Article

Defining Systems Change in Sustainable Business: Part II — Opening Statement

Posted May 23, 2022 | Sustainability | Leadership | Technology | Amplify
Defining Systems Change in Sustainable Business: Part II

 AMPLIFY  VOL. 35, NO. 5
  

 

This is the second of two issues of Amplify on what systems change means for sustainable business in the Anthropocene Age. The first issue approached the question from two directions.1 First, it explored what systems change means by examining the mental models we bring to the challenges we face, both at the individ­ual level and the cultural/institutional level. Second, it identified what changes market actors could and should make using political and social mechanisms.

This issue explores how to make needed changes happen by examining three systems change topics. First, how can we use the linkages between environ­mental and economic systems to change market structure and, consequently, how actors compete? Second, how do we redefine waste to alter how mar­ket actors impact the natural environment through producing and disposing of materials? Third, what system changes can we accomplish through innovation or by using technologies like IT, artificial intelligence (AI), and blockchain to address unsustainable practices?

In This Issue

Linking Natural & Social Systems

To tackle our first theme of linking environmental and economic systems, P.J. Stephenson and Judith Walls call for a “new biodiversity paradigm for business.” They show that current corporate guidelines for engaging on biodiversity are inconsistent and confusing, leaving companies unable to manage nature-based risks, cap­ture nature-based opportunities, and prevent disruptive climate change. To correct these inconsistencies, they identify fundamental issues that businesses and other actors must resolve in the links between market sys­tems and the nature systems that generate biodiversity. Achieving a biodiversity paradigm for business would mean a market structure in which competition and profit are compatible with high biodiversity and biodiversity preservation. Getting there requires companies to set science-informed biodiversity targets, support standardized reporting frameworks across companies and industries, and prioritize data and technology that increases their understanding of their relationships with (and impacts on) biodiversity and nature systems.

Next, Saeed Rahman, Natalie Slawinski, and Monika Winn examine how pioneering companies in agri­culture, agri-food, and other sectors can build and leverage ecological knowledge (knowledge about the very ecosystems they rely on) to develop innovative practices that help regenerate social and natural systems. In doing so, these companies can reap bene­fits for their business and help turn our unsustainable agricultural systems into systems that sustain a grow­ing human population without severely degrading or destroying ecological systems necessary for agriculture and other industries.

Emphasizing that our economic systems can only grow within the limits of the biosphere, in our next article Himanshu Shekhar suggests a framework of “aligning with macro and accomplishing in micro” for controlled and sustainable future growth. Many businesses operate on the assumption that resources like clean air, water, and predictable weather are freely provided by nature. However, the Planetary Boundaries frame­work vividly shows that natural systems are limited in their capacity to provide these natural resources and ecosystem services. The combined impact of business activity is exceeding the limits on many of these systems, threatening to diminish the supply of resources and services provided by nature. Businesses must update their assumptions about what nature provides “for free” and act to address growing scarcity concerns, including the potential for rapid cost increases on inputs that many business models incorrectly assume will remain low. Accomplishing controlled, sustainable growth requires a change in how business people and other decision makers view the availability of resources and services assumed to be freely and limitlessly produced by nature.

Material or Waste?

Two articles in this issue explore how our definitions of and approaches to waste can open new possibilities in systems change. Joseph Sarkis, Paul Dewick, Maurie J. Cohen, Joerg S. Hofstetter, and Patrick Schröder discuss how concepts like circular economy, degrowth, and post-growth redefine which materials are considered waste and which are considered useful. Circular economy and degrowth approaches could provide stronger sustainability outcomes by rethinking what counts as waste in supply chain analyses, operations, and management. They look at supply chain sub­systems that support strong sustainability outcomes, using practical examples. They show how strong sustainability can support societal and economic resilience and identify ways to overcome challenges to changing market systems.

Kevin Brennan then outlines how Lean and Six Sigma process management systems could be changed to redefine waste in ways that capture environmental impacts. These models historically seek to eliminate waste in production processes by defining it as anything that does not contribute to increasing customer value. Brennan argues that this customer-centric definition of waste should be broadened to recognize that a focus on customer value leads to practices that reduce environmental quality. Proc­ess management must redefine waste to include unsustainable waste like resource overuse, scarcity, and externalities. This approach would look beyond process automation that focuses on the economic benefits of waste reduction, encouraging managers to think of sustainability as a “cost” imposed on them, rather than an objective for process improvement. It will also be necessary to understand how to reconcile situations where customer value and environmental value require difficult tradeoffs. Doing so will require new metrics that capture environmental waste. This shift in perspective would ensure that process practi­tioners incorporate sustainable thinking into their improvement initiatives and make visible the true cost of unsustainable practices within process management systems.

Innovation & Technologies

The third set of articles highlights innovation and technologies as a means of systems change. Pratima Bansal, Ju Young Lee, and Alice Mascena Barbosa describe how corporate innovation often produces severe, unintended social consequences. Even as innovation creates value for a firm, it can destroy value within other systems. This occurs with innovation that produces disposable products — the firm captures value from increased sales, but the waste disposal destroys environmental and social value. The authors propose that companies move away from the traditional innovation model focused on the firm to a systems innovation model focused on the firm and its products in relation to other systems. Drawing on design thinking to identify interactions and relationships between the company and other actors and systems, systems innovation would encourage companies to avoid unintended social consequences by compelling them to be intentional about their innovation’s wider impacts.

Rohit Nishant and Thompson S.H. Teo discuss how to limit the negative impacts of AI adoption by using concepts from both regenerative and doughnut eco­nom­ics. These two approaches seek to reconstruct economic systems so they operate within the sustain­able operating limits of natural systems. Pointing out that AI adoption threatens to exceed sustainable boundaries by increasing aggregate demand for energy and new materials, Nishant and Teo put forth a 3Rs framework with which AI adopters can keep the impacts of AI within sustainable boundaries. For example, regeneration techniques can be used to redefine AI waste products like heat into inputs for producing energy, increasing the energy efficiency of AI infrastructure. Rationalization would help companies explicitly consider the carbon footprints of any proposed AI adoption, a form of internalizing costs that are often imposed on social and environmental systems. The authors also encourage companies to engage with customers about the impacts of the technologies they consume, including AI-based technologies embedded in chatbots and digital games.

Finally, Cigdem Z. Gurgur describes how a blockchain-based Internet of Things (IoT) can push market systems toward sustainability. While traditional technologies like enterprise resource planning and electronic data interchange enable information sharing, blockchain offers new opportunities relevant to systems design. Blockchain connects stakeholders with multiple sources of verified information, generates a richer informational landscape for executing business processes, and enables secure transactions between untrusted actors. Trusted networks can reduce transaction costs, simplify proc­esses, and reduce resource intensity compared to traditional transaction technologies. Gurgur explores the conditions needed to facilitate blockchain deployment in the next generation of supply chains, specifically through IoT technologies that have attractive applications for creating, monitoring, and enforcing sustainability standards.

The articles in this issue of Amplify revolve around the themes of redefining taken-for-granted business concepts, attending to consequences traditionally seen as outside the responsibility of companies, and broadening company engagement with actors often seen as independent from business. Explicating and incorporating links between the natural environment and economic activity redefines business activity from something that happens in relation to nature to being something that happens in nature. Process manage­ment, circular economy, doughnut economics, and system innovation demonstrate that the activities we consider important to running a company in turn influence the impacts for which we are responsible. Although technology and innovation can help mitigate or address some of these impacts, the articles in this special issue suggest that changing market and business systems toward sustainability requires reconsideration of several fundamental assumptions. Such reconsid­eration is necessary as we enter the age defined by unprecedented human impacts on the planet’s systems.

Reference

1Hoffman, Andrew, and Nicholas Poggioli (eds.). “Defining Systems Change in Sustainable Business: Part I.” Amplify, Vol. 35, No. 4, 2022.  

 

About The Author
Andrew Hoffman
Andrew J. Hoffman, opening keynoter at the recent Arthur D. Little Summit 2022, is the Holcim Professor of Sustainable Enterprise at the University of Michigan's Ross School of Business and School for Environment and Sustainability (SEAS). He is a globally-recognized thought leader in the area of Sustainability and, among the many honors and awards he has received, is winner of The Page Prize for Sustainability Issues (2020). Dr. Hoffman’s… Read More
Nicholas Poggioli
Nicholas Poggioli is a Postdoctoral Research Fellow at the University of Michigan’s Erb Institute for Global Sustainable Enterprise, a partnership between the Michigan School of Business and the School for Environment and Sustainability (SEAS). His research and teaching address how business management can be both profitable and compatible with stable ecological and social systems. Dr. Poggioli soon will be joining the Appalachian State… Read More