Leverage Point Identification

Essence

According to the great systems thinker Donella Meadows, leverage points are “places within a complex system (...) where a small shift in one thing can produce big changes in everything.” It will be important for you to understand where intervening in a system is particularly powerful, in part because you will at some point have to decide how to prioritize your capital allocation for maximum impact.

Leverage points come in different shapes and forms, and each framework has a slightly different conceptualization of it. You may have heard of Meadows’ “Places to Intervene”, a classic, high-level framework that ranks attributes of a system based on their ability to influence outcomes. In this framework (see graphical depiction below), mental models (mindsets and paradigms, and our ability to recognize them as such) are thought to have the highest potential to drive change, as they shape and inform everything “downstream” in the causal chain.

One critical thing to note is that the cause-and-effect direction in the Meadows framework isn’t unidirectional, despite the way her list is typically visualized. What drives people’s mindsets? A myriad of factors, including those represented lower on her list of leverage.

Similarly high-level is the concept of “Sensitive Intervention Points (SIPs)”, originally proposed by a group of complexity economists at the University of Oxford (Farmer et al. 2019). SIPs come in two forms. A “kick” is a change in a variable “in an existing system that triggers a positive feedback dynamic, for example, a subsidy for green products alters the variable of price”. A “shift” is a fundamental change to the “rules of the game to completely alter the system. This might include the establishment of an independent body to hold the government accountable to its climate targets or new laws to more stringently monitor the licensing of fossil fuel permits.”

But when working in specific system/challenge constellations, the trick is to figure out which node in a system represents a leverage point, and how it can be activated. And from our practical work, we have observed that those leverage points can also come in the form of:

Gaps: the absence of a critical service, technology, or piece of physical infrastructure
Bottlenecks: the insufficient provision of a critical service, technology, or infrastructure
Gluts: an excessive supply of something
Tipping Points: critical thresholds in a system that, once crossed, trigger a disproportionately large shift, leading the system to a new state

What’s important to keep in mind is that trying to identify leverage points is an exercise in hypothesis development. That’s because the fundamental uncertainty in complex adaptive systems means that it isn’t always clear ex ante if a specific intervention will indeed exert leverage in the system. Nobody has a crystal ball, and you should beware of being lulled into a false sense of certainty.

Neither should you use any of these typologies as a call to look for “silver bullet”-interventions. Every system is different, and their complex-adaptive nature necessitates a whole portfolio of interventions tackling a variety of leverage points. And each leverage point might be activated through a number of different intervention strategies; indeed, that might well be necessary for systemic change to happen. Thus, these typologies give you no prescriptive formula about which leverage points to choose but rather provide directional guidance that invites you to look at the system of interest in multiple ways.

Example

In our agriculture prototype in the American Midwest, we have identified seven finance-related leverage points for catalyzing the transition of that system toward regenerative practices (which you can browse and learn more about here):

Increasing access to land for regenerative farmers
Building farmers’ capacity for regenerative agriculture
Creating a cultural context in which regenerative agriculture can thrive
Improving the economics of regenerative agriculture
Developing supply-chain infrastructure for regenerative agriculture
Creating a market for regenerative products
Building consumer demand for regenerative agriculture

It’s not always straightforward to categorize these leverage points (LPs) according to one of the generic frameworks described above. LPs 5-7 are—by and large—about addressing a bottleneck, and LP 1 could be seen as being representative of Meadows’ “Rules of the System”. But where exactly does LP 2 (capacity building) fit in? The point is that leverage points come in different shapes and forms, and more important than classifying them based on a generic framework is identifying, naming, and validating them.

Guidance

So how, exactly, should you go about identifying leverage points?

This is not an obvious or straightforward endeavor. At the TCI, we use Transition Maps (explained here) to form hypotheses around leverage points. The mapping of transition factors and identification of systemic challenges will point you to areas in the system that have an outsized influence, either in currently holding the system in place or in their potential to shift the system.

In transition mapping taxonomy, leverage points aren’t necessarily singular nodes but rather bundles of elements and feedback loops that shape and keep the behavior of the system in place and where, as a result, interventions can have an outsized impact. Think about the balancing dynamic of low numbers of electric vehicles both driving and resulting from a sparsely built out network of charging stations that needs to be disrupted. Or the need to mitigate the manifold types of risk that farmers face when transitioning to regenerative agriculture resulting from the (short-term) prospect of lower yields, the absence of tailored loan products, and the outright lack of regenerative insurance.

It’s also important to note that leverage points are interlinked. In many cases, concerted action around one leverage point will impact others. At the same time, other systemic challenges will continue to exert their influence, which is why only focusing on one leverage point will always be insufficient to exert deep, structural, and lasting impact on the system.

There are other approaches one may take into account to identify leverage points, such as the number and nature of connections of a specific element and the length of follow-on connections that may be drawn throughout the system via other elements. However, such network analysis will only ever be indicative and cannot provide clear and definitive answers. And crucially, especially for investors used to working on the basis of rigorous quantitative modelling, they will not permit quantitative verification. We therefore return once again to the importance of participative, multi-stakeholder processes. This is where the validity of the leverage point analysis is grounded, as well as the collective energy to act.

Tips

Some leverage points will be easy to uncover. If half a dozen reports and ten expert interviewees on regenerative agriculture say that farmer capacity building is important, chances are: It’s a leverage point!
When studying other systems in which your desired change has already taken place, be aware of hindsight bias (the tendency to perceive past events as having been more predictable than they were), reductionism (explaining a complex phenomenon as the result of a single development), and the fact that no two systems are the same (what works in one might not work in another).
The existence of a leverage point—especially when taking the form of a gap or bottleneck—might be indicative that you’re dealing with a particularly intractable issue. So don’t expect leverage points to exist in places with stellar financial risk/return opportunities.

Essence

Example

Guidance

Tips

Further Reading