The Current View

The most common form of organisational design is a functional hierarchy i.e.

In additional to the functional view many, if not most, organisations also overlay a set of process diagrams e.g.

A process view of an organisation shows how individual transactions pass through the organisation.  A process view provides a better management model than functional view in that it more accurately reflects how value flows into and around an organisation and allows that value to be measured more accurately.  However, as many organisations have found, mapping processes in detail (and keeping them up to date) is a time-consuming and difficult task.

More importantly, process mapping struggles to represent important areas of activity such as marketing, innovation and risk management that everyone knows can add significant value to an organisation.  This is primarily because they are not “transactional” activities.

Not being able to accurately model, and therefore be able to measure, key areas of value of an organisation are a root cause of very current and real problems and provide a real issue for all stakeholders in an organisation e.g. stock market value is fundamentally linked to innovation and marketing but putting a value on them includes more subjectivity than anyone is prepared to admit.

A “Systems” or Cybernetic View

To get a more holistic view we make the statement that “everything is connected” and look to bring in some of the key influences we know are not in the basic process.

The picture above is an influence map showing what we already know about any sale, they are influenced by references from existing customers and these references are, in turn influenced by the experience of that product or service.  It is also obvious that a sale is also influenced by the market profile.  Government regulation is an influence through competition policy and employment rules.  Government is in turn influenced by taxes.

The point is that even a basic systems view is a more complete representation of how an organisation operates and is interconnected with its environment.  It is immediately easier to identify why issues arise, where the right place to intervene is and what the consequences of any intervention might be.

Types of Systems Thinking

There are a variety of different types of systems thinking.  The widest known are the simple haemostats popularised by Peter Senge in his book “The 5^th Discipline”.  The influence diagram concept has been extended and formularised by people such as Ackoff and Checkland (soft systems modelling).  These are all useful at the “detail” level of analysis.

At an overall organisational level there is the Stafford Beer’s Viable Systems Model (VSM).  This describes any organisation as a set of 5 types of system which all need to be present for the organisation to be sustainable (viable).  It is particularly interesting in that it has been proved / developed from both mathematical theory and biological observation.

A number of things piqued my interest from the other speakers.  Mike Part’s concept of using retail category management techniques for delivering commissioning in PCTs is something I intend to find out more about.  The other one was Domain Driven Development, in Paul O’Meara’s presentation, as a way of linking strategic direction from the business through to specific/individual agile IT systems development.

The idea at one point that GM and Chrysler would be merged sounded like the forced merger of Austin/Morris/Rover (BMH) and Triumph/Jaguar (LMC) that created BL in the first place.  Now huge sums of money are being offered by the US government to help the companies re-structure similar in some ways to the UK government’s nationalisation of BL in 1975.  Indeed it does look like the US taxpayer will own significant ot even majority shareholdings in both companies if the re-structure goes ahead.

What prompted this post is the fact that the UAW, the main union involved, has been asked to take a significant shareholding as well, to recognise healthcare and pension liabilities.

This piece in the FT also points out the key dilemma for the union and its members.  Good investment principles for pension funds are to diversify risk, so the shareholding should be sold down as soon as sensible, however the shareholding provides a significant incentive for the staff to do what they can to ensure the successful recovery of the business and continued employment of their members

So will they chose to operate like a worker’s co-operative?  Will they learn the lessons of  the Meriden Motorcycle Co-operative, again from the 1970’s?

Or will the whole deal fall apart and the two companies go into Chapter 11?

It seems like dominant market players are going have an increasingly hard time of things over the next few years.  Part of this may be cultural for the companies involved in that the period of entreprenurial excitement will end up being a lot shorter and large company bureaucracy relating to external regulation arrive earlier.

There is no doubt that the failure of both large banks and manufacturers would cause significant immediate pain to both the local and global economies not just directly but through the knock on effects on confidence (particularly important in banks) and the supply chain in the case of car manufacturers (the usual figure quoted is 6 component manufacturing jobs for each car assembly job). There is also the likely long term damage to the manufacturing skills base (ref the UK in the 1980’s).

Politically this is dynamite as people expect government to help in these situations. The latest approach from GM and Chrysler to the Obama administration is the latest and clearest example of this.  What interests me is what happens next.

If these businesses are “too big to fail” then it seems to me that there are two options for society going forwards to ensure this does not happen again. Either:

1. These businesses need to be broken up into chunks that are small enough so that their failure does not wreck the socio-economic system.  Competition / M&A policy also needs to be tightened up significantly to include a “will this acquisition / merger create a business that is too big to fail?” (note this should not include any assessment of the risk of it failing)
2. If they can’t (or shouldn’t) be broken up then society needs to make sure, as best as possible, that the organisation can’t fail.  This is what has happened in the case of the banks through both implicit and explicit guarantees and significant equity investment.  In return for these guarantees the organisations will, in future, have to be run with “society” as a (possibly the) major stakeholder.  In effect they will have to become like the utility companies where their detailed business plans are vetted by a regulator operating on behalf of society.

What this means for politics is the return of some sort of “planned economy” to the US and the UK in particular (it never really went away in France and Germany).  The major problem with this is that there there are very few politicians that have any experience of industry.

A new socio economic system is emerging, which is neither capitalism as we have known it, or socialism as it was practiced before.  More on this in the next post!

I have recently upgraded to MindManger 8 (I first used v3) and it provides a genuinely new way to present information, mindmaps as dynamic PDF’s or flash.  Previously, if I wanted to send a client a mindmap I had to send the full detail, which as a 1 page PDF was difficult to read and the links and notes were not visible.  This is now fixed, please click on the image to see an example (MS Explorer users may get a “active content” warning).

I met the author of the New Business Road Test, John Mullins, when we were both presenting at a strategy conference in 2006,  He had just launched the book and it has genuinely changed my approach to assessing business opportunities.

I created the mindmap above over a year ago as a summary for a contact and have wanted to put it on the website since, but I could not present an appropriate level of detail without losing the messages.  The key question is can readers of this post get useful information out of the map?

We would like to wish everyone a very Merry Christmas and a Happy New Year.  As usual, we are not sending cards as we feel uncomfortable with the environmental impact but have made a donation to the RNLI instead.

We hope that next year is productive for you.  We usually wish everyone “prosperity” however this sounded a little hollow, given the economic climate!

They (bankers) didn’t want to see themselves as the infrastructure of the economy, that couldn’t and shouldn’t attempt to push up their profits at an accelerating rate. Somehow it was a bit too humiliating to be no more than the pipework for the real generators of wealth, companies with genuinely new services, real products and real technology.

So bankers created and exploited new “financial technology” that enriched themselves (for a while, at least) and was supposedly benefiting all of us by providing unlimited quantities of credit at astonishingly cheap rates.

At last it is being recognised that “real wealth creation” is about commercialising new intellectual property and not financial engineering.  In my view, this is what capitalism should be about and where the real rewards should be found.  Most large mature businesses that don’t generate genuinely new ideas (rather than just process improvement) are really utilities and need to recognise that they have to satisfy the needs a broader stakeholder community.

The winners from this recession are likely to be mutuals like John Lewis, Co-op Financial Services and, in the recycling services sector, Valpak.  Shareholder owned businesses that want to compete will have to behave much more like mutuals and balance the needs of customers, shareholders, staff, management and broader society.

Stakeholder analysis and management is the now the critical skill for senior managers!

I would just like to highlight a prescient post of mine on this website, two years ago to the day!!

In “Stakeholder Capitalism and the Mutualisation of PLCs” I commented on a number of trends which taken together meant that raw capitalism, where the only measure that mattered was profit, was in the process of evolving into stakeholder capitalism, where other stakeholder demands (e.g. no child labour, reduced emissions, fairtrade) are almost as important.

In the post I only mentioned the financial services industry in the context of de-mutualisation, however recent events, particularly the re-capitalisation of the banks, re-enforces my view.  When push came to shove it was decided (correctly in my view) that allowing any large bank to fail was not an option as our economic system would collapse with potentially apocalyptic results.

My key point, both two years ago and now is that capitalism in its “raw” form is probably finished.  It is not profit, per see, that is important, it is more how and why that profit is generated that is critical.

The broader sustainability agenda plays in here as well.  From my discussions with contacts, it is clear to some global companies that they can no longer rely on being able to grab hold of the resources to be able to continue to grow.  This poses some fundamental challenges both for companies and for the global economy, specifically that the issue hat we can see that the global economy cannot expand infinitely and we can start to see the limits!

John Maynard Keynes is seen as the key economist in these times because of his work analysing and dealing with the 1929 crash and subsequent depression.  However John Nash in the Times highlights another aspect of Keynes work. This is an essay where he imagined a world where we had moved beyond crass materialism…

“I see us free to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour and the love of money is detestable…We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well.”

I have a couple of Keynes’ books on the shelf already.  Might be time to find a copy of this essay as well!