System Level Challenges in Modern Management

What system level challenges are relevant for modern management at this point in time? The first system level challenge that is relevant for modern management at this point in time is concerned with dealing to the effect of climate change. The devastation caused by Hurricane Sandy lead to the removal of public resistance to the effects of the ongoing climate change. Previously, the topic of climate change had for long been treated as a secondary issue left only to environmentalists, but after the occurrence of Sandy, climate change is now being treated as an economic issue. It has been established that climate change is being caused by greenhouse gas (GHG) emissions, hence to tackle climate change; the level GHG emissions must significantly be reduced. The proactive measures of tackling climate change should be devised as opposed to reactive measures. Although profit making is the main goal of the business, we must change how we do business. Allocating a certain percentage of their profits for the purpose of tackling climate change is an expensive, but a required urgently. Hence, despite the challenges in the business world, climate math is a necessity. The climate activist, Bill McKibben suggests three fundamental climate numbers that should be heeded by all of us:

The world’s scientists have indicated that that the increases in global temperature from pre-industrial times not exceed 2 0C to avoid the worst of climate change.

To keep the global warming below this 2 0C limit, the world can only emit an additional 565 gigatons of CO2.

Unfortunately, the fossil fuel industry contains 2,795 gigatons of CO2 equivalent in reserve, or 5 times the “safe” amount to emit.

The first two climate numbers guides the regulations and long term goals for companies and countries. However, a challenge emerges with the use of these numbers, more often than not; these numbers have to be changed. The McKinsey’s Global Institute has stated that there are two global objectives that should guide on how these numbers should be changed: Stabilizing atmospheric GCGs and maintaining economic growth. The first institute looked at the required amount of carbon needed to drive the world economy. It stated that every ton of CO2 that we emit after combusting natural gas, oil or coal to get light creates an economic value. According to McKinsey’s calculations, the world reaps $ 740 of GDP per every ton of CO2 produced. In order to attain the 2 0C targets for warming, the GDP amount that we reap out of every ton of CO2 must rise, and must rise fast enough – by tenfold by 2050; however, this is quicker than any productivity that has even risen in any of our economy. On the same issue, PriceWatewrHouseCoopers (PwC) added that time is our economy, hence to attain the 2-degree warming target, which is almost unattainable; a significant increase in the pace of change is required.

The third McKibben’s number estimates global fossil fuel reserves measured in gigaton of CO2. About this number, the International Energy Agency (IEA) report 2012 stated that the problem of its use is that no more than a third of proven fossil fuel reserves can be consumed before 2050 if the world will realize the 2 0C target, unless the carbon capture and storage technology is extensively deployed.

According to the Intergovernmental Panel on Climate Change (IPCC) report 2013-14, the current unprecedented rate of climate change is as a result of human activities. However, it remains uncertain of how these activities contribute to this change. For instance, there is ambiguity in determining the exact temperature change magnitude that results from specific additional quantities of GCG emitted, or how these emissions and temperature changes affects specific kinds of weather- from floods to drought to hurricanes. These present the system level challenges are relevant for modern management at this point in time. However, the global shift towards clean technology is a bold step towards addressing climate change.

The second system level challenge that is relevant for modern management presently is concerned with the scarcity of resources, hence becoming more expensive to obtain. As countries become richer, people wants more of everything – buildings, cars, insurance, food, vacations, banking, and many more. For instance, China’s economy represent about 10% of the global GDP, hence, it is expected that it will demand about 10% of the global resources, driving the commodity prices up.

Another system level challenge is concerned with the allocation of resources. The various ideas generated in business compete for resources. Hence, every business decision must prove worthy itself in terms of returns on investment. However, there is no perfect information or guarantee payback for that all business decisions despite being prudent. For instance, investments in marketing, research and development (R&D) or new market entry decisions are usually made without exactly knowing what their financial returns will be.

Finally, the last system level challenge is proper utilization of capitalism. The various macro-level problems facing the current capitalist system include failure of the economists to value the externalities, those inputs into the economy, and outputs or impacts from the economy; a systematic bias against the future through use of discount rates; use of flawed metrics, especially in the determination of GDP, which takes stock of wrong thing; the historic and widening gap between the rich and the poor; and inability to deal with large and systemic long term threats to the society and the economies.