A Masterclass in Systems Change

One of the striking characteristics of companies seriously committed to tackling major environmental and societal issues is how today they talk about driving for system change.

The phrase has entered the corporate lexicon in the last few years. It is a term often used, but a concept that remains difficult to grasp. Brunswick Senior Partner Lucy Parker spoke with Jeremy Oppenheim, Founder of Systemiq, a B Corp that works to mobilize systems change to build more sustainable societies. Their conversation explores what systems change means in practice and why business leaders need to get actively involved.

What does it actually mean for a business to be involved in systems change?

First of all, there’s a very complicated question: What do we mean by “the system”? In our world at Systemiq, we think about specific systems: the energy system, the mobility system, the nature and land-use system—with food a huge part of that—the finance system, the built-environment system, the health system and so on. The systems by which we produce, consume and innovate the products and services at the heart of our society. That’s where we focus.

We think of systems as ways of organizing what are not just economic activities, but also social, cultural, technological and political processes, to achieve a set of private and public outcomes.

So, although it can sound a bit boring and definitional, it’s worth being very clear what we mean as a system. Then, the work we do is essentially within a system which has been designed to—or rather, it’s typically not designed to but has evolved to—achieve a certain set of outcomes. But then, over time, that system begins to underperform—and becomes riddled with contradictions.

Can you paint me a picture of that in practice?

The food system, which has evolved, in part by design, to produce as much food as cheaply as possible, is a good example. That was the right imperative in the 1970s and 1980s—and it has been hugely successful, feeding over 8 billion people. But the food system is also a victim of its own success.  Today, that food system is beset with $10 trillion worth of contradictions—from its negative impacts on health all the way through to its harmful consequences for climate and environment. Throw on top challenging debates about “food security” in the context of a global food system and you get into a complex set of trade-offs.

As a result, the key “systemically important” players, both private and public, now have to grapple with these contradictions and trade-offs, whether it’s to improve overall system performance, improve market design or renew their own license to operate.

So the key is that it’s not just a business, but the system itself that is underperforming?

Yes. Those contradictions are where the existing system is generating a series of costs that were previously hidden but have now become sufficiently visible and large that they bring into question whether the system is functioning well.

System change happens when three things occur: the costs of sticking with the current system become too high; when the potential benefits of switching systems become sufficiently tangible to enough actors; and when the politics of protecting the existing system weaken. The contradictions simply become too large, the vested interests that would normally protect the existing system are perceived as a losing battle by enough players. That tips the political and economic calculus, accelerating the shift to new power structures and new economic models—a shift perceived in hindsight to be “inevitable.”

Many business leaders believe “the system” isn’t their problem and that their job is just to run their business. Why do businesses need to get involved in systems change?

Because we’re at a point today where many of our key economic systems are unstable. If you just sit there as a business leader and say, “I’m indifferent to the way in which this system is likely to evolve,” I think you’re asleep at the wheel. Whether you’re an investor, a policymaker, a business leader—you’re asleep at the wheel. You have a responsibility, not just to understand the different pathways the system could take, but also to think through how those different pathways might affect your business.

There are now more and more opportunities for businesses to participate as “system shapers.” If you walk into this territory as a business leader with the point of view that you can be part of the solution and you can help to resolve some of these contradictions, then there’s huge potential to create value.

In fact, big businesses are an integral part of these systems, aren’t they? The system is not just something around and outside them.

That’s true. It’s also true that even the biggest firms are not big enough to change those systems on their own. This new leadership mindset starts with the recognition that this change is happening around us. The externalities are now so large that they dominate the underlying characteristics of how the market would otherwise operate. If the externalities are small—take carbon, as an example—you could do a little bit of regulation, put a $20-30 price on carbon and the current system could continue to operate. But when the externalities become very large you can no longer just price them; you actually have to restructure the whole system. And this is exactly what’s happening.

The power sector in particular is at the epicenter of this. The IEA and the Energy Transitions Commission will tell you that the system is about at a tipping point, in terms of capital allocation, of the speed and scale of technological change; fossil-based versus clean energy, plant and equipment and so on. It’s essentially a transformation. But it’s not neat and linear shifting from one thing to another. It’s messy and complicated—one step forward and half a step backwards, with inherent complexities. But it’s under way; it’s happening. And it’s spilling over into the whole economy.

Many companies remain focused on continuous incremental improvements, whereas your understanding of systems change is taking the opportunity for fundamental system redesign.

We are at a tremendous moment which is opening up the possibility of profound, not just incremental, systems change. Because more ambitious leaders, across both private and public sectors, recognize that this is a game of radical shifts, they are trying to figure out how to participate in and act as system shapers. The less ambitious, more incremental actors inevitably end up being system takers, either with no voice or playing a “last man standing” defense—that can be profitable in the short term. Whether you are a more confident player and believe that you can shape a positive outcome or you’re a somewhat more cautious player who doesn’t want this to just happen to you, you can’t succeed without learning the new leadership moves required to get onto the system change dance floor.

In one sense, this is just a more holistic exploration of strategy—understanding the deep forces shaping the markets in which their business operates. But it’s not just “strategy as usual,” given the radically disruptive set of possibilities that open up as systems change. 

Working on systems change is frustrating; the players don’t align easily, things don’t move fast enough. How do you think about those problems?

There are problems at every level, certainly. The historical bias and behavior and mindset of leaders as they’ve grown up is to focus on the competitive differences rather than on what they have in common, not least with their industry peers. So, it is a staggeringly big and difficult mindset change to embrace the idea that you have got to work collectively.

It was hard enough when industry peers were collaborating mainly to create more technical standards and protocols. But we’re now asking people to work collectively on a reset of absolutely everything. From how the markets will work, to the policies, to the investment strategies, to the way that we measure what’s good and what’s bad. We’re asking people—in a sense, requiring people—to participate in collective processes which are resetting the entirety of their game.

This is an extraordinary shift. So what could go wrong? Everything! Because it’s so hard. It’s hard to do this work in a way that is constantly building trust and substantive alignment, and in a way that doesn’t create unworkable winner and loser effects. However, there is progress, though obviously it’s too slow. But I don’t see a single one of the businesses we work with saying: “I’m not playing; I’m out.” They say that they’re fatigued with this coalition stuff, that it takes time, that there’s too much duplication of effort—to which they often unconsciously contribute.

What we’re starting to see is a flight to quality: What they want is to know that the collective platform is targeting a real problem, where the line between competitive and collective conduct is clear, where there are clear milestones and time-bound commitments, and where the initiatives have benefits for all the participating actors, rather than creating major asymmetric effects.

Our job is that as we develop areas for collective action, we do it in a way that helps it to work for companies—so that it becomes intrinsic to how they see what good strategy looks like; that it’s integral to their view of how to lead a business well.

The Key to Effective Coalitions

A principal mechanism for systems change is working in coalitions. They now come in many varieties and Systemiq works with many different types, so we asked Jeremy Oppenheim for his point of view on what makes for an effective coalition.

What do you make of the proliferation of coalitions arising these days?

Coalitions have emerged in different forms. Some of them are obviously industry collaboration. In the mining sector, the International Council on Mining and Metals (ICMM), wonderfully led by Rohitesh Dhawan, is a very interesting example of an industry cooperating horizontally on certain pre-competitive issues. They have to deal with trying to adjust to a new set of expectations out there, but without a consistent global or even national regulatory framework. Yet they have investors and customers who care about how these companies perform in ways that go beyond just the short-term P&L. They’re trying to work together to shape some voluntary governance for themselves that establishes what they want to stand for and how to act in a way that creates a collective benefit. The fact that the ICMM have got all their members signed up to move towards a nature-positive proposition is an example of how an industry can step up to make tangible progress.

If coming together around a shared challenge is where it starts, what makes for an effective coalition?

There’s a tangible benefit they can get after and one that they cannot deliver on their own. There’s a way in which they each can see themselves adjusting what they’re doing and being able to deliver on that benefit so it’s not an empty promise. And they can learn from each other. It matters too that it doesn’t change the dynamics and competitive positioning of the players in the market; that’s important. You put enough of these things together and you get a willingness to act collectively.

It’s encouraging that a lot of effective work is deep down in the nitty-gritty of what actually needs to change operationally.

Yes. There are coalitions working in a lot more technical areas that may not be so visible in the public debate. So go into the fertilizer sector and you’ll see the International Fertilizer Association, the IFA, working on very detailed technical standards that are designed to address concerns about the use of fertilizers in the natural environment. That work then feeds into interactions with regulators and the like. So don’t imagine that the work is just about big public announcements. There’s a lot of detailed effort that takes place behind the scenes that is really valuable.

Or, for example, it could be about packaging where you can see an industry committing to shift to a particular agreed set of labeling standards. You build the basis upon which there can be greater trust from the public that the industry is actually moving together to work on a challenge. And by doing that, you also begin to create some economies of scale for suppliers. When they see there’s a green standard on this form of recyclable or bio-plastic, then the potential for those suppliers to scale up is significant and their ability to get financing from banks and investors also goes up.

Every change is an important change. But would you agree that progress is often only incremental in the face of urgent need?

You could say that what I’m describing here has been going on for decades. The idea that industries come together to work on standards and metrics, safety issues and so on, that’s been going on for a very long time.

What’s so interesting to me is that there are now a growing number of organizations that are much more urgent about change. Take the Fashion Pact, which is working to improve the environmental performance of the end-to-end global fashion supply chain. Or a new collective, the International Sustainable Forestry Coalition, whose mission is to figure out how the forest sector can make the best contribution to building a sustainable bio-based economy. 

Jon Miller and I wrote about this trend in The Activist Leader—the emergence of “activist coalitions.” Is that what you’re seeing too?

Yes, and what’s also new is the extent to which the best collectives are looking to align industry interests with wider societal interests, in a way that is more transparent and open to public scrutiny.

However, while they’re speeding up, even the most ambitious collectives find it hard to move at the pace which science tells us is needed to tackle the climate and nature challenges.

Nevertheless, they’re consciously taking an activist stance on how the industry can contribute to the big challenges of our time—identifying transformation pathways and solutions, and developing new ways of measuring and assessing the performance of the industry. They enable their members to be more courageous leaders, not least given the predictable backlash that they will experience from some quarters.

This model also provides comfort to investors about good, forward-looking risk management. It strengthens the capacity of policymakers to act and regulate where voluntary action is not enough. And hopefully, it can build a new social contract between industry and the general public. What you and Jon call “activist coalitions” will play a mission-critical role in accelerating the system changes needed in the world. 

Read our accompanying piece, “An Activist Mindset in Systems Transformation.”