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By John Pourdehnad, Larry M. Starr, Venard Scott Koerwer, and Harry McCloskey
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| John Pourdehnad |
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| Larry M. Starr |
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| Venard Scott Koerwer |
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| Harry McCloskey |
Apart from its health ramifications, the crisis is creating serious challenges in the global supply chain. Those difficulties are, at least in part, consequences of unwise, short-sighted business decisions made over the course of decades to outsource and downsize.
The late professor Russell Ackoff of the Wharton School used to say, "An economy is about generating and distributing wealth. Capitalism is great for generating wealth and socialism is good for distributing wealth. The problem with socialism is that very little is available to distribute and the problem with capitalism is the inequitable distribution of wealth."
He also said, "The Industrial Age model of progress harvesting social and natural capital to produce financial capital is not sustainable."
The outsourcing and globalization mindset fundamentally changed the way businesses are run today. Moving manufacturing to developing countries as part of a globalization strategy started in earnest in the 1970s with the consumer electronics industry.
The popularity of outsourcing increased because of lower labor costs and because companies are judged by their profit which increases when labor costs decrease. This is reflected in desirable stock prices which invite more investment capital. This is important to think about. Labor is so much cheaper outside the U.S. that we can afford to have products such as electronics made on the other side of the planet then shipped back to the U.S., and still realize greater profits.
As noted by Congressional Quarterly, Inc., most Fortune 500 companies no longer produce their own products in-house. New international trade rules combined with technological breakthroughs such as robotics, cloud computing and software, have created intricately connected worldwide supply chains.
These have cut costs, boosted profits, and made China the world's second-largest economy, and paradoxically both a global competitor and America's biggest trading partner.
Two strategies drive profit: Generating additional revenue and cutting costs. Many organizations operate from the premise that it is much easier to cut costs than to generate additional revenue streams.
Cost cutting devolves into a tactic for short-term financial benefit. Yet, the strategy of cutting costs is often preferred by Wall Street, a fact evidenced by stock price increases for companies that outsource or downsize.
The Dow Jones Industrial Index can be used to better understand a capitalistic economy which increasingly promotes what some call "short-termism." Unfortunately, the current uncertainty, unpredictability, and massive fluctuations in the Dow Jones Index do not measure or reflect the disruption and complexity of our current global economic system.
While President Trump's approach to trade policy ― using import tariffs and other punitive measures as leverage when negotiating international agreements ― led many U.S. companies to restructure global supply chains, the necessary renegotiation and implementation will take time, particularly in the midst of a global pandemic.
What kind of problem is this?
If this is more than a health problem, what kind is it? An economic problem? A transportation problem? A political problem? It resembles a supply chain problem because we cannot get the pharmaceutical products, the hospital masks or the other goods we import from China and other countries.
About 20 percent of the retail supply chain is exposed to China, according to what Cowen analyst Oliver Chen said during an interview with CNBC on Feb. 26. Outsourced companies cannot get the parts they need to run their businesses which is, in turn, having significant impact on the stock market.
We think COVID-19 has coproduced these problems and more. Moreover, COVID-19 is a global, social problem. While epidemics and pandemics are not new phenomena, one of this magnitude in our complex global economic context is a new challenge for which there is no collective expertise.
Thinking of this as merely a health problem that can be solved by health experts is insufficient. Such an unwise approach will likely produce more unintended consequences due to the interactions among health, financial, education, and social systems, to name a few. This kind of problem has too many unknowns to deal with using a mechanistic or single industry mindset.
We have without question a "wicked problem." This label came about in 1973 to help describe a special class of problems that are emergent, dynamically complex and may not have readily available solutions.
Wicked problems are volatile, uncertain, complex and ambiguous, often difficult to recognize, and difficult or impossible to solve using past solutions because of incomplete, contradictory, and changing requirements.
There is no clear problem definition with a wicked problem due to interdependencies and difficulty with discerning cause and effect relationships. Thus, the solution cannot be fully developed until after the formulation of the complex problem.
We think the best label for COVID-19 is a complex adaptive systems problem. Because the health system is interconnected with many other complex systems, we cannot approach this problem with the same thinking that enabled it. Solutions for this are not right or wrong, or true or false, but better or worse.
Solutions are emergent; there are no experts who can solve this type of problem on their own. Every complex, wicked or messy problem is essentially novel and unique. Every solution is a "one shot operation." No two wicked problems are alike. Though they may share elements of symptoms confounding those who attempt to solve them, wicked problems have no given alternative solutions.
To better comprehend the present situation, an iceberg metaphor could help. We see the iceberg's tip ― the increasing spread of the virus which is presently disrupting health systems and financial systems.
But below the surface are emerging and interacting patterns of disruption in the education system, labor and work systems, social and communication systems, and more. This is because we have been operating for more than 50 years in a context of complexity, unparalleled interconnectivity, interdependence, radical innovation and transformation, and unanticipated new structures with unexpected new properties enabled by the technology, all of which are emergent across the planet.
John Pourdehnad, Ph.D., is visiting assistant professor. Larry M. Starr, Ph.D., is director of the Ph.D. in Complex Systems Leadership program and the Doctor of Management (DMgt) in Strategic Leadership program at Thomas Jefferson University. Venard Scott Koerwer, EdD, is vice president for Strategy and Planning at the Geisinger Commonwealth School of Medicine. Harry McCloskey, DBA, is vice president/hospital administrator at Jefferson Health Northeast. For more information, contact Lawrence.Starr@Jefferson.edu.
