Business and Global Society

HULT INTERNATIONAL BUSINESS SCHOOL

MBA Class 2: Socio- Economic Systems:
Stakeholders, Institutions and Governance
Professor Joanne Lawrence

Housekeeping

Please include your cohort, team number when

writing.

CASES, ISSUES: Instructions posted.

Office Hours: After each class, in the faculty

offices. E.g., 11:30-12:15; 4:00-4:45 or by appt.

Teaching Assistants:
Victor Briceno: vbriceno2015@alumni.hult.edu
Chris Armstrong: carmstrong2015@alumni.hult.edu

Tips

Do all the readings before starting assignments.

Read the instructions so you know what is expected and

the rubric so you know how it will be evaluated.

When looking at issues, unpack them: cascade issues,

starting with the largest. Makes it easier to analyze,
explain.

How you approach analysis, issues as important as what

you recommend.
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Final project: Creating an Integrated

System to Create Shared Value
Due the last class; it is a paper and presentation.
Steps relate to the course; e.g, :

Define the Challenge (SDGs)

Identify the industry, organizations that make up the
system needed to address it.
Develop a framework, process using the course tools
Clarify the potential impact
Identify next steps
More detailed instructions posted this week.

Session 1:Takeaways

Globalization: evolution, pros, cons, issues.

Purpose of Business: solutions, not just profits

Ethics: how you do things ; moral absolutism vs.

relativism

Leadership: doing the right things..

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Personal Tests to Avoid

Rationalisation

The Legal Test

The Mirror Test

The Folks Back Home Test

The Newspaper Headline Test

The Precedent Test

The Shoe on the Other Foot Test

*convincing oneself an act is defensible when it really is
just an easy way out or serves ones own purposes*
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International Standards of
Conduct
Human Rights
Labour
Environment
Anti Corruption
Goal: Eliminate Poverty
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Self-Interest as Positive Driver.

It would be self-defeating (and therefore
highly unlikely) for firms to sell unsafe
food and drugs, fraudulent securities and
shoddy buildings. It is in the self-interest
of every businessman to have a reputation
for honest dealings and a quality
product
Alan Greenspan, Chair of the US Federal Reserve, 1987-2006,
writing in 1963

79% agree that we now live in a Reputation Economy, a marketplace

where who you are matters more than what you produce
(Reputation Institute 2013)

In the

World Economic Forum Annual Meeting: Jan 20-23, 2016

For over four decades, the World Economic Forums mission
improving the state of the world has driven the design and
development of the Annual Meeting programme.
The Annual Meeting in Davos-Klosters remains the foremost
creative force for engaging the worlds top leaders in
collaborative activities focused on shaping the global, regional
and industry agendas. www.weforum.org
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Session 2: Socio-Economic
Systems Study Questions:

Why do some societies flourish and others decline?

What role do global, national institutions play in the success

of a countrys development?

Why does path dependent matter when we talk about
institutional development?

What is systems thinking? Why would we include it in a
course on Business and Society?

What is governance, and who and what is a stakeholder?

Case: India 2014

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Why are some countries rich,

others poor?
The root cause of economic divergence
Between rich and poor countries is that their
institutions vary in their levels of efficiency. These
differences lead to different decisions being made. A
societys Institutions and Organizations are
Interdependent.
From Victor Abeid in Institutions, Institutional Change and Economic Performance

WHAT ARE EXAMPLES OF INSTITUTIONS and

THEIR ROLES IN YOUR COUNTRY?
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Role of Government
Institutions

Protect Rights (Land, labor , knowledge and

human)

Regulate transactions costs

Establish rules (weights and measures)

Promote Innovation

Provide incentives

From Victor Abeid in Institutions, Institutional Change and Economic Performance

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Institutions as Efficient:
Assumptions

Costless transactions

Create correct mental models

Collect and share information

Maximize profits

----From Victor Abeid in Institutions, Institutional Change and Economic

Performance

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Institutions as Path Dependent:

Fixed Mental Models?
Once committed to a path, very hard to change:
High costs of change
Learning effects
Coordinating
Adaptive Expectations
If the institutions are the rules, and
organizations are the teams, how can the
teams win? How do they work within the rules
to change them?
From Victor Abeid in INSTITUTIONS, INSTITUTIONAL CHANGE, and Economic Performance

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Do we have an overly simplistic

mental model?

-- Sternman, Systems Dynamics

Systems and systems thinking

What is Systems Thinking?

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Systems and Systems Thinking

a grouping of parts that operate together for a common
purpose.
- Jay Forrester, Professor Emeritus of
Management.

Management in System Dynamics at the MIT Sloan School of

the

ability to see the world as a complex system, in

which we understand that you cant do just one thing
and that everything is connected to everything else
Systems Dynamics is fundamentally interdisciplinary
- Sternman, in Systems Dynamics Modeling

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Systems are All

Encompassing.
Systems are everywhere: In
industry systems actors
position for and act out
interests through power and
leverage.

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Systems are inherently multi-faceted

Legal & Ethical

STEEPLE

System Components
Systems dynamics analyzes how feedback
processes in a system generate or alter
patterns of behavior. The system may
include decision-making procedures, work
and process flows, attitudes and
perceptions, and product quality.

Marshall and Brown, in The Strategy of Sustainability

What are some of the more specific

components of dynamic systems?
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Systems dynamics: Complexity

characteristics
Constantly changing
Tightly coupled
Governed by feedback
Non-linear
History-dependent
Self-organizing
Adaptive
Trade-offs
Counter-intuitive
Policy-resistant

Time-delayed
Stocks and flows
Fundamental attribution
errors
Leverage points
Autocatalytic loops

Sternman, in Systems Dynamics Modeling

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System feature: Delays

Why does
this happen?

System feature: Causality

Peter Senge: (5 min)

http://www.mutualresponsibility.org/science/wha
t-is-systems-thinking-peter-senge-explains-syst
ems-thinking-approach-and-principles

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Characteristics of Systems
Thinking

1.

A very deep and persistent commitment to real learning.

2.

Be prepared to be wrong. If it was obvious..wed be already

doing it. So Im part of the problem: . If Im not prepared to
challenge my own mental models, then the likelihood of finding
non-obvious areas of leverage are very low.

3.

The need to triangulate. You need to get different people,

from different points of view, who are seeing different
parts of the system to come together and collectively start
to see something that individually none of them see.

Peter Senge, Systems Scientist , Senior Lecturer and Director of the Center for Organization Learning at MIT,

Discipline , speaking to Mutual Responsibility.org, 2013

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Systems Thinking and Meddling

When you are confronted by any complex social

system, ..you cannot just step in and set about fixing
with much hope of helping.

This realization is one of the sore discouragements of

our century . Meddle with one part of a complex system
from the outside without the almost certain risk of
setting off disastrous events that you hadnt counted on
in other, remote parts. If you want to fix something you
are first obliged to understand . . . the whole
system. . . . Intervening is a way of causing trouble
. . -- Lewis Thomas On Meddling

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The uncomfortable reality: A new

mental model

-- Sternman, Systems Dynamics

Systems Thinking as a Process

1. DEFINE THE PROBLEM, OBJECTIVE
2. IDENTIFY THE VARIABLES (e.g., STAKEHOLDERS)
3. DESCRIBE HOW THE VARIABLES BEHAVE OVER TIME
4. IDENTIFY THE LINKS BETWEEN THE VARIABLES
5. IDENTIFY THE GAPS IN THE SYSTEM
6. IDENTIFY THE LEVERAGE POINTS
7. DETERMINE THE ACTIONS STEPS
8. TEST THE MODEL
Marshall and Brown, The Strategy of Sustainability: A Systems Perspective,
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From Sternman, Systems Dynamics

System feature: Interaction effects

Causal loop diagrams are used to depict the complex relationships
among system variables and allow analysts to test competing perspectives

Overall Quality of
Life

Time Dedicated to
Drinking

Desire / Need to
Relax

Alcohol Use

Does alcohol use

dampen stress or
magnify it?

Why does it matter?

The most complex systems are so-called
socio-technical systems with many
STEEPLE stakeholders.

https://www.youtube.com/watch?v=nd3teNgUq8E 9m

Exercise: The Blackout of 2003

Who/what comprised the system?

What seemed to cause the blackout?
What were some of the underlying issues?
Can you sketch a causal loop diagram
Illustrating some of the variables within the system and
their impact?
What might you do to prevent it in the future?
https://www.youtube.com/watch?v=nd3teNgUq8E 9m
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BREAK

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What does this imply?

A fundamental principle of system
dynamics says that the structure of
the system gives rise to its
behavior..
-- From Sterman, Systems Dynamics Modeling

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Case Study: India 2014:

Challenges of Governance

Why did India grow so slowly? Has its

political system helped or hindered the
countrys growth process? How?

What has been the governments

relationship to business? What path do
you think its govt institutions started on,
and where are they headed?

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For e.g., Policies and Effect

What are examples of politically-driven policies

and their economic effect?

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Situation/Context : Timeline

Prior to 1947

1947- 1991
Permit

1991

British influence
Planned Economy and
Raj

Balance of payments crisis; new

finance minister: IMF,
World Bank, Washington
Consensus
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Economic Development and the Washington

Consensus: A Systems Approach?
INTERNAL STABILITY
Fiscal Discipline
Tax reform
Interest Rate Liberalization
IMPROVE PRODUCTIVITY
Secure Property Rights
Deregulation and Privitization
Public spending (health, education)
EXTERNAL STABILITY
Competitive Exchange Rates
Remove Trade barriers (Trade Liberalization)
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1993 Onwards

1993-4

Growth rate surges from 1% to more than 7%

2004 Policies, laws: Rights to Information, Children,

Rural Employment Act

2007

2008

2014:
Still ranked 134 on Doing Business list:
What are the barriers to business?

Five Year Plan Targets 10% growth

India-US Nuclear Pact; Stimulus Package
why?

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Indias System: 2014 Barriers to Business

Complex licensing
Foreign Direct Investment restrictions
Inflation (10%; food 13%)
Infrastructure
Energy
Education and Healthcare
Food Security
Regional disparities and instability,
violence
Sector Diversification

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India 2014: Business Sectors

Agricultural : most people employed, 14% to GDP;

slowest growth (2% )

Service: 25% employed; 60% GDP (e.g., GE)

Manufacturing: 33% of GDP: labor as competitive

advantage.

Is it possible for India to achieve double digit GDP

growth and inclusive development? How? How can their
challenges/barriers be addressed as an entire system?

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System Variables Driving Indias Economy

Indias economic success

Energy availability and cost

Relations with China

Waste / pollution

Relations with Pakistan

Availability of low-cost labor and

other resources

Popular support for globalization

Labor conditions / empowerment
and economic liberalization

Standard of living

Environmental damage

Public health

Current government policies

Educational levels

Labor productivity

Quality of international relations

broadly

Foreign direct investment

FDI policy & regulations

Social stability

Globalization and economic

liberalization

Debrief: Creating a System Diagram for Chinas Economy

Examples:

Indias Economic
Success
Globalization
and
Liberalization
Foreign
Popular Support
Direct
Environmental
for Globalization
Investment
Damage
and Liberalization
Social
Labor Productivity
Stability
Pollution/Was
te

Government
Policies

Standard of
Living

Education
Public
Health

?
Availability of LowCost Labor and
Resources
Economic and
Military
Competition with
Other Countries

Takeaways?

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