The “Interior Design” (Part 1): Finding and Defining the Way to Generate Benefits and Purpose

Abstract

This chapter focuses on the design of the (basic) systems 1, i.e., the operational processes. It discusses the key elements that need to be considered in a design process, namely the environmental variety, the eigen-variety, and the operational processes. From there, it shows how, by temporalizing the VSM, it can be related to business process maps—an aspect especially insightful to VSM experts.

The basic model that we have defined so far specifies only the organization’s main structure and aggregation logic. For many reorganization projects, clarity about the basic organizational model and knowing the implications on the organizational chart structure (see Chap. 14) might already fulfill the principal objective. Sometimes one, however, needs to go deeper and readjust or even redesign the specific functioning of the various processes and systemic functions. The basic model is only the skeleton, but how does the organization function concretely? How does it become animated and lively?

We can again compare this step with the planning of a project where we have defined the main project plan specifying the work packages, tasks, project members, and the project timeline but where it has not yet become clear how the project should function on a detailed level and how the people should work together. What kind of processes, infrastructures, resources, and competencies does the team need concretely, and how does it meet and coordinate itself? What should the values and rules governing the project work be? How do the project and its team “come alive”? Often these kinds of questions are ignored at the project setup and only in the course of a project do they re-emerge with, by then, little time left to implement changes.

To use our house building metaphor once again, we now need to design and arrange the interior of the house in such a way that it becomes habitable such as by seeing to the heating installation, where the cables and light outlets should be placed and the various amenities that it should offer.

We will develop the organization’s “interior design” in three steps: in this chapter, we will first look more closely into the operational business processes of the systems 1 regarding the variety that they need to process (see Fig. 11.1). How precisely do they fulfill their purpose, and what do they need for it, to accomplish their task? This will be the focus of this chapter.¹

Fig. 11.1

Step 3 in the design of organizations (part 1)

Secondly, one needs to design the necessary metasystemic functions and inter-recursive channels, which will be the topic of Chap. 12.

Thirdly, one then needs to define from which level what kind of synergies should be generated and managed (see Chap. 13). The challenge lies in the highly iterative nature of the design process (see Sect. 8.3), since, for instance, the level of synergies that one finds and defines influences the basic model as well as the functioning of the operational and metasystemic processes defined earlier.

For the detailed design of the systems 1, one starts best with the variety equilibrium model (see Fig. 11.2) that we have already encountered in Chap. 10.

Fig. 11.2

The variety to be processed, the product, operational processes, and eigen-variety need to be adjusted to each other to form a viable system 1 (from Fig. 10.5)

We have already analyzed these aspects in the context of the basic model. However, there, we just searched for a general overview and the key factors that determine the aggregation and structural logic. For the detail design of the systems 1, one needs to deepen the findings made during the previous step. In this volume, we will focus just on the following three aspects and assume the product as given:

• 1. the environmental variety that needs to be processed (Sect. 11.1)

• 2. the necessary operational processes (Sect. 11.2)

• 3. the requisite eigen-variety, i.e., the necessary resources and competencies (Sect. 11.3).

All these aspects must fit together and are thus developed in parallel and iteratively, even if we are now going to discuss them sequentially.

1 “What Is Our Value?”—Scouting the Environmental Variety (Aspect 1)

In volume 1, we said that the entire organization is an instrument to create value for its chosen environment. How an organization needs to organize itself is thus partly also predetermined by what its environment wants, what kind of resources it has, and how it is structured (e.g., infrastructures). The organization is not free to choose its structure and internal functioning, but must also reflect its environment, for which it wants to create value. The structure of the environment codetermines the organization’s structure and, in this sense, one can even say that the environment becomes part of the organization. The clues about the right structure for the organization are thus already hidden in the environment. The “interior design” of an organization must also reflect its environment. Whoever has understood what the environment wants and how it behaves knows a great deal about how to design the organization.

In this chapter, we will focus on three aspects: first, on how to capture the environment’s relevant variety and assess the organization’s value creation, second, on calibrating the organization’s chosen scope of the environment and third, on the calibration of the equilibrium points.

1.1 “The Roads Are Paved with Gold, but Where Is the Gold?”—Finding and Understanding the Source of the Organization’s Value Creation

When immigrants departed for the USA in the nineteenth and twentieth century, they were often promised a country whose roads were paved with gold. As they were soon to learn, the streets were not paved at all and they were expected to pave them (Eye Witness to History, 2018). Many of the immigrants succeeded, but they had to find out where the gold was buried, and it was mostly where they did not expect it. With hindsight, one always recognizes where a road is paved with gold, but one forgets how hard it was to find the place.

The same applies to organizations: what generates the gold is seldom clear. The gold often lies somewhere buried, and one needs to search for clues to where it might be hidden. As Drucker (2006b, p. 13) reminds us: “Every executive (..) sees the inside—the organization—as close and immediate reality. He sees the outside only through thick and distorting lenses, if at all. “The livelihood of the entire organization, however, depends on penetrating this fog and finding the gold mine in the environment, i.e., the environment’s “pain points” or rather “pleasure points”—but how to find them?

Walt Disney was a firm believer in observation (Disney Enterprises, 2003, p. 42): “I don’t want you guys sitting behind desks,” he told his staff in his amusement parks, “I want you out in the park, watching what people are doing and finding out how you can make the place more enjoyable for them.” Only through observation, does one learn to understand what kind of problems people have and what delights them. For this reason, Walt Disney asked his staff to have their lunch in the park because then, “they could continually observe guests—and figure out how to make things better” (Kinni, 2011).

For the Walt Disney Parks, one would, for instance, assume that the attractions and the wandering cartoon characters like Mickey Mouse, with whom one takes pictures, are one of the major success factors (for the following, see Boudreau, 1998, 2008; Boudreau & Ramstad, 2007; Cascio & Boudreau, 2012). Of course, these are the main reasons why one visits these parks, but they are not the only and pivotal ones that make people “happy” at the end of the day. Visitors have many different issues that can make their visit truly unpleasant, for instance, no quick answer to the question, “Where is the next washroom”? The visitors of the Walt Disney Parks have hundreds of different questions of this kind. However, who can answer these questions in the Disney Parks?

Walt Disney Parks noticed that these questions were mostly clarified by the many freely moving, but hardly noticed, auxiliary forces, such as the sweepers. In contrast to the cartoon characters who strictly act to a predefined script and schedule, the cleaning staff is more flexible and can help, for example, families with young children and assure them a stressfree visit to the amusement park. After all, one does not buy only a visit to Mickey Mouse but first and foremost a stressfree and delightful day. Sweepers are thus not just cleaners but are also essential for the overall well-being of the visitors. They play a pivotal role in the customer experience (Boudreau, 2008; Cascio & Boudreau, 2012, pp. 115f).

As a consequence of this observation, Walt Disney started investing in the training of the auxiliary staff, such as even reading the body language of visitors to recognize their needs earlier (Shuit, 2004). And their job definition, in fact, changed too: They are no longer just sweepers but also “front-line customer representatives with brooms in their hand” (Cascio & Boudreau, 2012, p. 116), which also changed their position in the organization.

As one can see from this small example: what creates value is not always clear from the outset and what one might think it to be. Deduction, analysis, and planning alone do not suffice to capture the environmental variety. One must observe the behavior of the environment in action to understand it and in what way precisely the organization creates value. This is perhaps even more relevant today as we rely mostly on what we see on our computer monitors and less on what happens in reality. Here, Peter Drucker’s comment (2006b, p. 142) in his classic book The Effective Executive written in 1966 should serve us as a constant warning: “With the coming of the computer (..), the decision-maker will, in all likelihood, be even further removed from the scene of action. Unless he accepts, as a matter of course, that he had better go out and look at the scene of action, he will be increasingly divorced from reality. All a computer can handle are abstractions. And abstractions can be relied on only if they are constantly checked against the concrete.” Artificial intelligence and modern statistics can reveal many patterns to us, but as every statistician knows, they need to be checked against reality.

Hence, an organizational design process cannot be executed properly in an isolated planning office. “Don’t judge a man until you have walked two moons in his moccasins,” goes an Indian proverb. We need to walk in the “moccasins” of our customers and the operational staff if we want to design an organization well. Only then will we get an idea of the variety, with which an organization is confronted, how it creates value, and what the pillars of the organization and its viability are. Only by walking on the dusty and arduous roads of the operational business do we learn, what the real problems are and how they can be transformed into a gold mine. Only then will we be able to distill what the critical success factors are and how the organization must be organized and operate.

To design an organization in detail, one thus best takes a notebook, leaves one’s office, and observes the organization in interaction with its environment—in its successful as well as failed interactions! This provides sufficient clues about what the employees, processes, and other resources of the organization must be capable of and how they must be arranged organizationally so that they can create an interacting community and ecosystem with their environment.

1.2 Finding the Right Scope or Why Focusing on Current Customers Can Be Misleading

When one analyzes the environmental variety and seeks the right equilibrium point, a common mistake is to analyze just the current customer interactions. If one wants to calibrate an organization to the environmental variety, one must not focus only on the existing customers but also on other customer types, since they might require different responses and thus eigen-variety (see Fig. 11.3), namely:

Fig. 11.3

Customer groups require different approaches to establish an Ashby conform situation

• 1. Customers who have not yet been convinced or who are dissatisfied with the products and services („not-convinced customers“)

• 2. Customers to whom one was not yet able to reach out („not-yet-reached customers“)

• 3. Customers who one does not want („unwanted customers“)

These customer segments require different measures and responses and thus, eigen-variety (see Table 11.1).

Table 11.1 Customer segments and their specific equilibrium situation and required responses

By how much one needs to change the current organization depends, of course, on how well the current organization succeeds in achieving the targeted equilibrium point. If the organization already convinces and acquires its target customers to the desired extent (see Fig. 11.4, left picture), then one can assume that the environmental variety and eigen-variety are reasonably well balanced—provided that the temporal and social tensions within the organization are within the normal range.

Fig. 11.4

Left diagram: a large group of the intended customers had already been won; right diagram: the group of won and intended customers is still small compared to the other customer groups

On the other hand, if only a smaller portion of the targeted customers can be reached and convinced (see Fig. 11.4, right picture), then more extensive analyses become necessary. In this case, the other customer segments are still too large in relation to the already convinced customers.

1.3 “When Is a Customer Satisfied?”—Calibrating the Value Delivered and the Equilibrium Points

When one knows how and for which target environment an organization can and should generate value, it is then advisable to revisit and re-examine the equilibrium points, i.e., the promises made regarding the product, its quality, and the organization’s performance level. Are the equilibrium points chosen in the strategy the right ones? Can they be fulfilled by the organization, and are they creating value for both, for the organization as well as the environment?

Achieving requisite variety according to Ashby’s Law is typically understood as a call to do more. However, this is a misunderstanding; it can also mean doing less if feasible. Over time, organizations add “nice-to-have” products and services (or features thereof) to their core value proposition. However, are they still needed or even valued by the customer or have they become dear just to the organization and its employees? Unfortunately, companies do not regularly review their offering critically or find it hard to say farewell to established products and practices. To prevent this from happening, organizations need “gatekeepers” (such as regular review processes or employees) that restrict the tendency to overfulfill.²

A reorganization project hence represents a valuable opportunity to revisit the organization’s offering and reflect indeed what the organization should not offer anymore and how well it needs to perform (see also Sect. 9.4). This is just as important as the positive list, perhaps even more vital because it is often overlooked.

2 „How Do We Produce Value?”—The Operational Processes (Aspect 2)

Once one has obtained a good understanding of the environmental variety, one then needs to obtain an overview of the processes necessary to process the environmental variety. For this, one develops a basic process model of the systems 1 that describes how they should produce, sell, and interact with the primary environment. For this step, one typically uses the standard process modeling techniques and methods, which we hence do not need to specify further. In addition to the operational processes, one also needs to develop the tactical control and planning processes and instruments (see the schematic Fig. 11.5).

Fig. 11.5

Operational and managerial processes of a system 1 (schematic and simplified representation)

In the case of existing organizations, one should, however, not rely on existing process charts and manuals only—real life is often different and so are the organization’s actual processes!The basis for the analysis must instead be how the organization works de facto. Employees often use “unofficial” workarounds and tricks that deviate from official descriptions and manuals. Such deviations are important for the design of processes since they contain revealing and hence valuable information about first, where the varieties are not in equilibrium in an organization and second, where the organization needs to improve and provide better tools and processes and third, which instruments and processes are, in fact, unnecessary and counterproductive and should be abolished immediately.

As a general rule: there are more ineffective instruments and procedures in an organization than one might have thought at the beginning. Thus, “walking in the moccasins” and observing the organization in operation with a notebook also applies to the operational processes: without having walked in the moccasins of the basic systems 1 for a sufficient amount of time, one will never understand where their shoe pinches and wherein their value contribution and performance lie. And, he or she will also not be able to work out how higher recursion levels can and should support and control the lower ones.

Is this process map too general for you? If so, then continue reading here, otherwise, continue with Sect. 11.3

Sometimes a general process model such as the one shown in Fig. 11.5 might not be sufficient. In particular, in the case of highly process-oriented industries, one must delve more into the details along the time dimension. In Sect. 10.1, we considered a customer case as a single event, whereas, in fact, it might consist, of many interactions with the customer. A basic system 1 goes through different stages during which it assumes different tasks and configurations of its eigen-variety: executing an order is preceded by winning the order, for which one must prepare marketing campaigns or product samples. This is followed by the production of the product in several production steps and after-sale-services, which ensure that the customer remains content with the product and loyal to the organization even long after its purchase. For each of these cases, the system 1 needs different processes, competencies, resources, and instruments.

How can these multiple interactions be represented in the VSM? Basically, these are temporary manifestations of the system 1, which quickly emerge and disappear and become more stable and visible as “customer cases” only on a higher and more aggregated level (Fig. 11.6).

Fig. 11.6

A customer case consists of multiple temporary interactions with the customer

All these temporary manifestations require a VSM structure, meaning that the interactions must be connected and aligned with each other through metasystemic processes³ (see Beer, 1995a, p. 536, Fig. 100). Information provided at an earlier time must match with that given at a later moment, and the delivered product must match with the promoted one. To manage the interfaces between these temporal stages (“squiggly lines”—see also volume 1), one needs coordination (system 2) and control mechanisms (system 3). Moreover, one also needs to check whether the information given at an earlier point in time was correct and well-suited (system 3*).

If one wants to define more specifically the variety to be processed, the necessary eigen-variety, and the processes, one will spread the business process map from Fig. 11.6 further out as, e.g., in Fig. 11.7.

Fig. 11.7

A temporalized basic system 1 shown as a sequence of interactions with the customer and internal processes

This temporal segmentation of the system 1 into various stages and incidents, is particularly necessary if the varieties to be processed differ significantly between the different points of interaction and require different competencies and resources. In this case, one will group these temporary manifestations later into different jobs and units in the organizational chart structure to obtain the necessary synergies. One will then form units specializing, for instance, in processing data (e.g., from letters and paper forms), providing assistance (e.g., hotline), processing customer orders (sales department) and taking care of product quality issues and customer complaints (after-sales service).

3 Providing the Requisite Eigen-Variety (Aspect 3)

The VSM reminds us to look not only at processes but even more also at the eigen-variety with which the systems 1 are endowed (see volume 2), e.g., what kind of resources are made available to them. The term “resource” is very comprehensive in the VSM framework and includes physical resources such as materials and money, as well as knowledge and skills, and the time required. All these types of resources need to be defined in parallel to the analysis and design of the process model (see Fig. 11.8).

Fig. 11.8

The basic operational processes need to be endowed with requisite eigen-variety

Therefore, one should not only take into account the resources that are needed for the normal execution of the processes but also those that can intensify theeigen-variety of the systems 1 in special situations such as crises. The difference that an organization can make in comparison with its competitors often lies buried in this additional eigen-variety and the mastery of special cases and situations. So, one should consider in which exceptional cases an organization can differentiate itself from others and what kind of “amplifiers” it needs to excel.

Since this additional eigen-variety is not needed regularly, but only in emergency cases, they are controlled by a higher recursion level to generate the necessary synergies (e.g., in a shared service). In the organizational chart, this task is often taken over by central units. In the organizational analysis, one will, therefore, need to examine how these central units can and need to assist the systems 1 rapidly and help them to distinguish themselves from competitors.

In addition, one should consider how the inflowing variety needs to be restricted through attenuators, for example, by defining limits, rules, guidelines, and controls (see Fig. 11.9).

Fig. 11.9

Throughout the entire interaction with the customer, the organization applies attenuators to regulate the variety

In the end, one should look at the overall picture: can the organization achieve an equilibrium between the environmental variety and the eigen-variety of the organization? Can we respond to the key customer requirements and needs, or not? Are we well prepared for critical incidents?

4 “Can We Manage It?”—Evaluation of the Current Organization

If one wants just to change and not completely redesign an organization from scratch, one might start by evaluating the current processes and resources regarding their ability to process variety.

Four questions should guide this assessment:

• 1. Where are the current bottlenecks in the processing of variety?

• 2. What changes in the process sequence, competencies, resources, etc., are required to achieve the requisite eigen-variety (e.g., delivery times)?

• 3. What additionaleigen-variety do the systems 1 (e.g., instruments, resources) need?

• 4. What kind of eigen-variety do the higher recursion levels need to support and control the lower ones?

An assessment of the current structure could then result, for example, in the following picture regarding the processing of variety (see Fig. 11.10) and the required changes in the organization.

Fig. 11.10

Evaluation of the operational processes of the basic systems 1 regarding their capability to process variety

Last, but not least, our concern has so far been whether an organization has sufficient eigen-variety. However, it can also have too mucheigen-variety: these are the cases, in which the eigen-variety is not used sufficiently well or does not have the desired effect. This extra eigen-variety is often overlooked or hidden away since people do not want to give up extra resources that provide a certain degree of comfort. Nevertheless, as part of the organizational diagnosis, one should also question the need for existing resources, since even if they are idle and not harmful, they increase the internal complexity and require additional metasystemic control processes. A regular “diet” might then be necessary to regain simplicity and agility.

Summary

• To design an organization, one must first get an accurate understanding of the variety that needs to be processed and the required eigen-variety. To this end, one must understand (1) the environmental variety, (2) the processes, and (3) the eigen-variety required.

• One should consider not only existing customers but also the not-yet-convinced and not-yet-addressed customers. Furthermore, one should also analyze the customers that one does not want to have since they create undesired variety.

• When analyzing the current organization, one should focus not only on the possibility of one having too little but also too much eigen-variety.

• Problems and “unofficial” tricks and workarounds used by employees are an important resource with which to identify how well the current organization can maintain the equilibrium between the variety to be processed and the organization’s eigen-variety and where it needs to be improved.

Questions for Reflection

• 1. Had you already exposed yourself to the organization’s operational processes, before you (re-)designed your organization?

• 2. Have you ever talked with your customers about what they really need and how they perceive the organization’s performance before (re-)designing your organization? To what extent does your company devise customer satisfaction surveys in such a way that they allow unpleasant aspects to emerge (or are they only designed to confirm the status quo)?

• 3. How does Fig. 11.4 look for your organization?

• 4. Evaluate the operational core processes of your organization (as in Fig. 11.10) regarding the eigen-variety necessary for five to ten randomly selected customers. Does your organization have the requisite eigen-variety in these selected cases?