One of the most interesting things about organisations is that they affect the environment they are in, and the environment affects them whether they know it or not. This co-evolution, is not just two systems, but a huge number of interconnected complex systems. I’ll stick to discussing a smaller number of interactions for obvious reasons.
New Strategies of an Economic Hit Man
To discuss this I’ll use the examples from a post called ‘New Strategies of an Economic Hit Man” by John Perkins as it describes various strategies – or lack of – for changing the environment that an organisation operates in. Ideally designed to work in the organisations favour. I’ll also use ideas from the Viable Systems Model. This should make the ideas clearer, and show why an approach that models this behaviour is useful. An understanding of your environment is not something you hope to have, if you want to stay viable.
Reality is what you think it is
I’ll start by suggesting the reality is what you think it is. If someone can change what you think reality is, then that is what it is. So by defining success, or desirability, or the right way to do something then it becomes reality. Part of changing your environment may involve changing what people think as much as changing their material reality.
The article gives examples of The World Bank, Ford, Nike and the USA/Iran relationship, so I’ll cover each of these.
#1 The World Bank
Firstly the World Bank’s strategy is described, and it’s bleak. It’s job is to
- get developing countries with natural resources to accept loans for infrastructure to be build by western engineering and construction companies
- if the country struggled with the loans (if they did not become developed) then the IMF would restructure the loan
- This restructuring would involve the country selling it’s resources to the corporations
We can use ‘The purpose of a system is what it does‘ to infer the strategy of the World Bank and developed nations here.
- Getting countries to invest in infrastructure supplied by corporations from developed nations. I’ll call this Goal 1.
- This is done by persuading the developing country that development happens by having roads, airports and infrastructure. By creating a top down plan of how development happens, in a simple non-complex way, Goal 1 is attained. It doesn’t matter if it works, in fact Goal 2 and 3 require that it doesn’t. This is a High Modernist approach to development as discussed in Seeing Like a State, and is recognised as failing, but because it is a legible and much simplified it appeals to humans looking for certainly, and an explanation and understanding of the future.
- This is how the World Bank changes the their environment to one that is suited to their goals.
- Get the countries to take out loans to get the loan interest repayments. Goal 2.
- This needs the infrastructure provided in Goal 1 to fail to produce the predicted economic growth.
- Get the natural resources of the country as a demand of restructuring the loans. Goal 3.
- The purpose of a system is what it does. POSIWD.
We can model this with the VSM, using just the they systems that add value, to see if it is potentially Viable. We can see that the plans would not create a viable system.
The viability of the developing country was never a concern of the World Bank. All of the infrastructure projects are required for a developed economy. A postroom, admin staff, car park and canteen are vital for a business, but they do not exchange value with their environment and generate wealth.
Infrastructure projects are similar, roads and airports do not exchange value with the environment, and so are can only support viable systems.
They are a Potekmin Developed Economy, they just look like the real thing. We can use the VSM to show that the infrastructure would not make the country economically viable. The infrastructure is a by product of economic viability. This viability often comes from a country being able to exploit it’s own natural resources. That would not allow the World Banks Goal 3 to be attained.
Clearly the VSM shows that the developments are not System1’s that exchange value with the environment, so are not viable. This could have been known in advance, and probably was.
In this case the environment of developed countries was altered to the benefit of developed countries, banks and corporations, at the expense of developing countries.
After implementing Taylorism / scientific management, Ford is often used as a byword for old school management failure. I’ll argue that strategically, they deliberately changed their environment to make the company more viable. They did this by turning their staff into potential customers, this changed the environment they were in, for an entire class of Americans.
Ford’s reality was that his Taylorist production approach created a massive turnover of staff. He also needed a much larger market to sell the increasing numbers of cars he could produce.
To do this he doubled the wages of his staff. This increased retention, and also created customers for his business. He changed the enviromnent his business was working in, so that it suited his business model. Ford would have struggled to make or sell 308,000 Model Ts in 1914 if he hadn’t have done both of these things.
He changed his environment by creating a well off working class who were consumers for his product, and allowed continued success for both his company and American manufacturing.
#3 Nike, Adidas etc
Nike, Adidas and other high end brands make expensive sports clothing, but outsource the manufacture to the cheapest tolerable manufacturer. This lowers their costs, maximising the profit margins they can get. They don’t however pay enough to create customers from the people who manufacture their shoes. Someone else need to provide employment and income here.
They sponsor athletes, sporting events, and pay for product placement that makes their products desirable in their environment. They pay to change the perception of reality. Unlike Ford they do nothing to change the economic reality of their customers. In the country where their products are manufactured they destroy opportunities for economic growth that they would be able to benefit from.
The long term viability of these High end brands concerns their ability to maintain the perception that their products are desirable, and the ability of other organisations to ensure that customers have sufficient money. They are connected to their customers ability to buy their product, but do not help to create potential customers.
Without viable high end customers perceptions the organisations may use their perceived high worth status in reputation mining via low cost suppliers. But they are no longer a viable high worth organisation.
The three examples show how an organisation needs to exist in a viable environment. In the case of the Developing Nations, Developed Nations acted to create large scale government customers for it’s Corporations, and then acted to get access to resources to help it stay viable in markets that already existed. The environment, in this case entire countries, were used without improvement or development.
Ford on the other hand actively changed and improved his environment to make his product more viable by creating customers, fuelling economic growth. Of course this was based on consumption, and petrochemicals, so there are downsides here.
The evonomics article has some suggestions for how we can improve our situation. I’d like to argue for the use of the Viable Systems Modelling to understand how proposed changes may create viability.
If we cannot see how viability is created by building infrastructure, or by manufacturing high value items at the lowest prices outside of the intended market then this should inform us as to how desirable these things are, and gives an idea of the strategy of the organisation pushing for the changes.