My prior two posts (Part I and Part II) introduced readers to what I called the Paradox of Systems Science:

• The whole of each business is, and always will be, a complex adaptive system containing, and interacting with, many other complex adaptive systems.
• To take action within this whole complex world, though, we must at least partly reduce it with assumptions of parts and systems despite such reductions creating error in our understanding. 

In many ways, this is inherently a paradox of all human action. To take action we must choose to see the world in limited ways yet as soon as we do this we no longer understand the whole world within which we work. Interestingly, this mirrors the split in our human brain between two physical hemispheres—a right hemisphere skilled with the whole reality within which we work (the complex) and a left hemisphere skilled at manipulating the systems into which that reality is reduced. (See Iain McGilchrist’s The Master and His Emissary or his excellent shorter summation Ways of Attending: How Our Divided Brain Constructs the World.) 

Despite these realities, business books today offer reduced systems each claimed to be the One Approach to Rule Them All—a universal path to success. Yet the complexity of business makes two realities clear. First, while reductions may be exceptionally helpful they are also inherently dangerous. Second, there are no universal paths to business success.

This obsession with parts and systems—a key component of managerialism—is not unexpected nor humanly unusual. McGilchrist reviews over 3,000 years of Western intellectual history and shows continual tension between awareness of the complex whole within which we live and a rush to break this whole into pieces and parts believing there must be universal answers for success in life.

What follows in this post looks at how businesses develop these reductions and ways such reductions fail. To help illustrate paradoxical challenges in practice, we then look at system assumptions Movie Theaters and Shopping Malls used to drive profits but which, today, create conditions of very high risk.

The Typical Arc of the Systems Science Reduction

Managers, today, are told to find neatly organized closed, bounded systems to manage their companies. When fortunate, they find systems which build excellent profits for a time—sometimes a long time. That success, though, is always limited as the whole complexity of the world always returns which causes system assumptions to blow-back in dangerous ways.

Consider, then, an arc along which companies define systems they believe will guarantee success.

• At first, companies look at their whole world seeking to reduce it into elements by which they can control the business. In marketing, such reductions include well defined target markets or theories about the value customers love in their products. Factories define production approaches or methods (competences) seeking control while logistics operations search for methods giving the company unique control. And so on.
• Eventually, companies define a “package” of reductions making up a system across all areas of activity. Notice that each area will have defined systems within its range of operation yet these become integrated into the whole system the company believes guarantees its success.
• The systems companies define are highly influenced by business books which claim their universal system approaches guarantee success. These systems are often sold via names which include broad assumptions—names like growth engines, flywheels, agility, “hacks,” and other mythological claims of universal answers for success.
• Today these systems are also heavily influenced by formal standards from groups like the International Organization of Standardization or ISO—standards claimed to guarantee success by defining how all companies or all companies in an industry should operate.
• Over time, systems evolve to become rigidly defined best practices—ways of working believed to guarantee success. Companies demand rigid adherence to these practices.
• Practices in place, companies are now applying systems at an “industrial level”—implemented everywhere whether they matter or not. Such industrial applications, though, prevent success across the company but especially in areas needed for future growth like searching for innovative new products or new ways of working.

As time passes, damage from assumption errors begins to become more evident as any path imposing a rigid overall system will eventually fail because these paths hide the whole complex adaptive systems within which the company must succeed.

Some Elements of System Disasters

There are many paths to disaster in this Paradox. Consider four of the many possible failure points.

First, there is no way to know whether, or exactly how much, the embraced system has helped or hindered company results. Successful companies tend, always, to believe their efforts are the reason for their success. Thus, if there is profit a company will believe their system reductions are the reason for the profit. Yet, many companies find profits as a result of accidents outside their control—outside their systems. Thus, the book Good to Great by Jim Collins claims to find universal answers from intentional choices of Walgreen’s executives during their particularly successful run in the late 1970s and the 1980s. An objective look at that period of time, though, finds critical meta-trends in society which affected all pharmacies—including dramatic new pharmaceutical discoveries and market growth as the US’ largest generation—baby-boomers—matured to rely on pharmacies. While Walgreens management choices were not unimportant, they mattered because they leveraged the unique trends of that time and place. In other words, there are no universal lessons to be found in Walgreens success during that time—only lessons about leveraging beneficial trends.

Rigid definitions of systems make companies less resilient. Walgreens never developed resilience during the 1980s and began to struggle badly as the benefits of accident disappeared—at least partly because their systems were too rigid. Why does this rigidity kill resilience? As one example, companies must explore continually in order to build resilience within the whole complex systems amid which they work. Rigid system reductions, though, understand only exploiting assets already in hand and interfere with exploration needed to discover the new assets. Interested readers will find more on the topic in this blog post looking at rebellious bees.

System definitions and reductions become entrenched in company infrastructure. Companies must build a wide range of infrastructure and almost always build that infrastructure based on assumptions from their current closed and bounded systems. Such infrastructure ranges from bureaucracies, product structures, lines and brands, customer focus, market learning, software structures, service promises, distribution, physical products, services, and even software or project debt. More critically, the physical structure of the company entrenches system reductions with leases, office designs, and far more. System reductions, then, are not easily changed as natural company development turns them into rigid structures which can help but can also do great damage.

Finally, valuable long-term paths are only possible when employees and vendors follow-up hints and whispers of potential value over very long periods of time. When companies demand adherence to the One System to Rule Them All, they begin preventing the innovation needed for future success—innovation which will not fit existing systems. Such innovation needs time to be nurtured within a company until it matures to become the company’s future. When companies demand exploration meet “success” criteria based on their current system assumptions and fit neatly within past system assumptions, they ensure innovation dies an untimely death. After all, the future potential of innovation cannot be evaluated according to the criteria of today’s success—a truth often noted by innovation experts including Clayton Christensen.

A First Example: Movie Theaters

Prior to 1980, a typical theater location in the US featured a single screen in an auditorium seating a set number of people depending on the size of that location. They drew paying customers by showing new movies and reshowing older movies. They also offered a limited selection of food and beverages. Eventually, cable TV, video stores, and home VCRs reduced audiences for re-releases so they stopped showing older movies. At this point theaters began relying on a system which remains in effect today.

• Theaters rely on high profile new releases of movies (not streaming) created by studios to draw enough customers for there to be profit.
• The single screen theater mostly disappeared—replaced by mega-complexes with many theaters gathered in one building.
• Theaters also began focusing more on the secondary profits of food and beverages—including raising their prices considerably. Over time food and beverages have become around half of operational revenue for a typical theater company.
• The megaplexes created economic advantages with service costs, lease and building costs, and food service costs shared among many movies. They also became entertainment destinations because they offered viewers many choices. Each theater in these megaplexes was usually smaller than the older one-screen theater. This offered flexibility to spread content across theaters to improve attendance and profitability for each showing.
• These megaplexes were also only possible with commitments to massive physical buildings and long-term leases. Many of these buildings have huge shared lobbies, for example, which were crowded 30 years ago especially during major new releases. Today they are generally empty which makes theaters feel lonely and uninviting.

This system worked reasonably well through the 1980s, 1990s, and 2000s. By 2010 there were rumors of problems but general theater attendance remained at acceptable levels. Also by 2010, prices for food and beverages had become so high that many viewers began sneaking in their own snacks despite theater rules.

When the 2020 pandemic hit, theaters instantly suffered a massive drop in attendance and higher attendance has not returned. This appears due to, among other things, streamed home viewing of content not shown in theaters, concurrent streaming and theater release of new movies, loss of theater habits and interest among the viewing population, and, overall, a perception that the in-theater viewing experience offers little advantage over home viewing.

The struggle with low attendance might not be so critical except system assumptions in the theater business are built into leases, buildings, advertising, and executive thinking. Today these companies are handcuffed by physical results of their past system assumptions with little evidence of innovative new anpproaches among the theater chains.

A Second Example: US Shopping Malls

Another example of an industry system which thrived for years but fails today is found with US shopping malls.

In broad terms, shopping malls evolved side-by-side with department stores starting, primarily, in the 1950s and 1960s. For property owners to have enough tenants paying enough money they needed to have lots of shoppers in the mall. The system which developed around shopping malls, then, relied on department stores to be “anchor tenants.” With these anchor tenants in place, malls attracted the foot traffic needed for owners to charge high enough rents to other tenants. In this sense, those tenants were buying access to mall traffic.

This system worked well for several decades. Yet the complex adaptive system of retail stores began to shift away from department stores in the 1980s—a shift which became an inevitable decline over time.

Two experiences can help us envision this decline. In 1972 I bought my first fly-fishing gear (rod, reel, line, flies) at the JC Penneys department store in Boulder, Colorado at the Crossroads Mall. It is inconceivable, today, that a JC Penneys or any other mall-based department store would have sporting good department serious enough to carry fly-fishing gear. Still, in 1992, I was able to buy my first VCR (I was a late adopter) at the Meier and Frank department store at the Washington Square Mall near Portland, Oregon. It is now exceedingly rare to find consumer electronics in department stores.

Today that Meier and Frank (now a Macy’s) fills its floor space with clothing. It also has small departments with handbags, perfumes, bedding, suitcases, and kitchen goods. Where did electronics, sporting goods, vacuums, dishes, and the rest disappear to? They migrated off-mall to specialty destination stores like Circuit City, Best Buy, Dicks Sporting Goods, Bass Pro Shops, and Cabelas. Department stores also lost considerable business to warehouse stores like Costco or Sam’s Club. While these goods can also be bought at Amazon, the department store decline mostly results from competing options in brick and mortar retail.

Department store anchors now draw far fewer shoppers to a mall. While anchor stores have not fully disappeared, their power is dramatically diminished. Further, most malls have at least one large empty space which has been empty for years after it was vacated by an anchor store. With their systems failing, mall owners today struggle to draw enough traffic to make their properties profitable.

An important advantage at shopping malls is that they are often locally owned which means they can benefit from self-organization (a powerful value for innovation in complex adaptive systems). While centrally controlled theaters have little innovative flexibility, some malls continue to thrive because, being locally owned, they explore innovative ways to build new value to draw shoppers.

For example, the Washington Square Mall mentioned earlier lost its Sears anchor tenant in 2019 leaving behind a very large empty shell. Just now that empty shell has now been torn down and will be replaced by a large Dick’s Sporting Goods. While Dicks has been a partial anchor in this mall, it was in a location difficult for car access. This new location may combine the shopper drive-up convenience of a destination store along with value to mall tenants of drawing in shoppers. Whether this begins building a new system for developing mall traffic is not yet clear—only time will tell. Flexibility to innovate, though, is critical for companies to survive system change.

A Last Thought

Neither malls nor movie theaters failed due to One Big Error. When system errors begin to backfire I find they do so through many small errors which add up over time and increase in potency as they accumulate. The result we see today is that both movie theaters and shopping malls are threatened because of their rigid use of reduced systems. Making these situations worse, when bureaucratic systems fail they tend to impose system rules ever more stridently and with more rigidity. While I am impressed by the profits theaters and malls made over decades, they could have both reaped profits and become resilient enough to live beyond the inevitable system failure.

Note also that because these errors did not develop through big, obvious mistakes, we must not listen to hindsight claims “if they had only done…[insert big obvious thing here]…they would be just fine today.” Their only paths to better resilience in the face of the systems paradox would have required vast numbers of small, savvy decisions across many functions which developed resilience while also reaping profits. Companies need ways to flexibly interact within their complex adaptive systems despite the near-term value of system reductions.

The next post in this series will consider ways of operating which might have helped theaters and mall owners build the resilience both need so desperately today—paths to accumulate small, savvy decisions so that companies remain flexible over time. As I leave you, consider these ideas—where you use systems and how your use of them becomes rigid. And until next time, be well and enjoy winter (in the Southern Hemisphere of the world) or summer in the Northern.

Note: My ideas here have developed significantly through in-depth discussions with JP Castlin as we have looked deeply at these issues. That said, the opinions expressed here are my own. So while JP deserves credit for contributing to what is useful and good, he deserves no blame if my writing has gone astray..

©2026 Doug Garnett — All Rights Reserved

Image: Black Maps, ©1997 Timothy C. Ely, Used With Permission.

My upcoming book, The Complexity Paradigm: Using System Science to Drive Business Success, will be published by Columbia Business School Publishing in January 2027. It can be pre-ordered today through Columbia or on Amazon.

You can read more about my unusual background (math, aerospace, supercomputers, consumer goods & national TV ads) at www.Protonik.net. Through Protonik LLC I consult with companies as they design and bring to market new and innovative products. Since 2001 I have taught marketing, consumer behavior, and advertising at Portland State University and I am an active member of the RetailWire.com Braintrust with regular discussions of unusual retail challenges. Together with my podcast partner Shahin Khan, current issues in marketing and business are discussed on The Marketing Podcast — available on Google, Spotify, the OrionX website, and Apple Podcast.