Enterprise Design Process: Regulation View

1. Enterprise Design Process: Regulation View Johan Strümpfer

2. MODULAR ENTERPRISE DESIGN • Principles to organise your enterprise to adapt and change more easily • Framework for making sense of “new” management thinking • Design towards which your enterprise may develop

3. SYSTEM VIEWPOINTS REGULATION STRUCTURE FUNCTION PROCESS

4. SYSTEM DEFINITIONS • Greek word meaning to stand together, or to cause to stand together. • A set of two or more elements such that (1) behaviour of each element effects behaviour of whole; (2) the behaviour of elements and their effects on the whole are interdependent; (3) there are no-subgroups of elements without an effect, and the effect depends on other elements. • A system is a collection of parts which interact with each other to function as a whole. • A system is a regulated set of relationships, and the key is understanding the way in which it is regulated.

5. System features • Interlinked and interdependent nature • Interaction produces characteristic features • Regulation perspective: pattern of interaction • What makes it hang together (stable) in the face of change? • What regulates? how is it regulated? • How does it maintain itself in the face of change?

6. IMPLICATIONS • Design the linkages • Manage the interactions • Require: Model of Interaction • Basis for Idealised Redesign • Reference framework for new thinking • Template against which a design can be checked

7. CREDIT • Russ Ackoff • Creating the Corporate Future • Jamshid Gharajedaghi • Towards a Systems Theory of Organization • INTERACT: Institute for Interactive Management, Philadelphia, USA

8. CLASSICAL ORGANISATIONAL STRUCTURE Lines of authority, responsibility, accountability

9. Robert Townsend, Avis CEO: • The folks in the mailroom, the president, the vice-president, and the steno pool, ... [are all] trapped in the pigeonholes of organization charts, they’ve been made slaves to the rules of private and public hierarchies that run mindlessly on because nobody can change them. • Halal, Geranmayeh, Pourdehnad, p5

10. CLASSICAL ORGANISATIONAL STRUCTURE • Model of interaction: Model of responsibility, authority, accountability • Reductionistic, mechanistic world view, simple cause and effect model • Assumption of divisible work and tasks • Assumption of normality = no-change • ‘Perfect’ model (solution) in a bygone (begone) world view • What is a more appropriate model?

11. What is an appropriate reference framework for new thinking (re-thinking) about organisation? • Modular Enterprise Design • (Circular Enterprise Design) • MED

12. DEVELOPMENTS IN ORGANISATIONAL FORMS • Functional: Special purpose machine • Divisional: Coordinated special purpose machines • Matrix: Flexible machine producing multiple outputs • Internal Market Network: Ecological system with changing outputs • MED refinement on this form

13. PHILOSOPHY OF MED • Human Systems are Different • Purposeful • Interpretative: attach meaning • World Views • Value systems • Individualistic • Sir Geoffrey Vickers

14. PHILOSOPHY OF MED • Human Systems are Different • Manage people as people and not as systems • Don’t control actions, manage the rules of the game • “We do not believe the organization can be controlled from the top” • Most (people) systems suffer from over management (autopoesis) • Loosely organised systems are more robust • Assume change: Learning, adaptation and evolution underlie viability • Causality in complex systems is complex

15. PRINCIPLES OF MED • Differentiate and Integrate simultaneously • Centralise and De-centralise simultaneously • Organise for change: • Enable evolutionary rather than revolutionary change • Organise for viability: • Implement Viable Systems Model functions • Internal Market mechanisms guide interaction • Manage the interactions, not parts: • Tweak measures of performance • Management style: Hi delegation, hi control • Support structures must support

16. IMPLEMENTATION OF MED • Differentiate and Integrate simultaneously: • Use multiple bases of differentiation • Co-ordinate w.r.t. each basis of differentiation • Develop and integrate compatible measures of performance • Centralise and De-centralise simultaneously: • Centrally develop shared decision criteria; alignment w.r.t • Culture • Values • Strategy • Policy • Principles • Standards • Maximum devolution of line (executive) authority and responsibility • Selective collective decision making & empowered individual decision making

17. Human Systems Are Different

22. Management style: Hi delegation, hi control

24. How is system controlled? Low Fear, Inaction Chaos Low High AUTONOMY Empowerment Alignment Authoritarian High CONTROL

25. IMPLEMENTATION OF MED • Shift Management style, worldview, culture • MED is NOT a strict structural intervention • Adjunct interventions: • Management style: systems paradigm • Culture and value system development • People skills: facilitation skills, behavioral insight • ?

26. IMPLEMENTATION OF MED • Shift Management style, worldview, culture • Organise for change: • Enable evolutionary rather than revolutionary change • Function of re-organisation: Integration • Assume change: Enable local growth and decline • Modularise parts of enterprise • Vest sufficient autonomy in System 1 parts • Organise for viability: • Implement Viable Systems Model functions • Strengthen System 4 (Intelligence/Learning function) • Enable & support VSM communication lines. • Remain client/customer, market, stakeholder driven • Permit modules to develop and decline in response to market

27. INTERNAL MARKET MECHANISM • Internal markets are meta structures ... that transcend ordinary organizational structures. Rather than being fixed structures, they are systems designed to to produce continual, rapid, structural change to manage the unusual demands of today’s complex, turbulent world. • Halal, Geranmayeh, Pourdehnad, p4

28. INTERNAL MARKET MANAGEMENT VIEW • An enterprise is made up of internal enterprise units • Economic accountability • Entrepreneurial freedom • Managers manage (“regulate”) the internal economy • Not operations managers • Designers of Measures of Performance & Reward • Leadership promote collaboration • Collaborative culture for synergy • Community of entrepreneurs • Adapted from Halal, Geranmayeh, Pourdehnad, p6-7

29. INTERNAL MARKET • Virtually all units are profit/performance centres • Exceptions: Competitive advantage • Units can source and market goods and services with complete freedom • Profit accumulation and taxing/loan repayment • Performance and reward system designed interactively

30. Halal, Geranmayeh, Pourdehnad, Figure 2-2

31. VIABLE SYSTEMS MODEL System 1: Implementation system System 2: Co-ordination of System 1 parts System 3: Control of System level 1 parts System 4: Development or intelligence function System 5: Policy setting system

32. What is IBM’s Business?

33. IBM’s Business

34. BASES FOR DIFFERENTIATION • Product types • Market characteristics • Distribution Channels • Geographical Divisions • Technology Bases

35. MED

36. Support structures must support

37. REASONS FOR CREATING CENTRALISED SERVICE UNITS • To achieve economies of scale; • The resource may be too scarce to duplicate; • To protect core competencies within the company; • To retain a monopoly over a core technology.

38. Create centralised service units whenever: • economy of scale, or scarcity of resources, dictates such a need; • a core competency exists, which is critical to retain for the competitive advantage of the overall organisation; or for • technological reasons (eg, a communications network).

39. Principles for CSU’s • CSU’s do not receive a budget but exist on the basis of income for service rendered • CSU’s cannot issue policy or control directives • CSU’s may perform coordinating functions

42. Book Business • School books business • Basis of organisation

43. ADVANTAGES OF MED • It structures for change in an • Evolutionary rather than revolutionary manner. • Enables small is beautiful but integrates as well. • Emphasis is on the value adding components • Coherent framework for implementing “new” management thinking. • It can be planted within existing structures (within limits). • You may not have a choice

44. ENTERPRISES THAT USE SIGNIFICANT ASPECTS OF THIS APPROACH • IBM • Clark Equipment • MCI • Blue Cross/Blue Shield • Alcoa

45. WHY is Modular Enterprise Design so Important? • Case study: the changing of industries.

46. The Morphing of the Computer Industry “Not only has the basis of computing changed, the basis of competition has changed too.”

48. The Old Vertical Computer Industry-Circa1980 Sales and Distribution Application Software Operating System Computer Chips Sperry Univac IBM DEC WANG

49. The New Vertical Computer Industry- Circa 1995 (Not To Scale) Sales and Distribution Retail Stores Superstores Dealers Mail Order Application Software Word WordPerfect Etc. Operating System DOS and Windows OS/2 Mac UNIX Computer Hewlett- Packard Compaq DELL Packard Bell IBM Etc. Chips Motorola RISCs Intel Architecture

50. Sales and Distribution Sales and Distribution ApplicationSoftware Application Software Operating System Operating System Computer Computer Chips Chips Sperry Univac IBM DEC WANG The Transformation of The Computer Industry (Not To Scale) The Old Vertical Computer Industry- Circa 1980 The New Vertical Computer Industry- Circa 1995 RetailStores Superstores Dealers Mail Order Etc. Word WordPerfect DOS and Windows OS/2 Mac UNIX Hewlett- Packard Compaq DELL Packard Bell IBM Etc. Motorola RISCs Intel Architecture