IBM report: The world's 4 trillion dollar challenge

Using a system-of-systems approach to build a smarter planet

IBM is urging government and corporate organizations to adopt a systemic innovation approach to solve wicked problems of waste. The starting point for the company’s report, The world’s 4 trillion dollar challenge, are a number of horrific statistics. These statistics point to waste that could be cleaned up if organizations collaborated for the greater good — and their own profit — instead of working in isolated silos.

Some of the statistics:

• More than 50 percent of the world’s food supply never makes it to consumers.
• Nearly 35 percent of all the water used each year is frivoled away by poor agricultural practices.
• The United States alone is wasting approximately 2.3 billion barrels of crude oil each year on road congestion, poor routing and other traffic issues. That squandered fuel could satisfy all the oil needs of Germany and the Netherlands for two years. In addition to direct costs, this inefficiency also has a ripple effect on oil prices, consumer discretionary spending, pollution and even the amount of talent available in the labor market.
• One quarter of the electricity generated each year is never consumed.
• Our planet’s system of systems carries inefficiencies totaling nearly US$15 trillion, or 28 percent of worldwide GDP

Why the persistent waste? As the report says, “we have optimized the way the world works within silos, with little regard for how the processes and systems that drive our planet interrelate. We’ve tuned these processes to generate specific outcomes for individual communities, nations, enterprises and value chains.”

In other words, every company, community and government organization has its own systems, which keeps the individual organizations sustainable. However, when you look at these systems from a higher level, it’s easy to see organizational systems are so busy competing with each other that they fail to notice the efficiencies they could enjoy if they cooperated more. Systems alone are no longer good enough; we need systems of systems.

The chief obstacle, identified by the IBM report, is mindset – moving from short-sighted to long-term perspectives, from siloed to system-of-systems decision making. That thinking is hardened in CEO offices and boardrooms where leadership is ruthlessly focused on short term ROI for shareholders.

Fortunately, that obstacle is eroding as it becomes clear to business leaders just how interdependent systems and people are. The report points vaguely to globalization, economic, social and environmental pressures nudging boardrooms in new directions but stops short of giving credit to actual people for applying that pressure. Social pressure is a sterilized way of saying employees, customers and other stakeholders in each organization who are unhappy with business as usual. Perhaps the Occupy movement's call for change has been heard.

The report continues by pointing to technological advances that can support increased integration of disparate systems. Embedded sensors and their associated monitoring systems hold the promise of automating most of the processes necessary for inter-organizational cooperation.

“Through a combination of powerful systems and advanced analytics, our processes are becoming more intelligent. We now have the capability to turn the data produced through greater instrumentation and interconnectivity into smarter actions.”

That is, once boardrooms agree to cooperate and the rules for that cooperation are embedded in the new integrated systems, complex operations can be handled most effectively by smart objects and systems.

The report also provides a few short scenarios illustrating how such systems of systems might work in the future. For instance, the authors talk about farmers cooperating with nearby computer chip manufacturers to share water. Using sophisticated monitoring and communication systems, water can be routed from use in chip production processes to crop irrigation with a minimal amount of waste.

Moving from nice idea to reality, however, requires a process itself so the authors helpfully oblige with a step by step recipe for starting your own systemic innovation thinking:

1. Determine the most relevant systems and interrelationships

2. Identify and quantify inefficiencies

3. Analyze root causes and key improvement levers

4. Determine benefits

5. Develop a change approach.

While the technology and systems-thinking approach promises so much to be gained in recapturing wasted resources in redundant silo systems, there is, of course, always a source of resistance. The report does not ignore this resistance. As the authors indicate, waste persists because “Someone is benefiting from the inefficiencies.”