How systems thinking helps directors understand the wider consequences of their decisions
By Chisom Obiudo
A proposal may look convincing in a board paper yet cause problems elsewhere in the business. Cutting staff may reduce costs but leave customers waiting longer for assistance.
Opening more branches may increase sales but overwhelm delivery teams if their capacity remains unchanged.
Before approving a proposal, directors need to consider whether the rest of the business can support it and what difficulties it could create.
Systems thinking helps directors examine these connections. It involves looking at how different parts of the business affect one another and how the consequences of a decision unfold over time.
The board asks what could happen next, who would be affected and whether the benefits are likely to last.
Consider a company under financial pressure that cuts customer service staff to save money. Customers wait longer for assistance, and some take their business elsewhere.
The resulting revenue loss increases financial pressure, prompting further staff cuts and even poorer service.
This is a reinforcing feedback loop: the effects of a decision feed back into the situation, worsening the problem. Recognising this pattern helps directors question whether the proposed savings could ultimately cost the business more.
Seeing the business and its wider relationships
This approach to decision-making aligns with the integrated thinking emphasised in King IV. It involves considering how the organisation’s strategy, risks, performance and resources influence one another.
A growth strategy, for example, requires sufficient funding, capable employees and reliable suppliers to succeed. King IV also emphasised stakeholder inclusivity: taking account of the legitimate needs and interests of employees, customers, suppliers and communities when acting in the organisation’s best interests.
The Integrated Thinking Principles, maintained by the IFRS Foundation, support this broader view. A business depends on more than money. It also needs employees with the right skills, customers who trust it, and suppliers it can rely on.
Directors should therefore ask whether measures that improve today’s results could weaken the relationships or capabilities needed for future success. This question should shape how the board assesses a proposed strategy.
Strategy that responds to changing conditions
A five-year plan gives a business direction, but its success depends on assumptions about customer demand, staffing, costs and competitors. As these conditions change, the plan may need to be revised.
The board should agree with management on how often to review those assumptions and which developments would trigger an earlier review.
Consider a retailer proposing ten new branches. The sales forecasts look promising, but can the company recruit enough branch managers and supply every store reliably?
Will the new branches attract additional customers, or will they mainly draw shoppers away from existing stores? These questions help the board assess whether expansion would strengthen the business.
The board could approve an initial phase and set conditions for further openings. These might include meeting agreed profitability targets, filling key management posts and ensuring reliable stock deliveries.
Management would report on these measures and explain how the new branches were affecting sales and profits at existing stores. The board would then have evidence to decide whether to continue, slow down or revise the expansion.
Policies that help departments work together
Putting the strategy into practice also requires aligned policies. A policy that helps one department meet its targets may make it harder for another to fulfil its responsibilities.
Consider a purchasing policy that prioritises the cheapest spare parts, while the customer service policy promises repairs within two days. If the selected supplier regularly delivers late, the company may miss that deadline. If the parts are unreliable, repairs may need to be repeated. Savings on purchases can therefore lead to additional repair costs, refunds and lost customers.
When reviewing policies requiring board approval, directors should ask management how the proposed requirements will affect other departments.
In this example, suppliers should be assessed on quality and delivery times, as well as price. Management reports should show the savings alongside the costs of delays, refunds and repeated repairs.
This would help the board judge whether the purchasing policy is saving the business money overall.
Risks that can spread across the business
These connections also matter when reviewing risk. Departmental reports may identify problems within each department without showing how a problem in one area could affect other parts of the business.
A risk register records potential problems, their possible consequences and the measures intended to manage them. Directors need to consider whether several risks could arise together or exacerbate one another.
Imagine a proposal to use a single technology provider for ordering, payments and customer support. Each department expects the arrangement to improve its service.
Yet a major outage affecting all three systems could prevent customers from placing orders, making payments and obtaining help at the same time. The business would depend on one provider for several essential services.
The board should ask management how the company would continue operating during such an outage. How long could it meet its bills if customer payments stopped?
Could customers contact staff via another channel? Would backup arrangements remain available, or would they depend on the same provider and be affected as well? Management should explain how these alternatives have been tested, so directors can assess whether the safeguards are adequate.
Reducing costs without weakening the business
Understanding these dependencies also helps boards decide where to invest and where to cut spending. A proposal may save money while removing skills the business needs or damaging relationships it relies on. Directors should weigh both the financial benefit and the consequences for employees, customers, suppliers and communities.
Consider a manufacturer proposing to introduce machines that would reduce the number of employees required in production. Who would operate and maintain the equipment? Could existing employees be retrained for those roles?
If experienced staff left, would the company lose the expertise needed to resolve production problems? How would substantial job losses affect the local community and its relationship with the company?
Management could compare introducing all the machines at once with introducing them in stages, including employee retraining.
The board would assess the expected savings against training costs, potential disruption to production, and the effects on employment. Its decision should explain how the chosen approach would reduce costs while preserving the skills and working relationships required to maintain reliable production.
Rewards that encourage the right behaviour
Decisions about jobs and training affect employees’ trust in their employer. Targets and rewards shape how employees carry out their work. Directors should therefore examine both the behaviour the company rewards and the conduct that managers accept or overlook.
Consider a company that bases sales bonuses entirely on the number of new contracts signed. Employees may promise delivery dates or services the company cannot deliver. If managers celebrate sales figures while dismissing the resulting complaints, staff may conclude that winning contracts matters more than keeping promises.
Management may then use those sales figures to set even higher targets, increasing pressure to overpromise. Sales can look strong even as customer trust declines. The board should ask whether bonus arrangements take account of service quality and customer retention. Directors should also seek evidence of how managers resolve complaints and whether employees can raise concerns without fear of penalty. This helps the board assess whether the company’s rewards and management practices support the standards it expects employees to uphold.
Questions to bring to the next board meeting
Directors can apply systems thinking to a major proposal by asking:
• Which teams, suppliers or other partners will need to support this proposal, and do they have the capacity to do so?
• Could the expected benefit create additional costs or difficulties elsewhere in the business?
• Which problems could occur together, and how would the business cope?
• What behaviour could the proposed targets and rewards encourage, including behaviour we do not intend?
• What evidence would prompt us to reconsider the decision, and when will we review the results?
Ask management to address these questions in the board paper, drawing on input from the affected departments and external partners. Before approval, agree what management will report, when the board will review progress, and which problems must be brought to its attention sooner.
A board’s responsibility continues after it approves a proposal. Directors need to check whether the expected benefits are being realised, whether problems are emerging elsewhere, and whether the original decision needs to be revised.
*Chisom Obiudo is an admitted legal practitioner of the High Court of Namibia specialising in corporate governance and AI governance. She facilitates AI governance training for boards and delivers professional AI skills training. She can be contacted at chisomokafor11@gmail.com.
