VSM and Financial Performance Management. Steve Morlidge. Who is talking to you?. Steve Morlidge Unilever 1978 – 2006 roles include: Controller Unilever Foods UK ($1 billion turnover) Unilever – Bestfoods Integration Leader
Sources: ‘Brain of the Firm’ ‘Heart of the Enterprise’
V(c) ≥ V(e)/V(g)
V = the number of distinct states a system can be in (a measure of complexity) in a given period of time
g = system goal(s)
e = the environment
‘The smallest variety cannot be less than the quotient of the number of rows divided by the number of columns’
‘Only variety can destroy variety’
W Ross Ashby
c = the control system
Generalisation of Shannon’s 10th Communication Theorum
Conclusion - ‘variety’ perspective explains many of the reasons for dissatisfaction with existing practices
Regulation (Resource Allocation)
Match environmental variety where salient to the goals of the organisation, reduce variety where impact is limited
Identify variety relevant to goals (‘signals’) including ‘non financial’, eliminate variety (including noise) with limited impact.
Decide at the right time (taking into account lead/lags) and differentiate between high (investment) and low (maintenance) variety interventions
Definition of Success
Establish boundaries (constraints) based on Strategy, Purpose and clear definition of roles/responsibilities.
Achieved through high variety interventions
Externally defined – related to viability
High variety, system wide, after the event.
The visionaries – interested in the possibility of creating something new and wonderful. Listen to endorsements of innovators.
The pragmatists – want to fix a broken mission critical process. Interested in effectiveness, reassured by endorsement of peers.
The conservatives – interested in efficiency/cost equation
The sceptics – see all the downsides. Will only change if there is no option
The anoraks – interested in anything new – for its own sake. They will find you