Systemic perspective in policy-making: why do we need it?

Anastasia Tsvetkova, Senior Researcher

One can’t deny the importance of regulations, government support and other policy measures in shaping markets and industries. At the same time, policy-making aims at directing industries towards sustainability; generating welfare while employing environmentally and socially preferable ways. Often, there is a trade-off between the three dimensions of sustainability - environmental, economic and social - making it a tough decision for policy makers to put pressure on industries to become ‘greener’ and compromise some of their growth.

There is, however, a potential for industries to create the same value while reducing their burden on nature: as industries become mature, quite a lot of ‘waste’, such as unnecessary emissions, is created in their structure that can be eliminated. However, in order to do that, systemic renewal is needed, which can go beyond the boundaries of a given industry – to the business ecosystem level. Innovation policy has also accepted the need for system innovations to enable such a change. Such innovations require simultaneous technological, organizational and business model innovations made in a coordinated manner to achieve the desired change. 

As a concrete example, support of a certain technology has to be grounded in its overall impact on the respective business ecosystem and its efficiency, rather than on its assumed ‘greenness’. New technologies, such as solar or wind power, have to be evaluated not only from the perspective of how such power plants operate in an isolated setting, but more importantly from the perspective of the total lifecycle of these installations and their compatibility with their business ecosystem i.e. how they fit in with other forms of power generation, the transmission grid, and the electricity markets. If you don’t take this kind of a broad perspective, a forced introduction of these technologies (supported by policy) might actually, and easily, create more problems than solutions; energy overproduction, increased emissions on system level, low profitability of incumbent utilities due to lower energy wholesale prices, and a simultaneous increase in electricity prices for consumers. In this example then, a system innovation needs to be based on simultaneous support of other technologies for e.g. storing or flexibly producing energy as well of more cooperative business models within energy sector. 

For policy-making, this means an ever-growing need for understanding how industries – and business ecosystems – work, in order to create meaningful policies that drive larger systemic changes. Such understanding can be reached by thoroughly answering the following questions: 

  • What is the structure of the business ecosystem in focus? Which industries does it involve? How are the activities of various actors intertwined?
  • What is the impact of different actors and their activities on the overall performance of the business ecosystem in the three sustainability dimensions (environmental, economic, social)?
  • What are the barriers holding back the structure from renewing towards increased sustainability? Are there any barriers imposed by the current policies?
  • Who are the powerful actors that prefer to keep the status quo unchanged?
  • Who are the actors that strive for system innovations and improved performance of the total business ecosystem in terms of sustainability?

By answering these questions, it is possible to identify which technologies, business models and ideas to support and which to combat as being suboptimal. The scope for policy-making is undoubtedly becoming more complex, but the results promise to be much more rewarding – sustainable industries of the future.

Anastasia Tsvetkova (PhD) is a Senior Researcher at PBI. Her research interests lie within the field of sustainable business models and business ecosystems. She has been working in a number of strategic consulting and development projects devoted to biofuel production and consumption systems, sustainable logistics and renewable energy industry.

StrategyWolf Virkki