A Systems Thinking Approach

Embracing Complexity

We live in a complex world where everything is ultimately related to everything else. It is impossible to understand this world with linear cause-and-effect logic because such thinking misses (1) the infinite interconnections of living systems and (2) the adaptive, non-linear ways these systems behave as the world about them changes.

There are limits to growth in a world of finite resources. These limits were difficult to see so long as those resources were plentiful relative to demand. But once earth’s resources were pushed beyond their limits (mid-1980s), world markets became increasingly chaotic in a succession of ecosystem collapse (fisheries, forests, arable land), climate change and eventually global financial and monetary chaos. None of these events could be seen via linear logic because they arose from non-linear feedback effects.

During the past quarter century of increasing market chaos, life-mimicking corporate leaders have gained significant market share from their traditionally managed peers.

Better to be Generally Right

Systems thinkers understand a basic fact of life that traditional business managers generally ignore: the Earth’s biological carrying capacity is declining. It now takes the resources of more than one and a half planet Earths to supply materials to and absorb the wastes of a modern industrial society. And the rate of excess is accelerating as developing nations become more industrialized. GAAP accounting methods may be exact in their limited field of vision, but they are precisely wrong in failing to see this disturbing fact. As the limitations of GAAP become more evident, traditionally managed firms have lost valuable employees, customers and investors.

Alternatively, companies that mimic life think and act systemically. They are learning organizations: continually testing their assumptions against actual experience, alert to the total consequences of their behavior, and therefore highly adaptive. While they may not know precisely their impacts on global climate change, Nature or public health, they have a general idea that informs their strategies. As a result, while their analysis of the world may lack precision, they tend to be generally right in their decision-making.

In business, as in life, it is far better to be generally right, rather than precisely wrong.

Deciding What to Measure

Traditional management theory ignores costs that do not directly lead to a transaction. The real world for them is framed by generally accepted accounting principles (GAAP), which take a narrow, linear and short-term view of the firm and its operating environment. Under GAAP rules, costs that relate to environmental damage, public health issues, urban decay and the like are considered “external” unless prevailing laws say they must be internalized. These rules separate the firm from the real world and blind it to likely future costs.

Systems thinkers take a more holistic approach. The real world for them is one of myriad feedback effects, which GAAP accounting cannot possibly see. They know, for example, that the firm’s impacts on society and biosphere affect employee morale and customer loyalty. Risks, such as global climate change, are ethical as well as practical, and require solutions that look to the long-term health of all stakeholders.

Companies that mimic life are naturally drawn to systems thinking and forward looking balanced scorecard accounting practices. They know that caring begets caring. So when they go beyond the law to reduce carbon emissions, or contribute to host communities, or reach out to employees, they have faith that goodwill and positive feedbacks will generate positive returns.

You might say we are in the midst of a Copernican Revolution in conventional business thinking. We are finally waking up to the fact that corporations are not the center of our economic universe, with people and Nature orbiting around them. In fact the opposite is true. People and Nature are the sun, the very life source of corporations. Powerful though they are, corporations utterly depend on the living world, the web of life that supports them.
“Joseph H. Bragdon, Profit for Life, 2006