The Business as a System

The Business as a System

Essay by: Mike Shesterkin, Exec. Director, SMSBF

Last week, I covered the idea that sustainable business is grounded in systems thinking and an awareness of the interconnectedness of all things. Within this context, I made the distinction between what many perceive as the purpose of business – maximize shareholder value – versus the systems thinking perspective, which reflects on the notion of interconnectedness. In other words, there’s more to the purpose of business than simply generating profits.

Business is the way in which we organize work, and work is necessary for our survival (i.e., it provides us shelter, food, clothing, and a sense of connectedness to the world around us).  Businesses, therefore, must be thought of as serving more than the narrow interests of the owner, or shareholders. This led us to Elkington’s triple bottom line of people, planet and profit, or as we like to say, social, economic, and environmental justice.

In this article, I’d like to open-up the idea of the business itself as a system. To do so, we ought to start with some definitions.

So, what is a system?

Merriam-Webster’s first definition states: a system is “a regularly interacting or interdependent group of items forming a unified whole.” This definition is a great foundation on which to build. Let’s examine the fictitious business called, ABC Manufacturing and see if it fits the definition of a system.

Starting with the term “group of items”, we must ask whether ABC is comprised of items. Because we know human beings are not “items”, we’ll need a bit of poetic license – for lack of a better way – and assume items include the special case of people. We need to deal with this special case, but for now, we’ll keep things simple: complexity comes later. If we include people as items, and consider the other items that make-up ABC – the machines, buildings, pencils desks, etc. – it’s easy to conclude that ABC is indeed comprised of a “group of items”.

We now ought to ask whether ABC meets the “interacting or interdependent” requirement. The items certainly interact with themselves: people operate machines and they interact with each other (e.g., have meetings, stand around the water cooler complaining about the boss etc.). Are they interdependent? Indeed, when, for example, one worker doesn’t show-up, the business suffers in one way or another: allowances must be made for gaps in productive capacity (e.g., another worker may have to work two jobs or overtime etc.). Therefore, we must conclude that there is a level of interdependence within ABC.

Does the business form a “unified whole”? The business is a unified whole; we know this through our legal definition of the business, regardless of how ABC may have been formed. It has a legal standing as an entity of one sort or another, so in this sense, ABC is a unified whole. We know this, too, because, regardless of its size, ABC has a relationship to others, whether it’s to its customers, suppliers, workers, and so forth. For example, as a customer in need of widgets, one will purchase the widgets, not from a person, but from ABC Manufacturing.

Based on this analysis, ABC Manufacturing, or any other business – for that matter – fits the definition of a system.

Now, let’s turn to a more rigorous, but related definition of a system; this one comes from the noted systems thinker, Donella Meadows, in her book, Thinking in Systems:

“A system is a set of things – people, cells, molecules, or whatever – interconnected in such a way that they produce their own pattern of behavior over time. The system may be buffeted, constricted, triggered, or driven by outside forces. But the system’s response to these forces is characteristic of itself, and that response is seldom simple in the real world.”

Meadows’ definition expands on the dictionary definition in that it speaks directly to the notion of interconnectedness and to the behavior of the system in response to its surroundings. It also speaks to the notion of an “emergent property”, which is this idea that the interconnected things produce “their own pattern of behavior over time”. An easy way to think of an emergent property is to recognize that quite often things are greater than the sum of their parts. With a little thought, it’s easy to see how a business fits Meadow’s definition of a system.

How systems thinking, thinking of the business as a system, the notion of emergent properties, and why these things are useful to the business leader, are topics we’ll take up in later articles.

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