 The Two Loops Theory of Organizational Change is a model of change that tries to describe nonlinear emergent processes of change within complex organizations. It is a model inspired by looking at the growth and decline cycle of living systems. Margaret Wheatley and Deborah Fries from the Berkana Institute first pointed to this model in their paper entitled, Using Emergence to Take Social Innovation to Scale. Fries and Wheatley demonstrated a key dynamic at the heart of every organization transformation, how as one system culminates and starts to collapse, isolated alternatives slowly begin to arise and give way to the new. As with all living systems they are born, they grow, peak, and then start to decline, i.e. they have a life cycle. In contrast, our more mechanistic view of the world is that something can just go on operating indefinitely. And if there is a problem, we can always intervene and fix it. This may be true for a machine, but unfortunately we bring this same kind of thinking to our organizations when in fact organizations are more like living systems rather than machines. They change in a nonlinear process, similar to that of the growth and decay of ecosystems. This simple insight can turn out to be quite powerful and help us to avoid common pitfalls that stem from a linear mechanistic view of the world. The Two Loops model highlights how we need to look at both the growth and the decay sides of transformation. If we want to launch a successful organization transformation effort, we need to support the disintegration cycle and the germination cycle in the overall process. It highlights a key issue that our job as systems changers is not all about creating the new. It is as much about helping the existing system decay with dignity so that the new system can emerge. With complex systems, we never really get to start from a clean slate. When changing systems, there is a massive weight of highly invested stakeholders that have the mass of resources and expertise. These people have dedicated their lives to building up the existing system, its structures and processes and we are now trying to challenge that way of working while at the same time we need to move those resources to the new pattern. We are navigating the loss of a system that maintains the way of life for many people. At an organizational level or a sector level, we are asking people to do things that are uncomfortable and difficult for them. Take for example tackling homelessness within a given city. As a collaboration to end homelessness, at least one of us in the room will be a homelessness provider. Being paid to provide refuge and if we are successful in our purpose, we will likely be putting them out of business. Yet at the same time, they have to align with the overall purpose. Real lasting change is democratic. It involves people in creating their own future. The alternative is a dictatorship and dictatorships are inherently unsustainable. Systems change is a commitment to sustainable ways of operating and at the heart of that is a commitment to non-dictatorial modes of change and leadership. We have to get everyone involved both the old and the new and this means learning how to navigate the loss of the old at the same time that we are supporting the new, aiming to create structures that will enable that. The two-loop model will help us with this as it helps us to recognize the underlying dynamics at play. The model as a whole describes two loops. The first of these is used to represent the growth and subsequent decline of the existing incumbent systems. The second loop is used to represent the new emerging next generation of this system. The model as a whole describes the transition or process of non-linear change from the old system to the new. By non-linear, we mean that it is discontinuous. There is no linear set of steps that will take us from the old to the new. But instead, there exists some phase transition that engenders a qualitative change in the process of getting from the old to the new. Looking at the first loop, we can see its rise, peak, and fall. In this initial rise phase, something is being brought into the world and it needs what we might call stewarding. It needs leadership, new structure, resources, and fostering. As this pattern develops and reaches its ascendancy, the system becomes the dominant mode of organization, the establishment. Those in the system become increasingly locked into a dominant paradigm that describes the world and the centrality of their place within it. At the peak is often a false sense of permanence, a delusion that things will go on getting better, ad infinitum, with little imagination for any other possibility. Those farther from the center with an impartial view may well see the system is about to enter into decline. At this point, there may be the signs of the first divide in the system between those assuming things will continue as such forever, and those that start to plan for its demise. As time progresses and the system declines, those wedded to the regime will continue under the assumption that nothing has changed as the gap between their belief and the underlying reality widens. One could point to countless examples of this in business and politics. The providers of the mainframe computer could not see the personal computer coming. Dictators claiming their reign will go on forever just before their downfall. As the system enters into decline, what is now needed is hospicing. This requires attending to the emotional and spiritual needs of the individuals or organization, helping them to develop alternative narratives that let them accept reality and let go of the past. However, hospicing capacity will be limited if the system is still in denial. Finally, when an organism or organization dies, it needs to be decomposed, meaning that the resources that it contained for its operation need to be released back to the broader system for the generation of the new pattern. The fulfillment of this process takes a great effort of leadership as it involves letting go of the past and giving over to the future system. Giving up one's power, control, and resources to a new pattern of organization. This is something that we rarely see in organizations on a large scale. More often we see denial, resistance, and fighting before acceptance of the new. As the German philosopher Arthur Schopenhauer describes it, all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident. One colorful illustration of this is Jamie Dimon, the CEO of J.P. Morgan and his evolving relationship with the digital currency Bitcoin. In early 2014, Dimon started his career in Bitcoin commentary at the World Economic Forum, labeling the cryptocurrency a terrible store of value and suggesting that the Wall Street Bank would stay as far away as possible. As he said, the question is, do we even participate with people who facilitate Bitcoin? Shortly after, he said, no government will ever support a virtual currency that goes around borders and doesn't have the same controls, adding, it's not going to happen. A little after he came to the conclusion that it'll eventually blow up. It's a fraud, OK? The subsequent years saw transition from denial and resistance to acceptance until by 2019, J.P. Morgan had made a complete U-turn when the head of digital treasury services and blockchain at the bank said, we have always believed in the potential of blockchain technology and we are supportive of cryptocurrencies. In transitions, something new is always born. However, it may look very different from the old. What is important is that we try to grasp the full scope of change and not limit our imagination or ambitions. Often, the old regime will get a sense for the new and try to copy it based upon the old logic, and many may well accept this as the new, even though it is still supported by an underlying system that is disintegrating. The example of J.P. Morgan's digital currency launched in 2019 over 10 years later than the creation of the original digital currency, Bitcoin may come to mind here. Or more broadly, we can think about the current state of financial technology, FinTech, where incumbent banks that hear about the new and wish to be seen as innovative will buy some FinTech startups to make their website or mobile app look flashy. Ultimately, it is the whole system that is falling to bits, and it is those that are outside of it that will really understand the full context of the new and build something that is aligned with that which will prevail. Sometime around the peak of the old system, new alternatives to the dominant approach emerge. Outside innovators are there because they saw the decline of the old and left, or maybe because they have always been left out, or because they represent a younger generation who have grown up into a new set of possibilities that simply makes sense to them because they are not conditioned by the old logic. It is when the pioneers of the new innovation start to get connected to each other that an alternative starts to emerge and they start to give rise to an alternative pattern. Networks form when people search for each other to meet their personal needs. Places emerge where people inspired by the new innovations can connect informally to follow their interests. Throughout history, these places have taken many forms. The Greek Forum, Florence, Italy, Parisian cafes, the nightclubs of Berlin, Silicon Valley, or the online communities of today. However, a network of such kind is not going to create a sustainable, long-lasting or influential organizational structure, as it is too diffuse and incoherent to challenge the prevailing paradigm. It's not enough just to come together to satisfy personal needs. At some point, there has to eventually form something in the center, a coherent pattern of organization, which is bigger than any one person's interests. This often takes the form of what we call a community of practice. When networks are nourished by something that is held at the center, the new system becomes sustainable. When participants trust and work together for a common cause, this is where resources need to start to move from the old regime to nourish the new. What happens at the very end of a living and dying cycle is that the new finally becomes a system of influence. It becomes a system of influence when it illuminates to the old system a new way of being. This is the point at which almost everybody will start to move towards the new pattern, which has to now be strengthened and scaled to support this demand. The Burkana Institute describes their approach to developing the new as being about naming, connecting, nourishing and illuminating. They try to name the pioneers so as to make them identifiable, connect them so that they will become something more than their individual initiatives, nourish them by giving them the resources needed to develop, illuminate by showing to others that this represents a viable alternative. There is a big gap between when the new system will be ready to support the operations of the organization and the disintegration of the old. It is important to note and keep in mind they are paradigms and different worlds. The old will not recognize itself in the new for a long time, if ever. There are inevitably a lot of people who are going to get damaged and disrupted in the process of this change. Some of the toughest but most important transformational work involves the integration of the simultaneous living and dying that has to take place among an organization. It is not so difficult to stay in the old and ignore the new or vice versa, just move ahead to the new and ignore the old. As always, the complexity arises at the intersection. Complexity and creativity are always in the messy contradictory space in between, in this case in between the old and the new regime. Real meaningful and sustainable change is holistic, not partial. In this case, it means taking into account the two paradigms where we recognize the interdependence between them. Aspects of the old have to be continued but recreated. As Charles Ledbetter puts it, the future belongs to those who can serve old systems and combine them with new solutions, instead of just rushing along into the new. The collapse of a system is rarely a good thing as it leads to outright chaos and destruction of the system's core pattern. What we want is to use disorder to disrupt those inert patterns that need to be, while building something new that will support the continuation of those aspects that need to be continued. The two-loop model gives us some way to recognize and connect the past to the future, which is of huge value. This model also gives us the possibility to try and come to some consensus about where we might be as a group or even a whole society in this process of change and thus the best actions to take. But to better understand this process of change, we need to look a bit farther at the nature of transitions, which will be the subject of the next module.