but this vendor is not ignorant of the deal, les affaires, business.

The Complexity of Simple Choices

Operating a successful pancake cart business today is far more complex and demanding than it was fifteen or twenty years ago. With increased competition, the need for an online presence, digital marketing, and changed customer expectations, even street vendors require a working knowledge of concepts like:

• market segmentation

• brand positioning

• pricing strategies

• digital marketing

• business analytics

• organic and fair-trade ingredients

• transparent food processing

• environmentally sustainable packaging, and

• health and nutritional values... Oh dear.

While it’s possible and probably preferable to keep things low-key, rustic and intuitive, the demands of the market and the battle for customer attention push serious pancake sellers to operate with the sophistication of business school graduates. You can't blame them, but here's the irony:

The Irony of Complexity and Control

In trying to reduce the uncertainty of sales, growth, and profit, vendors often tighten their control over every detail of their business—the 'why,' 'how,' 'when,' and 'who' of operations. They become fixated on managing each aspect, hoping that more control will lead to predictable performance. However, this level of control creates more complexity, as there are now more details and processes to manage.

As the complexity grows, and there is less time and money to manage it all, vendors naturally become more risk-averse. They fall back on conventional strategies like SEO, content marketing, cost-cutting, and imitating what others are doing, thinking these familiar approaches are safer. Yet, by doing what everyone else does, they end up in direct competition, losing the distinctiveness that could set them apart and create the antidote to competitive pressure. The result is a vicious cycle: the more they try to control, the more complexity they create, leading to more risk-averse tactics, which only deepens the problem.

So, in the effort to manage uncertainty and play it safe, they create the situation they were trying to avoid. The focus shifts from building a unique brand to simply managing performance, which ultimately causes them to blend into a crowded market.

The Trap of Single-Function Strategies

Most people can only focus on a few things at once. Now, imagine trying to manage all the moving parts of a business—customer demand, inventory, cash flow, marketing, production, and sales. The reality is that a business's performance depends on how these parts interact, not just on the isolated strategies of single functions.

However, many common business strategies like cost-cutting, promotions, influencer or content marketing ignore this reality. They focus on one area ignoring the reality that the performance of the business emerges out of the dynamic interaction of all parts. While these strategies might offer quick isolated wins, they don't fundamentally change the mechanics of the business to create a high-performance system. Often, they create imbalances that lead to new problems or make existing ones worse.

Take our pancake seller, for example. He introduces discounts to boost sales, and it works at first. But over time, the frequent discounts lower the perceived value of the pancakes, conditioning customers to wait for deals and avoid paying the full price. This reduces sales outside of discount periods, cutting into profits—a classic example of a 'fix that fails.'

Every action in a business has ripple effects. Strategies that don’t consider how all parts of the business interact—like the relationship between staffing levels, capabilities, cash flow, and long production times, are likely to fail, leading to costly cycles of fixes that miss the real issues. Copying what works elsewhere without understanding their own business dynamics only adds more complexity and the risk losing their unique edge.

Applying Systems Thinking to a BOGO Promotion Strategy

As complexity increases, holistic problem-solving becomes essential. Systems dynamics views the entire business as a system that generates results, rather than as a collection of isolated events or functions. For example, sales are not simply the result of direct sales activities. A sale occurs as a spillover event after a customer accumulates purchase intent through various interactions with the business’s products or services.

Systems dynamics identifies and models these accumulations, such as purchase intent and customer engagement, as well as the flows that drive them forward, like ease of navigation and sales funnels that support customer movement along their journey. By understanding these interactions, businesses can more effectively influence performance.

Applying System Thinking to a BOGO Promotion

Our pancake seller decides to launch a 'buy one, get one free' (BOGO) promotion on Tuesdays, his slowest day. At first, this seems risky—couldn’t it cut halve his revenue? But instead of just focusing on short-term sales, he uses systems thinking to look at the bigger picture and potential long-term effects.

First, he studies customer patterns using months of data. He notices that most Tuesday customers are new or occasional visitors. He sees an opportunity to turn these visitors into regulars, but he knows this requires more than just a simple discount.

Mapping Out Effects and Feedback Loops

He starts by sketching simple diagrams to visualise the dynamics of the promotion. More customers on Tuesdays could generate more social media buzz, boosting visibility and attracting even more customers—a reinforcing loop. However, he also considers potential downsides: regular customers might wait for the promotion, reducing sales on other days. If he runs promotions too often, it could lower the perceived value of his pancakes. These are what he calls "balancing loops"—factors that might counteract the benefits.

Using Basic Tools to Simplify Decisions

To keep things simple, he uses three basic tools:

1. Paper and Pen Diagrams: He draws simple loops showing how different components of the promotion interact.

2. Customer Surveys: He asks his regular customers what makes them return, gathering insights on how to build loyalty.

3. Incremental Changes: He starts small, testing the promotion and making adjustments based on customer feedback.

Strategic Decision-Making

With these insights, he designs the BOGO promotion to do more than just boost sales. He uses it as a way to upsell extras like drinks and sides, increasing each sale’s value. This strategy also sets a reference point: customers get used to spending a certain amount, making it easier to shift to regular pricing when the promotion ends. The extras they enjoy during the promotion encourage them to keep buying even at full price.

Encouraging Word-of-Mouth and Avoiding Promotion Dependency

The increased foot traffic leads to word-of-mouth marketing. To encourage this, he offers small rewards for social media posts, turning happy customers into free advertisers. To prevent them from becoming dependent on the promotion, he keeps the BOGO deal time-limited, keeping it as a limited offer, and not the norm.

Introducing the Ready-to-Use Mix

To cater to price-sensitive customers who might not visit regularly, but whom he wants to keep, he introduces a ready-to-use pancake mix for home use. This offers a more affordable option and creates a new revenue stream. Producing the mix takes only a little extra effort, making it cost-effective. By targeting these customers with the mix, he diversifies his income, balancing any potential dips in regular-price sales.

Reflecting on Systems Dynamics

This example of the pancake seller shows that systems thinking goes beyond simple cause-and-effect. By considering feedback loops, delays, and how things accumulate over time, the pancake seller anticipates not just the immediate outcomes of his promotion but also its long-term impact. What seemed like a short-term revenue loss actually led to overall business growth through this thoughtful, holistic approach.

The Soufflé Pancake seller’s story illustrates how a single action can ripple through various parts of a business, highlighting the interconnected nature of decisions within a system. Systems thinking tools are crucial for navigating today’s complex business landscape. They help owners see their business as a cohesive whole, guiding them to design strategies that account for the hidden interactions between different components.

By creating strategies with the entire system in mind, business owners can strengthen their unique brand, avoid copying competitors, and protect the long-term value they offer. Even the smallest business can start with simple steps, gradually building on them to leverage systems thinking for sustainable success.

So, let’s bake a difference, shall we?