How to Use Systems Thinking in Business

How does systems thinking in business grow companies? How should you show your care to everyone in a company?

In Conscious Capitalism, John Mackey and Rajendra Sisodia argue that leaders and managers can ensure that everyone involved wins if they demonstrate care and use systems thinking. By doing this, you’ll understand how their business and all interested parties are interrelated.

Continue reading to get a better grasp of using systems thinking in business.

Best Practices for Ensuring Everyone Wins

Caring for an interested party means being grateful for their participation (as opposed to taking them for granted), conscientiously tending to their needs, and ensuring that doing business with you benefits them.

(Shortform note: Since according to Mackey and Sisodia, effective leaders and managers must care for interested parties, you may need to intentionally improve these skills. One way to increase your capacity for caring is by becoming more compassionate, which experts say you can do with the help of compassion training programs that incorporate meditation or writing practices.)

Systems thinking in a business is a kind of logic that focuses on the big picture: Instead of analyzing the contributions and needs of each independent part, it sees all parts of the system as interconnected and incapable of functioning well without one another. (Shortform note: According to Donella Meadows, author of Thinking in Systems, one way to improve your capacity for systems thinking is by drawing a diagram of the system you’re interested in and asking others for feedback about how to improve your understanding of the system.)

Mackey and Sisodia also make specific recommendations for meeting your responsibility to each interested party without sacrificing anyone else’s needs. Let’s explore those now.

Investors

Let investors determine your company’s leadership—Mackey and Sisodia argue that since it’s investors’ money you’re working with, they should have the final say about who is entrusted with the power to decide how that money will be used.

(Shortform note: Experts note that public companies are typically led by a board of directors (who have formal governance over the company) that is democratically chosen by investors each year. In contrast, private companies’ directors can be chosen by investors or according to other rules the company sets for itself. Given Mackey and Sisodia’s advice, it may be beneficial for private companies to formally document investors’ right to determine company leadership.)

Don’t give in to unrealistic performance pressures. The authors explain that it’s common for companies to experience pressure to appear profitable by the end of each quarter so that stock values will increase, maximizing investors’ profits. Companies often sacrifice the well-being of other interested parties in order to achieve these profits—for example, by charging customers more. Instead, the authors say you should aim for honesty and fairness, keeping the big picture—everyone’s satisfaction—in mind. Investors’ profits aren’t more important than any other interested party’s needs.

(Shortform note: Experts clarify that when it comes to stock values, market expectations matter more than actual profits. This means that if your company earns more than it was predicted to, company stock values may actually depreciate instead of going up. It’s less important to appear profitable than it is to appear predictable—which is another reason not to give into unrealistic pressures to increase profits each quarter.)

Fairly distribute employee stock options. Mackey and Sisodia explain that executives are often given the opportunity to own a high concentration of company stock, which can be problematic if executives are more interested in short-term profits than the company’s long-term success. They might force decisions that are profitable now but ultimately unwise because they’re hoping to sell stock, make money, and get out of the business before suffering any negative consequences. On the other hand, if all employees are given the opportunity to own a small amount of stock, they might be more motivated to help the company succeed since they have a financial stake in it.

(Shortform note: Beyond motivating employees to perform well, offering stock options as a form of compensation to all employees may also help your business save money: Compensatory stock options can be offered in exchange for a lower salary, which means your company can fairly compensate employees at a lower cost and reinvest the money saved on payroll in other areas. Also, most stock options contracts require an employee to work for the company for a certain amount of time before they kick in, which incentivizes them to continue working at the company. Maintaining employee loyalty at all levels helps your company succeed in the long run—it’s expensive to replace even lower-ranking employees.)

Suppliers

Build up the suppliers you count on. The authors explain that practically, this could mean investing in them or coming up with strategic solutions to supply chain problems. For example, say you own a restaurant that purchases ingredients from local farmers. To help those farmers continue to provide the produce you need, you might contribute money to conservation programs that make farming more sustainable.

(Shortform note: If you try to build up the suppliers you count on but find that they’re still unreliable, it may be time to switch suppliers. In that case, experts recommend finding a new supplier whose company values match up with yours. Value alignment creates a foundation of mutual trust—you each believe in what the other is doing, so you’ll be more inclined to treat each other well.)

Foster a partnership. Mackey and Sisodia say that instead of trying to get the most out of each other while giving as little as possible in return, you should aim for a mutually beneficial relationship with suppliers. For example, this could mean not haggling over prices—unless it’s clear that they’re charging you unfairly, pay them what they ask for as soon as payment is due. Like any other business, they have to profit to get by; and since you need them to succeed, you want them to profit, even if that means you pay a little more than you’d like to.

(Shortform note: One way to strengthen your partnerships with suppliers is to practice the Japanese model known as keiretsu, where businesses (including suppliers and buyers) closely network with each other—and sometimes purchase stakes in each others’ companies—to become a more productive, smoothly running machine. Experts say keiretsu has six steps: learning more about how your suppliers operate, encouraging competing suppliers to work together, giving suppliers regular feedback, helping suppliers become more technologically efficient, keeping suppliers informed, and working together to enhance each company.)

Renegotiate contracts often. Mackey and Sisodia explain that this gives you a chance to address any major changes in the supply chain and fulfill any new or previously unmet needs. It also creates faith in the fairness of your working relationship.

(Shortform note: Experts say there’s another benefit to regularly renegotiating contracts with your suppliers: It buttresses the overall supply chain, allowing suppliers and buyers to adapt to novel situations like the Covid-19 pandemic more quickly and with fewer major disruptions.)

Employees

Hire people whose values are aligned with your company’s values. Mackey and Sisodia explain that when employees believe that their work serves an important purpose, they’ll be intrinsically motivated to do their jobs well and they’ll have greater job satisfaction. (Shortform note: To ensure that new hires share your company’s values, experts recommend that you make those values explicit during interviews and ask prospective employees about how they’ve put those values into practice. For example, if your company values honesty, you might ask interviewees to tell you about a time when they had to tell someone a difficult truth.)

Encourage employee collaboration. Mackey and Sisodia say that collaboration fulfills a fundamental human need for connection and makes work more fun. Also, teams can accomplish more than individuals can—so your company will benefit from employee collaboration, too. (Shortform note: Experts share five practices that foster employee collaboration: Give everyone equal access to (and ability to contribute to) shared knowledge. Promote individuals’ unique talents. Welcome feedback. Unite employees around their ability to make a positive difference in the world. Finally, provide opportunities for employees to have fun together.)

Promote a healthy work culture by emphasizing equality, trust, and humanity. You can promote equality by fairly compensating your employees, which involves instituting salary caps to ensure that higher-ups aren’t overpaid and providing health insurance and wellness programs. You can promote trust by ensuring that the company (and everyone involved with it) is honest, fair, loyal, and accountable. Finally, you can promote humanity by encouraging employees to openly express their feelings, helping people find new jobs when you need them to leave the company, and hiring more women leaders—the authors say that women are naturally more likely to practice and spread humane values like empathy and collaboration.

(Shortform note: Human resources experts say that a healthy work culture is integral to employee retention—studies suggest that a negative work culture is a top factor (more important than pay) that leads employees to quit their jobs. Other aspects of a healthy work culture may include a sense of belonging, clarity of performance expectations and behavioral standards, and respect for cultural and personal diversity. Research also affirms that employing women leaders can make your work culture healthier because women tend to behave more ethically than men—however, women who address immorality in the workplace also tend to encounter disproportionate retaliation, which can counteract that effect.)

Customers

Build trust. Mackey and Sisodia say that if you treat customers with dignity, they’ll trust you—which is necessary in the long term because businesses often have to educate customers about their own needs, and customers won’t buy into that education if they don’t trust the business. For example, a hospital isn’t likely to buy novel medical equipment from you if you have a history of selling faulty equipment—to convince them that they need this new medical equipment, you need their trust.

(Shortform note: In addition to Mackey and Sisodia’s advice to treat customers with dignity, Stephen M.R. Covey highlights other methods for building trust in The Speed of Trust: being authentic, competent, and explicit. You can apply this to your business by communicating to your customers honestly, clearly outlining what they can expect from you, delivering the results you promise, and showing your customers that you trust them, too.)

Innovate. Mackey and Sisodia say that to improve your customers’ lives, you have to offer them the best of the best. This often requires innovation—the creation of new goods and services that meet not only the needs your customers know about, but also the needs your customers don’t know they have yet.

(Shortform note: In Ten Types of Innovation, Larry Keeley, Ryan Pikkel, Brian Quinn, and Helen Waters offer several pieces of advice for ensuring your innovations are successful. These include understanding what you want to achieve and how it will change your industry, using prototypes to test and improve your innovations, and developing a disciplined approach to innovation (rather than relying on spontaneous inspiration).)

Make your marketing educational. According to the authors, good marketing teaches your customers about what they need and how you can fulfill that need—and when you make good on that promise, you reinforce their trust in you.

(Shortform note: In All Marketers Are Liars, Seth Godin argues that while good marketing educates customers about the ideas you’re attempting to spread, it doesn’t necessarily have to be truthful. He explains that customers tell themselves stories (which may not be accurate) about how your product or service is going to make them feel—and that your job as a marketer is to convince your customer that purchasing your product or service is going to fulfill an emotional need.)

Society

Be philanthropic. The authors explain that you can donate money to community nonprofits or create your own. You can also partner with local nonprofits by encouraging your employees to donate their time to them. They suggest that you set up community service opportunities during workdays—that way employees aren’t giving up their own free time by participating—and allowing employees to volunteer for projects that are personally meaningful to them, rather than assigning them to an arbitrary cause.

Learn from your enemies. Mackey and Sisodia explain that entities that are commonly considered the enemies of businesses—like competitors, social and environmental activists, and labor unions—actually count as interested parties because they genuinely care about how your business functions and whether you succeed or fail. They also have a lot to teach you—they bring issues to your attention that you wouldn’t have seen otherwise, like employee unhappiness, which you can then address.

Foster a healthy relationship with the media and government. The authors explain that a healthy relationship with the media is one where you balance traditional media (which shares updates about your business with other interested parties) and social media (where you’re in control of how your business is represented). A healthy relationship with the government is one where there’s only enough government regulation to stop businesses from harming people or the environment (and not enough to slow innovation), and businesses are taxed fairly—which, in the authors’ eyes, means a low rate, allowing them to invest more in projects that directly support society’s health.

Environment

Become environmentally conscious. The authors contend that most environmental damage is done accidentally—business owners don’t set out to purposefully harm the environment, but it happens because they don’t fully understand the consequences of their actions. For example, some argue that the AI boom has been accompanied by a hidden environmental cost. To become more environmentally conscious, educate yourself about environmental challenges that relate to your line of business.

(Shortform note: One way to become more environmentally conscious is to learn more about humanity’s collective ecological footprint—the ways humans have changed the natural world to suit their needs. According to science journalist Alan Weisman in The World Without Us, these changes include building cities and electrical infrastructure, transforming forests into farmland, and generating massive amounts of waste. With humanity’s footprint in mind, you can brainstorm ways to reduce your personal footprint, as well as that of your CCC.)

Proactively improve the environment. Mackey and Sisodia say that while minimizing the harm your business does to the environment is a good first step, you shouldn’t settle for the bare minimum—instead, you should take the initiative to fund research or innovative programs that address environmental problems.

(Shortform note: One common way for businesses to proactively improve the environment is by making ESG investments. ESG investing is a strategy that evaluates potential investment opportunities based on how they fare environmentally, socially, and/or governmentally. Environmentally sound investments may include, for example, buying stock in companies that responsibly self-manage their pollution output. Note, however, that the ability to make ESG investments has been restricted in some US states as of 2023, due to an ongoing cultural dispute about whether it’s OK for businesses to take political stances.)

Don’t focus solely on climate change. Mackey and Sisodia argue that although climate change is a real threat to the environment, it’s not the only or most important concern—and that treating it as though it is can lead you to neglect other environmental issues, like deforestation or pollution. Instead, they recommend that you strategize about how to tackle various kinds of problems.

(Shortform note: In Apocalypse Never, science writer Michael Shellenberger expands on the view that climate change is an overstated concern—he argues that climate activists misrepresent the truth when they claim that climate change poses a threat to the planet’s survival and that deforestation and non-degradable wastes (like plastic) pose a bigger threat to the environment. He also argues that since humans only degrade the environment because it’s a survival necessity in developing countries, further industrialization is the solution to environmental problems—an effort businesses would undoubtedly play a role in.)

How to Use Systems Thinking in Business