Platt Perspective on Business and Technology

Macroeconomics and the fallacy of a pure meritocracy system – 5: adding in supply chain and related systems 1

Posted in macroeconomics by Timothy Platt on September 24, 2012

This is my fifth posting to a series that can perhaps best be seen as addressing the longer term and macroeconomic impact of business ethics, and of what happens when they fail (see Macroeconomics and Business, postings 108 and loosely following for parts 1-4.) And so far I have focused in this series within the narrow range of influence options that has traditionally been seen as most available in developing effective but less predatory and long-term deleterious business behavior:

• Outside influencers coming from regulatory law, and
• Business practice influencers coming from within the individual business as managers and would-be managers are brought in, groomed and trained, and advanced to positions of greater decision making authority.

One of the consequences of our increasing connectedness, and

• On an individual basis through ubiquitous computing and communications and social media, and
• On an organizational basis through our ever more interconnected and interdependent supply chains and business ecosystems

is that new channels and mechanisms of influence and control, and of standards setting for them have become available.

There have always been at least tacit opportunity for third forms of guiding and even governing influence here, and I cite licensing certification requirements, and the influence of trade and other organizational groups too. But if the law is reactive and challenged to keep up with changes in technology and business practice and their implications, these voices are even less effective in approaching real-time effectiveness let alone moving ahead of the curve to proactively prevent new manifestations of misfeasance and malfeasance. They are reactive and they primarily react on a special-case by special-case basis.

But I find myself coming back to the issues of enlightened self-interest as I have used this term throughout this series, and I find myself coming to consider the potential business practice-influencing role of supply chain business partners. And I state here that this influencer holds potential for more effectively and certainly more proactively responding to the threat of bad in business practice than either regulatory law per se, or a business’ internal mechanisms and certainly in periods of very rapid change.

• The law is always developing responses to the last crisis and even to the one before that while unaware of and unable to prepare for the crisis to come, or even to that already imminently pending. And in periods of rapid change this gap between need and action can be profound and ongoing.
• Internal organizational controls can only work if the senior executives and owners of the businesses in question themselves prefer and follow ethical business standards. So while this mechanism can make a real difference for much of any business sector or industry and for most businesses in them, it cannot prevent exceptions. And I add that the impact of a few select major exceptions can wreak havoc and I cite Enron as a working example. And when you consider the major financial industry organizational players responsible for the Great Recession, it becomes clear that this failure of ethical leadership from the top can even become a de facto industry standard and with all of the potential for disaster that creates.

So I turn to the direct and focused influence and potential for influence of supply chain partner businesses and I begin there with the fundamentals.

• Businesses enter into supply chain agreements and relationships with other businesses to gain necessary and even essential functionalities and capabilities that would not be cost-effective for them to develop and maintain alone and in-house. This is all about cost-effectiveness and maintaining a clear operational and strategic focus on what should be core capabilities of a business, for developing and maintaining its competitive position in its particular target markets.
• But these are capabilities and resources necessary and even fundamentally essential to the businesses that enter into these supply chain systems.
• So a consequence is that in effective, mutually beneficial (stable) supply chain systems, each participating partner business depends on its partner businesses for its own success and for its own risk management and due diligence surety.
• Risk created in one node in a supply chain system will spread to impact on all partner businesses in that system.

This means it is in the best interest of any and every business participating in supply chain systems, to know what their partner businesses are doing and how, as avoidable risk created by any one member of these systems can and will radiate out to adversely affect all other member businesses too.

And when capacity to enter into and participate in the most effective supply chain systems becomes a significant and even defining source of competitive strength and advantage, as is increasing true in our deeply interconnected global economy, every connected and participating business needs to be aware of these facts. And that awareness needs to inform basic industry standards too, and with standardization of approaches for monitoring shared risk and its sources through supply chain systems, and for actively and even proactively moving to limit the supply chain-global risk pool.

I am going to continue this discussion in my next series installment, where I will look more closely into how effective supply chain planning and participation, with effective risk management mechanisms for managing that would be built into a business model. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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