Ruminations on systems

One of the terms that's been thrown around quite a bit in the MSOLE program is "systems theory." It took a while to get my brain around this concept, but now that I have, I can see why my professors bring it up all the time.

Systems theory basically states that most things exist as part of a system, and are often a system themselves. So a human body is a system, made up of organs and other stuff. Organs are systems made up of cells, which are systems made of molecules, and so on. A thing is a system if it's components are varied and work together in some way to create the thing. This is a crappy explanation, but think of it this way; a plant is a system - lots of different types of things make it up - cellulose, chloroplasts, water. If you hack off the roots, it may die, and no longer be a living plant. A rock is not a system. It may have several components at the molecular level, but they're not interrelated. If you hack a piece off of it, it's still a rock.

Systems that are self-correcting - those that need to maintain some kind of equilibrium to survive are called negative-loop systems. Systems that grow or shrink are called positive-loop systems. So our bodies are negative-loop systems; when we get to hot, we sweat to cool down, and when we get too cold we shiver to warm up. The survival of the system depends on equilibrium. But a cancer is a positive-loop system; if allowed to grow unhindered, it can disrupt the body's negative-loop system.

Take this to a sociological level, and you have systems like families, cultures, countries, and so forth. Systems theory, as it applies to business and leadership, is really useful for taking a wider view of things like corporate change efforts, government regulation, and culture.

My current class is on business ethics. There's lots of interesting debate on the dichotomy of capitalism, the publicly-held business model, and ethics. If publicly held corporations exist in order to provide value to shareholders, and everything else serves that goal, there's a lot of gray area when it comes to what is acceptable and what is not. I'm doing some research right now on the difference between personal and professional ethics, and it seems like personal ethics are often more Kantian (absolute) in nature, where traditionally business ethics are more utilitarian. So the big question becomes, who gets the utility? If it's the stockholders only, then other people (employees, community members, etc) pretty much get the shaft. This seems like a very linear way of looking at ethics and responsibility. Put your stakeholders in order of importance, and make decisions accordingly.

Proponents of newer models of global business ethics obviously think otherwise. There are lots of models out there for how to convince a corporation to give equal weight to other people who are affected by these decisions, like consumers (who may not want to pay for shoddy products), community members (who might not be happy about excess toxic waste), or employees (who may not feel so good about layoffs or restructuring). But most of the stuff I've read for this particular class so far goes at it from a linear standpoint, and I don't think it's a linear problem. I think it's a systems problem. Screw with your customers to drive up profits at the end of the quarter, and you may be facing lawsuits the next quarter. This is because you're messing with the system, which consists of everyone affected by your business. Cut employees to reduce costs, and you end up with low morale, high attrition, and reduced efficiency. It might not bite you this quarter, but it will within a year or so. Again, look at the system as a whole. These decisions may not negatively impact profit to shareholders first, but it will effect them within one or two business cycles.

Ultimately, I think systems thinking forces us to take a longer term look at the consequences of our actions. If Krispy Kreme had thought about the potential longer-term problems that might ensue from cooking their books by over shipping to vendors right before the end of the quarter (and then picking up the excess donuts after), it seems like they might have changed their practices a bit. A 75% drop in stock price since 2003 might not seem like an acceptable loss, in hindsight.

I think infusing more systems theory into the field of corporate ethics could be really useful. It's still pretty utilitarian - the greatest good to the greatest number - but because you have to see the issue from a more birds-eye standpoint to understand the systemic effect of decisions, those decisions are less likely to be harmful in the long run.