You know it when you see it. People and companies that understand that their actions occur in a larger context. They do the right thing and it turns out to be the smart thing. And the most profitable choice in the long run. The technical term for this is integrated or systems thinking, learning to see both the components of a system as well as the big picture.
My favorite tool to support systems thinking in business is the multi-capital model used in integrated reporting. This model sees the key resources of a company as capital, including purpose, profit, people, property, partners and planet. Companies are stewards of their capital even though they don’t own most of it. The goal is sustainable value creation that enables a company to create value and profits today while also ensuring that they can do the same tomorrow.
Here are three great examples of systems or integrated thinking in action.
Costco and Organics – Costco has realized that one of the biggest barriers to being able to meet consumers’ growing demand for organic food is the supply chain. So they’ve started investing in organic producers. This increases their relationship capital with both customers and suppliers while improving natural capital. While it uses financial capital today, the expectation is that guaranteed supplies will give a good return on that investment in the future.
Google and Renewable Energy – Google started out as a weightless company. Their starting assets were intangible: two people and an algorithm. But the bigger they grow, the greater their tangible footprint. They’ve had to build enormous data centers that use significant amounts of energy. This has led them to become the world’s largest investor in renewable energy. These investments are a positive for natural capital and also increase the company’s brand and relationship capital. Given the outlook for non-renewable energy, this move should also reduce risk, protecting its financial capital.
Subaru and Zero Waste – Subaru has the only zero waste automotive manufacturing facility in the U.S. Their expertise has attracted many followers including the U.S. Parks Service and my family–we just bought our first Subaru! This program is a huge positive for natural capital. But it also benefits the company. It increases the company’s brand and relationship capital. And it’s also great for financial capital, with the company returning superior profit margins compared with its peers.
Another kind of capital that is important in all these cases is the growth in knowledge capital. By investing in new endeavors, companies learn. Knowledge is the most scalable of assets. It costs nothing to use it, in fact, your knowledge grows the more you use it. In the case of Subaru, they use a Kaizen system of continuous learning to constantly improve and innovate.
In fact, we mention Kaizen in our latest briefing paper. It talks about how the multi-capital model helps in telling the business side of these great stories. This model gives us a vocabulary for explaining the resources that a company uses and how to view them as long-term assets. It’s almost like creating a new balance sheet for your ecosystem. Seeing the components and also how they fit together. This approach will help you make better decisions and more clearly explain what you’re doing to the people that count: your customers, employees, partners and investors.
Smarter-Companies has just published a new paper called Systems Thinking Using a Multi-Capital Model: Driving profits and prosperity with integrated reporting and thinking. We hope that it helps you in your own journey to systems thinking.
Photo credit: Viktors Kozers at RGB Stock