Is Small Business In A Position To Overtake Established Multinational Corporations? Will Whole Systems Thinking Result In Sustainable Business Models?
In “Capitalism At The Crossroads: The Unlimited Business Opportunities In Solving The World’s Most Difficult Problems“, author Stuart L. Hart (SC Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell’s Johnson Graduate School of Management) briefly discusses the concept of whole systems thinking. This section of the book, pardon the pun, got me thinking.
In most university and college business programs, students tend to learn methods of business analysis dependent of marginal thinking. Basically the analysis of incremental changes in costs and benefits. At some point, any additional cost fails to result in any additional benefit and any business model must be structured so benefits outweigh costs. This is the law of diminishing returns. As a former track athlete, I was familiar with this concept, but obviously from a different paradigm. At some point, putting in any more training miles will result in no further physiological adaptations. Moving beyond this point is just contributing to overtraining and increased injury risk.
While using marginal analysis makes sense in a great number of business situations, when a company’s objective is disruptive change or innovation such as in the case of developing sustainable business models to solve pressing world issues (hence the book’s title), it becomes a roadblock to success. This is where the concept of whole systems thinking comes in.
Hart uses an example taken from Natural Capitalism to illustrate the usefulness of whole systems thinking within the framework of sustainability-that of the home construction industry.
While acknowledging that the stringent rules and regulations of the construction industry may prevent pure whole systems thinking from ever occuring in the construction of a home, it suits the purpose of illustrating the point well.
The authors of natural capitalism argue that using marginal analysis to design homes actually fails in producing an optimal home. Marginal analysis actually requires that a conventional home is built first before integrating any energy-saving measures. Then, such components will be added until the costs of attempting to save any more energy costs more than is returned.
Now, using the logic of whole systems thinking, we can build a house from scratch that is superefficient and costs less than the unimproved original house.
Basically, what Hart is trying to protray here is the idea that the logic of whole systems thinking is need for disruptive innovation and he argues that it may “hold the key to future growth for incumbents in industries currently mired in low-growth, commodity competition…and hold the key to moving us toward a more sustainable world”.
As I go through the process of researching and planning my startup, ideas like this make me wonder what the future holds for the established multinationals out there currently that are accountable to their various stakeholders. How can they really “wipe the slate clean”, so to speak, and embrace the whole systems thinking Hart believe will be required for sustainable business success in the future? Will these giant monoliths that drive the western economies and to a certain extent the eastern ones as well through outsourced manufacturing etc., be able to be disruptively innovative enough to move toward the sustainable model of business that may not only be required to create the shareholder value that are accountable for, but also the welfare of the earth and its citizens? Will they be able to make the transition from their current conventional modes of business without disrupting the returns to shareholders they are required by law to provide?
I feel that this is one of the advantages new businesses have at the present time. We have the clean slate and the awareness to build on it a business that will not only profit, but solve the world’s problems. We have the benefit of building the superefficient house at a cost that is less that the conventional house built by the previous generations of entrepreneurs.
In my last posting I alluded to my current employer and my dissatisfaction with the environment I currently must work in. This company is a perfect example of a publicly traded multinational, working in a commoditized industry at a point where the only further way to provide shareholder value is to cut costs. They have moved beyond the margin and now have to backtrack at the expense of their employees, customers, shareholders, and as some are currently arguing, the environment in order to move in a forward direction. There is no room for whole systems thinking, sustainable business models, or corporate citizenship. What is a company like this to do?
I know that their are always externalities involved when it comes to the trade of commodities; one prominent example being the current strength of our Canadian dollar resulting in a huge decrease in sales when most of our product is exported, but once again this still serves to illustrate the example. Big, inflexible company can’t adapt to the changes required to solve world problems while earning future profits.
What I really wonder is what the current need for disruptive innovation in business in order for our world to be saved and economies, developed and developing, to grow means for the large multinational we see traded on our main stock exchanges today? Will they be around in 25 years? Will they end up being the downfall of humanity? Will the startups of today be the for-benefit, for-profit, publicly traded multinationals of the next generation? It remains to be seen I guess.