Kitabı oku: «Managing in a Complex World»
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A cooperation of following publishers
Böhlau Verlag · Wien · Köln · Weimar
Verlag Barbara Budrich · Opladen · Toronto
facultas · Wien
Wilhelm Fink · Paderborn
Narr Francke Attempto Verlag · Tübingen
Haupt Verlag · Bern
Verlag Julius Klinkhardt · Bad Heilbrunn
Mohr Siebeck · Tübingen
Ernst Reinhardt Verlag · München
Ferdinand Schöningh · Paderborn
Eugen Ulmer Verlag · Stuttgart
UVK Verlag · München
Vandenhoeck & Ruprecht · Göttingen
Waxmann · Münster · New York
wbv Publikation · Bielefeld
Johannes Rüegg-Stürm
Simon Grand
Managing in a Complex World
The St. Gallen Management Model
Haupt Verlag
Johannes Rüegg-Stürm is Professor of Organization Studies and Director of the Institute for Systemic Management and Public Governance at the University of St. Gallen (HSG), where he heads the Organization Studies Research Center. He has long-standing experience as a process facilitator, consultant, coach, member and president of boards of directors, speaker, and academic leader of entrepreneurial training initiatives for systemic management development.
Simon Grand is Associate Professor of Strategic Management and Management Innovation, Academic Director of the RISE Management Innovation Lab at the University of St. Gallen (HSG), and Research Fellow at the Zurich Center for Creative Economies of Zurich University of the Arts (ZHdK). As a management researcher, strategy designer and member of several boards of directors, he works with entrepreneurs and executives to develop entrepreneurial strategies and effective corporate governance and management practice.
This book was translated by Dr. Mark Kyburz & by Jay Binneweg, M.A. HSG.
1st edition : 2019
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UTB number: 5299
ISBN 978-3-8252-5299-1(Book)
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Preface
Managing in a Complex World is based on “The St. Gallen Management Model” (SGMM). The SGMM follows a long and rich tradition of presenting in didactic form a theoretically and empirically sound examination of management abreast with current management practice and the latest research developments and findings. This book is a translation of the German original (published in September 2019).
At the end of the 1960s, it was a pioneering achievement to explore management – as the challenge of coping with complexity – from a systems theory perspective, which was quite unusual at the time (Ulrich, 1968). The resulting insights were made accessible to teaching and practice by Hans Ulrich and Walter Krieg (Ulrich & Krieg, 1972), two pioneering scholars at the University of St. Gallen (HSG), as the St. Gallen Management Model.
The SGMM has always intended to contribute to the holistic understanding and integrative treatment of complex management challenges in their unique and differentiated contexts. To this day, this concern has lost none of its relevance.
The present version of the SGMM draws on a long scientific tradition. In particular, it includes ideas and thoughts from several earlier publications: J. Rüegg-Stürm, The New St. Gallen Management Model (2004) and J. Rüegg-Stürm & S. Grand, Das St. Galler Management-Modell. Wissenschaftliche Grundlagen und Praxisbeispiele (2017). At the same time, it consolidates the fundamental insights of our empirical research in recent years and harnesses the scientific potential of practice theory and autopoietic social systems theory. In addition to outlining the scientific basis of the SGMM (Rüegg-Stürm & Grand, 2017), we have conceived this current edition as a working tool along stringent didactic lines. It also serves critical self-reflection for an in-depth examination of management.
The SGMM is available as a printed book and as an eBook. It supports both educational purposes and entrepreneurial practice in further developing organizational value creation. The SGMM also includes a number of didactic visualizations, which have been specially designed to facilitate working with the model. The visualizations can be downloaded from www.sgmm.ch. [5] The latest version of the SGMM distinguishes a task perspective from a practice perspective. Both perspectives are informed by current research in the social and cultural sciences. Both perspectives highlight key aspects of management practice and complement each other.
Our research partnerships with enterprises and organizations from highly diverse contexts (e.g., industrial groups, technology companies, design agencies, research organizations, hospitals, and public utilities) have time and again highlighted the importance of self-critically examining both one’s own understanding of management and management practice as lived and experienced every day. This examination of management provides unfamiliar perspectives on the interplay of environment, organization, and management practice. These perspectives enable those responsible for an organization to discover new possibilities for development and action.
In this sense, the SGMM cannot be “introduced” in an organization, but instead may serve as a tool to tackle specific tasks. The SGMM may help structure constructive debates about important entrepreneurial issues. And it may also serve as a source of inspiration for developing an organization-specific management model.
Acknowledgments
We have only been able to further develop the SGMM, presented between these covers, thanks to our inspiring cooperation with many colleagues from the scientific community, in particular the University of St. Gallen, and from business practice. On behalf of many colleagues, we would like to thank our team colleagues Simone von Wittken, Christian Erk, Marc Krautzberger, Matthias Mitterlechner, Torsten Schmid, Thomas Schumacher, and Harald Tuckermann. We also thank our colleagues Kuno Schedler, Thomas Bieger, Pietro Beritelli, Dirk Schäfer, Florian Hohmann, Mathias Müller, Thomas Friedli, Urs Fueglistaller, Thomas Zellweger, Alexander Fust, and Frank Halter. They are all personally committed to anchoring the tradition of the SGMM at the University of St. Gallen and play a key role in its further development through their work. Particularly inspiring and enriching was our intense exchange of ideas with Hansjörg Siegenthaler and Elisabeth Michel-Alder, as well as with Martha Feldman, Ann Langley, Ann Cunliffe, Robert Chia, Alfred Kieser, Henry Mintzberg, Davide Nicolini, and Rudolf Wimmer, in the context of our “Distinguished Management Scholar Series.” [6] While developing, realizing, and finalizing this text, we have received tireless support from our committed, professional, and patient project team. Special thanks go to Naomi Kink and Andreas Schwendener. They have supported us not only with excellent project management but also with many inspiring ideas, which have considerably enriched this book. We thank our translators, Jay Binneweg and Mark Kyburz, for their tireless commitment and painstaking attention to detail. We also wish to thank Victoria Hotz and Flavio Tschopp, who have provided valuable advice on making this book more accessible. Our very special thanks go to Monika Steiger for providing the conditions under which we are able to tackle our daily work at the Organization Studies Research Center of the Institute for Systemic Management and Public Governance (IMP-HSG).
We are grateful to the project team at Alltag (Gloria Weiss, Phillip Bührer, and Rachel Kühne), whose patience and creative inspiration have produced visual materials that works, as well as a neatly designed, aesthetically pleasing book. Finally, we wish to thank Matthias Haupt for being an excellent publisher.
We have co-authored this book from start to finish. The fact that our endeavor has borne fruit is not self-evident. It is not our achievement alone, but the result of a mixture of intellectual joy, trust, friendship and happiness, for which we are grateful.
St. Gallen, October 2019
Johannes Rüegg-Stürm & Simon Grand [7]
How best to approach this book
The St. Gallen Management Model (SGMM) is not simply a collection of conceptual frameworks. Instead, it presents two complementary perspectives on the interplay of environment, organization, and management in the form of an integrated model. Together, these interacting perspectives – the task perspective and the practice perspective – form the SGMM.
• The task perspective focuses on the two core tasks of management: first, to provide business-oriented analysis; second, to design organizational value creation. As such, this perspective also examines the analytical tools needed to perform these tasks.
• The practice perspective illuminates the fundamental cultural and communicative preconditions for management to achieve impact. We adopt this perspective to familiarize readers step-by-step with new ways of thinking about environment, organization, and management.
We are convinced that exploring innovative visions of the future and possibilities for action, and opening up to critical reflection what might otherwise be unquestioningly considered self-evident, requires developing new and thus unfamiliar forms of language and thought.
With this in mind, we hope that interested readers will approach this book unbiased. Working with the SGMM ought to serve two purposes: first, to generate new and helpful ways of thinking about management practice; second, to help deepen and reflect on these insights together with colleagues, perhaps also in connection with pursuing a degree or executive training in management. We hope, moreover, that the management practices established at a specific organization, as well as the associated challenges, may also become the subject of the kind of reflection suggested here.
We have provided several aids to support readers as they work through this book. The SGMM is structured according to a number of basic principles. Knowing these facilitates reading the book and working with the model. [9]
• Important definitions and terms are italicized (and thus highlighted). They can also easily be found in the subject index.
• The model categories of the SGMM are presented and explained in the introductions to the task perspective and the practice perspective. These two perspectives and their interplay become more understandable as readers become more familiar with the entire model. Conversely, a solid knowledge of the individual model categories promotes overall understanding of the model. Hence, we suggest that readers not only read through each chapter once, but also delve deeper into especially relevant sections.
• Understanding the model will depend on one’s own grappling with its components and thus on one’s willingness to constructively and critically illumine specific topics based on one’s own work context.
• Managers may use the SGMM to initiate fundamental processes of clarification and reflection, on the one hand in general conceptual terms and on the other in concrete design terms. The term “strategy” illustrates this particularly well:
– The term “strategy,” which we introduce as a model category in the SGMM’s task perspective, has manifold meanings in science and practice. Managers must clarify which aspects, phenomena, and facts of organizational reality the term “strategy” represents and should be used for in daily practice. Hence, one needs to fundamentally clarify the meaning of strategy in general and define how strategy ought to be understood. This serves to develop a common understanding of strategy as a general concept among managers. [10]
– On this basis, one needs to simultaneously clarify what a specific organization’s “strategy” consists of concretely. What is its core? How does it become visible? What is it meant to achieve? The SGMM’s practice perspective includes various considerations and forms of description. These facilitate precisely describing an established strategy in its complexity and “communitizing” its understanding by the responsible managers. This, in turn, is an important prerequisite for further developing a strategy, jointly and purposefully.
• In order to help our readers develop a good overall understanding of the SGMM, we have cross-referenced important topics, terms, and illustrations. The four main chapters are abbreviated as follows:
– Introduction: INT
– Task perspective: TPP
– Transition to the practice perspective: TRA
– Practice perspective: PPP
Chapter abbreviations are followed by a reference to the corresponding section. For example, chapter 5.4.1 (“Cultural understanding”) in the task perspective is cross-referenced as follows: (→ TPP, 5.4.1).
In sum, the SGMM invites managers to work together with their teams on topics and challenges so as provide additional and novel scope for action and development with a view to advancing organizational value creation.
Saying that, the SGMM also invites teachers and students to experience, in a new way, the interplay of environment, organization, and management of organizations with which they may already be familiar, and to critically reflect on selected topics. Visit www.sgmm.ch for additional information and teaching materials. [11]
Preface
INTRODUCTION
1 Why is a detailed examination of management more important than ever?
The term “management” is ubiquitous nowadays. Nevertheless, what management really is, or rather what its core is, often remains vague. Thirty years ago, Hans Ulrich spoke of a “societal function that is not understood” (Ulrich, 1984). He thus highlighted that although management is highly important, not only economically but also societally, its importance is often not explicitly addressed. Second, he indicated that the core of management is actually far from obvious (Malik, 2013; Tsoukas, 1994; Watson, 1994). We consider this unsatisfactory. Not only because management is so omnipresent today but also because it is becoming increasingly important and demanding (Cunliffe, 2014; Mintzberg, 2009; Ulrich, 1984).
Here we mean the core purpose of management, which often remains undefined in business administration (Malik, 2013; Ulrich, 1984): to shape value creation through division of labor, as today’s organizations do in the form of products and services for specific value creation addressees (customers, citizens, patients, students, etc.). Such value creation is increasingly preconditioned. It depends on specific knowledge, complex integrated processes, elaborate technical expertise, and sophisticated physical and technological infrastructures. Often, value creation also involves a large variety of actors, who may perceive and evaluate the value of value creation very differently in its overall context.
The three examples below illustrate just how diverse and complex modern value creation is:
• Take a young biotech enterprise: Its basic value creation may lie in developing new medication for cardiovascular disorders. Central to this value creation are scientific findings on mechanisms of action in the human body, new R&D processes (e.g., from systems biology), and new technologies (e.g., digital simulation models). These are sometimes developed by the company itself, sometimes in partnerships with other startups and established corporations, and sometimes are also taken over from these. At the same time, it is important to attract the best employees in the relevant fields of knowledge and to secure the necessary financial resources in several funding rounds. The key tasks – structuring this complexity, setting the right priorities, and establishing robust partner relationships with different stakeholders – all require effective management practice. [20]
• Or an orchestra: Its central value creation may lie in performing excellent concerts and going on successful tours, or in producing special recordings. Yet societal changes and digitalization are fundamentally changing the context of value creation: Concerts must reach new target groups (e.g., younger generations), tours intensify competition among orchestras (such competition is often global), the distribution of recordings is subject to new technical conditions (streaming, YouTube, etc.) and to altered economic rules of the game involving completely new business models. At the same time, orchestras need to keep offering traditional concerts and reinterpreting music for the present. These changes and the associated uncertainties must be carefully addressed by effective management practice.
• Or a hospital: Its central value creation lies in treating and healing patients. Medical and technical progress is leading to increasing specialization among doctors, nurses, therapists, etc. At the same time, technological support is growing in various areas (diagnosis, treatment, and patient data management). While medical records must now be kept electronically, patients may obtain wide-ranging information about their illnesses online. This is changing the relationship between health professionals and patients from a patronal relationship to a partnership. In addition, the growth in new treatment options, with corresponding resource requirements, substantially exceeds the financial resources flowing into healthcare through tax revenues, health insurance premiums, and self-paying patients.
As a result, not only treatment decisions are becoming more complex, but so are decisions associated with devising treatment offerings, as well as developing and efficiently using physical and technical infrastructures, medical devices, IT systems, etc. Medical or care-related knowhow alone no longer suffices to meet this challenge. What is required is effective management practice, one capable of integrating changing treatment options, associated patient expectations, and the ambitions and demands of different professions to advance innovative patient-centric value creation.
Against the background of these three examples, chapter 2 explains in detail the key reference point of management: organizational value creation. Chapter 3 introduces the SGMM, illustrates the purposes of management models, and explains how the SGMM came about. [21]
2 Organizational Value Creation: The Key Reference Point of Management
2.1 Value Creation as Outcome and Process
Management is not an end in itself, but always concerns organizational value creation. The term value creation refers to two distinct, yet closely related issues:
• On the one hand, value creation means the outcome of value creation, i.e., products or services (or effects in general), from which value creation addressees (e.g., customers, patients, or a concert audience) can derive a specific benefit.
• On the other, value creation means the value creation process, i.e., all activities leading to the outcome of value creation (such activities include inbound logistics, production and outgoing logistics, marketing, distribution, and customer service). Any value creation process can be greatly simplified and schematized as a “value chain” (Figure 1).
When the SGMM speaks of value creation, we always mean both aspects, because the outcome can never be understood and designed without the process.
Figure 1: Value chain (Porter, 1985: 37) [22]
2.2 Value Creation as Organizational Achievement
When an organization or a network of organizations creates value through division of labor, we speak of organizational value creation. Precisely this organizational value creation is the key point of reference for management.
Organizational value creation refers not only to what private enterprises achieve for their customers. Depending on organizational value creation and the environmental context, other types of organizations can be distinguished (→ INT, 2.5): nonprofit organizations (e.g., a purchasing cooperative), nongovernmental organizations (e.g., the ICRC), governmental organizations (e.g., public administration, schools, railways, post offices, the police, or the army). Such types of organizations often appear in mixed forms.
Nowadays, organizational value creation mostly has four basic characteristics: (1) coordinated division of labor; (2) specialization; (3) spatial and temporal distributedness; (4) the institutionalization of reliable cooperation.
These four characteristics are closely interconnected.
• In terms of the value creation outcome, division of labor means that an end product (e.g., a car) is divided into modules, each performing specific subfunctions for overall value creation. Similarly, an insurance service can be split into specific individual tasks and modularized task bundles. In terms of the value creation process, division of labor means that overall value creation, i.e., the activities required to manufacture a product or provide a service, is divided not only among different people but also among different subprocesses or organizations, which cooperate with each other in value creation chains (Figure 2).
Figure 2: Textile value creation chain [23]
• Division of labor, i.e., dividing overall value creation into subtasks, subprocesses and subfunctions, has one major advantage: It enables specialization, i.e., developing and applying specialized knowledge and skills. A task is not only distributed identically among a large number of actors. These actors, whether individuals, communities or organizations, may and must consciously endeavor to specialize. While the involved actors now only master specific individual activities of overall value creation, their in-depth competence and experience means they excel at their task.
Actor specialization often coincides with specializing the overall resource configuration. By resource configuration, we mean all the prerequisites that are available over time and whose interplay leads to developing, producing, and providing specific products and services. Such preconditions include financial resources, physical and technological infrastructures, location conditions, knowledge and know-how, permits or rights (e.g., licenses).
• Another characteristic of organizational value creation, in its intra- and interorganizational division of labor and specialization, is its spatial and temporal distributedness. Thus, different value creation activities are distributed sequentially or in parallel, staggered over time, and performed in various places (e.g., locations, buildings, rooms).
• Labor-division-based value creation depends on reliable, well-functioning collaboration. Enduring, robust, and goal-oriented collaboration needs to be institutionalized within an organization. By institutionalization, we mean developing a certain, lastingly stable, and person-independent practice (e.g., in a democracy, popular votes and electing members of parliament). Repeated enforcement makes such practices collectively self-evident. They can be based on both implicit rules and formalized regulations (→ TRA, 2.1 and 3.1).
Thus, institutionalizing labor-division-based collaboration enables this cooperation to be practiced as independently as possible of specific individuals. To this end, organizations serve as structured spaces of action for lastingly stabilizing labor-division-based cooperation (Barnard, 1938).
2.3 Primary and Supplementary Value Creation
Products, services, and other value creation outcomes must create added value (benefit) for their target groups. Target groups are the key addressees of organizational value creation. They include certain customer groups (for companies), citizens (for public administration), students and research [24] partners (for universities), parties to a conflict (in courts of law), or patients (in hospitals). Thus, an outcome-centered understanding of value creation focuses primarily on how organizational value creation impacts target groups. Examples include material products (vehicles, computers, household items, textiles, semiconductor components, agricultural products, books, etc.) or immaterial services (financial services, overnight accommodation, educational services, etc.). We call target group-oriented value creation primary value creation.
This refers to those impacts of an organization’s activities that are related to its basic purpose, i.e., its core function. For example, an economic organization (enterprise) aims to satisfy customer needs, a political organization (e.g., party) seeks to form majorities, in order to meet public concerns, and a scientific organization (e.g., university) strives to generate new knowledge.
At the same time, organizations achieve much that extends beyond primary value creation and represents additional value creation: They create jobs, pay taxes, form a place of belonging, help establish meaningful employee identity, contribute substantially to occupational pension funds, and serve the common good. Thus, today’s organizations, as stabilizing institutions, are important pillars of modern society.
2.4 Value Creation in Environment-Organization Interaction
Organizational value creation arises from the coordinated interaction between an organization and its environment and must continuously evolve. Accordingly, developing and utilizing a specific environment is inseparably linked to organizational value creation.
An organization’s environment is not simply an undefined space surrounding that organization. According to the SGMM, that environment is rather the space of possibilities and expectations specifically relevant to an organization. Organizations need to purposefully open up this existence-relevant space and shape it entrepreneurially. This requires developing robust relationships with specific stakeholders, most of all with the organization’s target groups as its primary value creation addressees. For instance, establishing an innovation partnership with a technical university also opens up new product innovation possibilities for an enterprise. These possibilities need to be concretized in the product development process as innovative product characteristics and subsequently purposefully utilized. How an organization performs these tasks opens up its specific environment while new possibilities also arise for a university if its partnering enterprise [25] provides funding. Enterprise and university become relevant environments for each other. We understand their interplay, i.e., how these two organizations develop in relation to each other, as co-evolution.
Thus, organizational value creation, as a key point of reference for management, always focuses on design and on development. This dual focus encompasses organization and environment – with a view to enabling their sustainable co-evolution.
2.5 Types of Organizations
Not all organizations are identical. Essentially, an organization defines itself in terms of its primary value creation: What does this consist of? And which specific environment is this value creation oriented toward? The SGMM understands the primary environment as the environment toward which an organization’s primary value creation is oriented.
Primary value creation and the primary environment shape an organization’s identity and self-concept. This also includes how it deals with the concerns, interests, demands, and disturbances it faces. The terms primary value creation and primary environment also indicate that organizations can have several purposes or functions. They can be multi-purpose or multi-function systems required to cope with manifold heterogeneous expectations.
Overall, organizations can be typified in terms of three main distinctions: First, some organizations align their primary value creation with markets (the economy as an environmental sphere), while others provide a different type of primary value creation. Second, organizations whose value creation aims to achieve a financially realizable increase in value for their owners, while others emphasize other values. Third, some organizations are privately owned, others publicly.
On this basis, we distinguish six types of organizations:
• First, organizations are enterprises if they align their value creation with markets and thus with the economy as their environmental sphere. They generate added value for their owners. They are privately owned. Enterprise ownership is more or less fully tradable in the form of shares or other forms of participation.
• Second, organizations are public enterprises if the state is either the owner or at least a majority shareholder. Such enterprises must align themselves [26] simultaneously with two environmental spheres: politics and the economy. Typically, public enterprises include the state postal service, state railway, state providers of communication services or public water supply and waste disposal. Their value creation is (at least partially) state-regulated, e.g., if critical infrastructures or politically desired services (public service) are concerned.
• Third, organizations are public organizations if, in contrast to public enterprises, they do not orient themselves toward the economy, but instead create sovereign value (e.g., public security). Based on a government mandate, this type of value creation is oriented toward the environmental spheres of politics and law. Examples of public organizations include the army and police or public administrations (e.g., building authorities, citizen registration offices, inland revenue, etc.).
• Fourth, organizations are nongovernmental organizations (NGOs) if they are typically oriented toward the environmental spheres of the public and ethics, but if their value creation – in contrast to public organizations – is not legitimized by a state mandate. NGOs are oriented toward societal concerns (e.g., the protection of human rights, nature, or animals).
• Fifth, organizations are nonprofit organizations (NPOs) if their foundation and continued existence are motivated not by increasing value for their owners but by collective self-help or by added societal, cultural, symbolic, or intellectual value. Typical organizations include ones committed to their members’ concerns (e.g., cultural associations, sports clubs, neighborhood and elderly aid associations, etc.).
• Sixth, organizations are pluralistic organizations if several of the above organizational characteristics apply simultaneously (e.g., public hospitals or private universities). Their value creation is typically characterized by multiple orientations toward several environmental spheres, by heterogeneous notions of success, and often also by hybrid ownership. In such organizations, effective management as a reflective design practice is associated with special challenges.
In sum, different organizations are characterized by different environmental orientations. These environmental orientations also exhibit specific notions of valuation and success. While efficiency and productivity standards are hugely important in the economy, other criteria are central in politics (e.g., obtaining a majority, increasing power). Key criteria in public administration, as such oriented toward politics and law, include the rule of law, equality of rights, and legal certainty. [27]
Consequently, these organizations have different identities, rationality criteria, and performance measures with regard to gauging and evaluating appropriate, meaningful, legitimate, reasonable, and desirable action (Schedler & Rüegg-Stürm, 2014).
2.6 Organizational Value Creation as Management Focus
Every organizational value creation first needs to “settle down” (i.e., find its place) in a complex world, in order to occur with a certain self-evidence. Changes in an organization’s environment and new opportunities mean that its value creation also needs to be constantly scrutinized, reflected on, and further developed. Precisely this is the responsibility of management. Accordingly, the SGMM defines management as a reflective design practice.
This demand – to reflectively design organizational value creation – must include management itself and is crucial for two reasons: Not only is management becoming more important from a societal viewpoint, but also ever more demanding and controversial. Thus, organizations and scholarship need to develop a differentiated understanding of what constitutes effective and responsible management.
The SGMM addresses this pressing need by describing the multifaceted nature of management and its manifold prerequisites both linguistically and visually. Our aim is to enable managers to carefully reflect on their own management practice.
3 The St. Gallen Management Model (SGMM)
3.1 What are Models for?
Models are created if interrelations are either not obvious or very complex, and if no robust understanding of a subject can be taken for granted, but instead calls for explicit collaborative reflection and orientation. Models serve to better understand complex interconnections and to simulate future possibilities. They support anticipating or reconstructing possible developments through purposeful abstraction and simplification, and thus help strengthen our imagination. [28]
For instance, terrain models help gauge a new highway’s acoustic and traffic impacts prior to construction. Architectural models serve to assess a building’s aesthetic and functional qualities in advance. The same applies to aircraft models. Formal econometric models help assess the impact of economic policy measures before implementation. Chemical and physical models are used to estimate the functionality and dynamics of novel substances before production and usage.
Thus, models help collaboratively develop a better understanding of complex interrelations. At the same time, they involve simplification and abstraction so as to clarify important relationships and dependencies. The SGMM also needs to be understood in this sense. It represents a frame of reference that includes helpful descriptive categories, a “Leerstellengerüst für Sinnvolles” (Ulrich & Krieg, 1972). The SGMM aims to open up the interplay of management practice and organizational value creation for a dynamic environment to close scrutiny, be it in management practice (by managers) or in teaching (by teachers and students).
3.2 What does the SGMM achieve?
The SGMM does not represent an idealized corporate reality. It endeavors, instead, to strengthen the collective imagination of those facing management challenges. We intend the SGMM to help actors jointly recognize new impact dynamics and possibilities, by enabling careful reflection and by anticipating cause-and-effect relations hard to fathom. Thus, the SGMM contributes to focusing attention on how management becomes effective. It does so through conscious selection and simplification. In this sense, the SGMM cannot be “implemented.” Rather, it needs to be understood as a perspective and as a way of thinking that helps organizations shape and develop themselves.
We also see the SGMM as a language that facilitates understanding and (collaborative) reflection. As such, it helps to understand the complex nature of management and to practice it responsibly – both in general and in very specific situations.
The SGMM describes fundamental aspects of management. It spells out perspectives on management in context and provides corresponding visual illustrations. It enables actors to carefully consider their experiences of management practice. This makes the SGMM one of the few management models to explicitly subject management as such to reflection. The SGMM understands such reflection as an essential prerequisite for effectively and responsibly designing organizational value creation. [29]
Thus, the SGMM has two key functions: description and reflection / design. We intend the SGMM to enable critically and constructively reflecting on and advancing management practice. Our aim is that the model will as such effectively and responsibly expand not only an organization’s entrepreneurial repertoire of possibilities for action and development but also the management practice responsible for creating those possibilities.
3.3 Overview of the SGMM
The SGMM holds that the key point of reference for management is to design and advance organizational value creation. Value creation, so the SGMM, occurs through an organization’s interaction (co-evolution) with its environment – including avoiding unwanted side effects (e.g., stress or environmental burdens). Depending on its history, environmental embeddedness and value creation, an organization requires a very specific management practice to design and advance its organizational value creation.
The SGMM distinguishes two perspectives on organizational value creation: a task perspective and a practice perspective. This distinction pertains to the historical development of business administration, i.e., management science.
The task perspective assumes that an organization’s core – task-centered, labor-division-based human interaction, between individuals with different qualifications, educational and professional backgrounds – quite simply functions. Further, this perspective assumes that organizational value creation and its development can be influenced, unproblematically, from the outside. The founder of German-language business administration, Erich Gutenberg, formulated this idea in his groundbreaking postdoctoral thesis (Gutenberg, 1929: 26; our translation and emphasis):
“Hence, the enterprise as an object of business administration cannot directly be the empirical enterprise. The assumption must be made that the organization of the enterprise functions perfectly. This assumption eliminates the organization as a source of its own problems and removes it from its scientifically and practically significant position to the extent that it can no longer create difficulties for theoretical deliberations.”
Many business models, concepts, and frameworks are dominated by an economic approach to organizations. As such, they emphasize efficiency, i.e., cost-benefit considerations. [30]
From a task perspective, organizations are clearly identifiable entities consisting of tasks and problems capable of being systematically captured analytically and processed rationally. This perspective also suggests that concepts and “instruments,” such as the marketing mix, five-forces analysis or financial ratio analyses, if correctly understood and applied by the responsible employees, contribute to good decisions and thus sustain an organization’s success. Hence, the task perspective relies on the unproblematic possibility of organizations being rationally designable and controllable. The blind spot of this perspective is the demanding preconditions for management to become effective.
However, already Gutenberg realized the shortcomings of this perspective (Gutenberg, 1929: 26; our translation and emphasis):
“Assuming such a perfectly functioning organization, which ensures smoothly executing the basic business processes, does not mean negating, but only neutralizing the organization’s problems. The stance presented here will give rise to a wealth of arguments that privileges research questions about the organization.”
Gutenberg’s demand is addressed by the SGMM’s practice perspective. This second perspective focuses on what the task perspective, by assuming that organizations simply function, largely leaves unmentioned: the complex socio-cultural preconditions and practices of labor-division-based cooperation. Concretely, it is anything but self-evident that communication succeeds, or that timely, robust decisions keep being made and take effect in daily business, or that organizations can innovatively change and develop entrepreneurially. All of this instead requires particular reflective and communicative efforts while carefully heeding complex, ephemeral, confusing, and often elusive organizational events.
The SGMM’s two perspectives view environment, organization, and management in different ways. Consequently, certain descriptive categories appear in both perspectives, sometimes with slightly different meanings – similar to looking at the same object from different angles.
• The task perspective applies an analytical and design process that focuses on facts and contents. This process contributes to elaborating a differentiated sense of the possibilities for successfully advancing existing organizational value creation while accounting for diverse influencing factors and effects. This analytical and design process enables using diverse business concepts and frameworks. [31]
• The practice perspective, on the other hand, helps critically reflect on the manifold resource-related and cultural prerequisites for effectively realizing convincing design options. This enables developing ways of working simultaneously on the necessary preconditions for and means of realizing existing design options, as well-considered and as effectively as possible.
Figure 3: The interplay of the task and practice perspectives (M.C. Escher’s “Drawing Hands” © 2019 The M.C. Escher Company-The Netherlands. All rights reserved. www.mcescher.com)
Figure 3 shows that both perspectives are equally important and complementary. Concrete entrepreneurial challenges require using both perspectives systematically. Hence, the SGMM addresses environment, organization, and management from both perspectives and constructively interrelates them. Our long-standing observations in management research, executive education, and management practice unmistakably demonstrate how effective and responsible management practice needs to oscillate between – and productively interconnect – these two perspectives. [32]
3.4 The Development of the SGMM
More than 50 years ago, a group of professors and lecturers at the University of St. Gallen (HSG), headed by Hans Ulrich, initiated a fundamental new development of conventional business administration, in order to advance the field toward an integrative management theory (Ulrich, 1984). This scientific endeavor sought to provide both managers and students with an integrative frame of reference within the ongoing disciplinary diversification of business administration. The envisaged frame would enable readers to perceive complex problems in their overall context, and to treat them as holistically as possible. Conceptualizing management as designing, steering, and developing purpose-oriented social institutions (Ulrich, 1984), the framework aimed to counteract attempts to simplify management by aggregating individual disciplines under the primacy of profit maximization.
Ulrich also assumed that management first and foremost means coping with complexity. On this basis, he explored management practice and management science in an unusual and innovative systems-theoretical and cybernetic view (Ulrich, 1968). This approach regards organizations as complex systems having to tackle an equally complex environment. This perspective provided the theoretical basis for developing the St. Gallen Management Model (Ulrich & Krieg, 1972; Malik, 1981; Ulrich, 2001). Ulrich’s first-generation SGMM was intended to help readers adequately grasp and effectively deal with complex management challenges, in their overall context and in their dynamic interconnectedness.
To this day, this concern has lost none of its relevance, as effective management is becoming ever more demanding, more complex, and more controversial. Hence, the latest version of the SGMM, like its predecessors, also seeks to provide a language and a framework to help both managers and students cope with the complexity confronting management practice today.
Today’s fourth-generation SGMM shares a systems-oriented and entrepreneurial focus with the original SGMM (Ulrich & Krieg, 1972). It deepens the second-generation SGMM’s explicit differentiation of management into operational, strategic, and normative aspects (Bleicher, 1991). Along with the third generation (Rüegg-Stürm, 2004), it shows that organizational value creation is achieved through dynamic interaction with a diverse environment and through a sophisticated interplay of processes. The present fourth [33] generation reconceptualizes management as a reflective design practice, which must continuously advance organizational value creation by interacting with a dynamic environment through regular reflective distancing (Rüegg-Stürm & Grand, 2017). We explain various key aspects of the SGMM’s systems-oriented focus below.
3.5 Environment, Organization, and Management: A Systems-Oriented View
3.5.1 What is a System?
A systems-oriented view understands organizations as complex systems (Ulrich, 1968; Ulrich & Probst, 1988; Gomez, 1981; Gomez & Probst, 1999) . Such systems create specific value within a specific environment.
A system is an independent entity. This entity delimits itself from an environment and consists of diverse elements (Erk, 2016). These may be very different, depending on one’s viewpoint and epistemological interest.
• A material-technical view, and interpreting an organization as a technical system, means that buildings, locations, infrastructures, technologies, and artefacts are system elements.
• A communicative view, and interpreting an organization as a social system, means that actions, communications, decisions, and relationships are system elements.
• An economic view, and interpreting an organization as an economic system, means that incentives, transfer prices, financial resources, and their allocation are system elements.
• A legal view, and interpreting an organization as a legal system (i.e., “legal person”), means that definitions (e.g., statutes, competence regulations, regulations stipulating rights and obligations, contracts, etc.) are system elements.
• A human-centric view, and interpreting an organization as a human system, means that individuals, emotions, attitudes, skills, and knowledge are system elements. [34]
A system is characterized by its elements interacting in diverse ways and establishing reciprocal references. These do not occur completely randomly but in an orderly fashion, in terms of interaction patterns. These patterns give a system its character and express its basic structure. If this structure develops further, we speak of a dynamic system.
A system is complex if the respective system behavior can neither be fully understood nor clearly predicted. Thus, we may interpret a soccer game as a system. As a game, it is distinct from ordinary, everyday life and forms a dynamic entity typically lasting 90 minutes. This system comprises interactions (moves as system elements), to which the players keep referring and from which new moves are continuously generated. However, the game is not played arbitrarily. The rules of the game (and the referee enforcing them) structure this system. These rules, rather than determining the course of the game, merely create the framework in which the teams’ creativity and power of self-organization can unfold. The patterns emerging during the game may constantly change and evolve, as an expression of the game’s dynamic structure. A soccer game is complex because the events and their development are neither fully understandable nor clearly predictable.
3.5.2 The Importance of Context
A systems-oriented view of environment, organization, and management regards an organization as a complex value creation system that is embedded in a dynamic environment. This view emphasizes that entrepreneurial phenomena, problems, and developments must always be seen in their embeddedness, i.e., in a broader context (Pettigrew, 1987). This context can be manifold and, depending on the decision situation, different contexts need to be distinguished. Here are three examples: an organization’s historical development; a fierce controversy over a product’s important “side effects” (e.g., automobile emissions); or the respective political, legal, or technological context.
How market participants behave, how an organization develops, what management should and can actually achieve always needs to be considered in terms of a specific, historically evolved context. Thus, an organization’s behavior, be it an enterprise, city administration, political party, university, hospital or museum, can only be adequately understood in relation to that organization’s specific environment. [35]
The same applies to an organization’s “inner world.” Teams, specialized departments, and business units are embedded in the overall organization, and hence act from within it. Thus, what management practice can make happen and achieve depends essentially on the overall context. This context has evolved historically, is continuously developing, and hence is itself a dynamic entity.
Hence, in a systems-oriented view, it is essential to carefully grasp and understand the relevant contexts. This requires systematic “zooming-out,” in order to capture the larger context (e.g., technology and market dynamics). It also requires “zooming-in,” in order to adequately understand the involved microdynamics (e.g., the growing relevance of social media for an effective customer approach; Figure 24). Oscillating between zooming-out and zooming-in (i.e., mutual referencing) enables developing marketing activities able to do justice to both perspectives. Thus, in a systems-oriented view, if we are going to appropriately understand complex phenomena, we need to carefully examine a given system and its diverse environment.
3.5.3 The Importance of Interdependencies
Manifold relationships, interdependencies, and feedback exist not only between an organization (as a complex value creation system) and its environment, but also among that organization’s elements. A systems-oriented view aims to understand the involved dynamics. It pursues this goal because, in a complex action context, impacts always result from the reciprocal interaction between different elements. This view focuses not on the properties of individual system elements but instead on the interdependence of interactions and the resulting and retroactive effects.
For instance, a good soccer team cannot simply be formed by buying a group of stars. What counts instead is the team’s well-drilled, creative interplay. This results not from individual skills, but represents a quality of its own. Of course, outstanding players may have an important function.
What a single player can achieve depends on the overall dynamic constellation, i.e., the two teams on the pitch. Interdependence means that every player simultaneously observes several players on his team and on the opposing team, and aligns his own behavior with this dynamic constellation. Since every player does this at the same time, the result is a highly complex behavioral structure. Just as we can understand this merely to some extent, we can derive no precise predictions from this structure. [36]
What a soccer team can achieve also depends on various factors: its embedding in its larger context, the club’s management and talent promotion scheme, the involvement of fan communities, the club’s participation in national and international soccer bodies, etc.
In a systems-oriented view, an organization’s impact and success (just like a soccer team’s) result from the interplay of manifold interdependent prerequisites, capabilities, and dynamics. Historically, these crystallize in organizational value creation – which sets narrow limits to an organization’s “simple controllability.” A system, as a dynamic whole (in a dynamic environment), is not only more than but also different from the sum of its parts – and precisely this makes a system so complex.
3.5.4 Consequences for the Understanding of Management
A systems-oriented view understands the dynamic interplay of environment, organization, and management as a complex developmental setting. This approach has three implications: First, all activities are embedded in manifold contexts. Second, actions can never be viewed in isolation; instead, they always become effective through interdependent interaction with other actions. Third, this interaction of actions is subject to continuous interaction dynamics, which are never fully anticipatable.
Hence, the efficacy of management does not result from heroic individual actions and decisions, but instead from interdependent interactions. These occur in a historically and situatively embedded and continuously evolving reality. Seen thus, management is a practice – a form of manifoldly interrelated practical actions (e.g., jurisdiction or an orchestra).
The SGMM understands management as a reflective design practice. On the one hand, this approach is based on carefully empirically examining management practice in today’s organizations. On the other, it benefits from the latest developments in management research (Cunliffe, 2014; Korica et al., 2017), which essentially regards organizations as repertoires of interdependent practices (→ TRA 3.1). [37]
THE TASK PERSPECTIVE
Overview
The SGMM’s task perspective focuses on the factual, purposeful handling of tasks and problems related to organizational value creation and critical to an organization’s sustainable success. We use six main model categories (environmental spheres, stakeholders, interaction issues, processes, structuring forces, and development modes) to convey concepts and instruments helpful in analytically capturing and tackling these tasks and problems. These six main model categories are primarily oriented toward business research and practice.
The SGMM’s task perspective aims to bring the manifold business management tasks, functions, and concepts into a systematic overall context, and thus to provide orientation, whether in education and further training or in management practice (Figure 4).
Since its first publication in the early 1970s, the SGMM has made a concerted effort not to view organizational value creation solely in narrow economic terms. It has instead consistently emphasized an organization’s manifold embeddedness in a complex and dynamic environment. The SGMM understands an organization as a complex, purpose-oriented value creation system, and the required management practice as an interplay of control systems and feedback loops. We deepen this systems-oriented conception of management, and what management really is, in the SGMM’s practice perspective.
The SGMM’s task perspective consists of six main model categories:
• Environmental Spheres (chapter 1)
• Stakeholders (chapter 2)
• Interaction Issues (chapter 3)
• Processes (chapter 4)
• Structuring Forces (chapter 5)
• Development Modes (chapter 6) [40]
Figure 4: The SGMM’s task perspective [41]
These main model categories concern the basic task and design fields of management practice.
• Environmental spheres are the key fields of reference for organizational value creation. Those environmental spheres that are particularly important for an organization must continuously be analyzed to identify important changes and trends.
• An organization’s stakeholders are individuals, communities, or organizations that are either involved in organizational value creation or are currently or potentially affected by it. Different stakeholders confront an organization with different concerns, needs, and interests.
• The latter point to interaction issues, i.e., the key points of reference around which an organization’s communication with its stakeholders revolves. We distinguish between concerns and interests, norms and values, as well as resources. Interaction issues are on the one hand thematic points of reference and on the other tradable goods and rights.
• An organization’s labor-based-division value creation activities are distributed across time and space. Their structuring requires processes. Processes are sequential activity patterns that are systematically interrelated and characterizable in terms of their factual and temporal logic. We understand organizational value creation as the interplay between management, business, and support processes. All these processes require careful design, alignment, and integration into a creative and coherent business model.
• Organizational life is shaped by various structuring forces. These forces contribute to making everyday organizational flux coherent. They also ensure that processes can produce the desired impacts and results for value creation addressees. Governance serves to define and structure an organization’s purpose, identity, vision, mission, and normative orientation with basic regulations, each defining the roles, rights, and duties of managers. Strategy articulates an organization’s competitive positioning, differentiation, and long-term development direction. Structure embodies the division of labor, i.e., the organizational configuration. Finally, culture expresses an organization’s basic behavioral assumptions, beliefs, rules, values, norms, and attitudes.
We associate structuring forces with the idea that governance, strategy, structure, and culture exert an orienting, structuring, and motivating force, i.e., have an “effective influence,” on processes. They do not, however, linearly or causally determine everyday organizational flux. [42]
• Environmental dynamics, resulting from the interplay of creativity, epistemological progress (i.e., advances in knowledge), business initiatives, and innovative organizations, but also characterized by political upheavals and societal crises, require every organization to keep developing. Development modes describe basic patterns of how organizations can evolve in a dynamic environment. Optimization efforts take essential provisions, design decisions, and enabling conditions for granted. Everyday organizational flux is optimized within the framework of these provisions. On the other hand, renewal efforts aim to bring about fundamental change. This, in turn, may result in basic changes to parts of organizational value creation or even lead to “reinventing” value creation and environmental embeddedness as a whole.
Orchestrating a skillful interplay of optimization and renewal aims to dynamically stabilize an organization’s development. Every successful development depends on continuous stabilization efforts.
We present these model categories in detail in the following chapters. In a systems-oriented view, it is important to always consider the reciprocal relations and interactions between these categories. [43]
1 Environmental Spheres
We understand environmental spheres as the key contexts of organizational value creation. The SGMM’s task perspective distinguishes four important environmental spheres by way of example: economy, technology, nature, and society. We focus on these four environmental spheres to exemplify important aspects of organizational value creation.
Today, value creation is heavily preconditioned and resource-intensive (material and immaterial resources). Resources are produced and traded in the economy, i.e., within a specific space of action and communication. The economy can be understood as a “coordination mechanism” for efficiently developing, providing, and allocating scarce resources. For enterprises, the economy represents the survival space relevant to their existence.
Today, value creation (as outcome and process) is characterized by diverse technological applications. Technology innovation is a fundamental progress driver of organizational value creation. Hence, technological developments deserve special attention, as demonstrated by the current digitalization of organizational value creation.
Nature is the most basic supplier of resources, spaces for human life and survival, and organizational activity. The current controversies about climate change and ecological (as well as social) sustainability indicate that nature deserves systematic attention. The SGMM has been pointing this out since its inception in the 1970s.
Society, as the most comprehensive communication space of human coexistence, shapes how the economy, technology, and nature are interpreted and treated time- and culture-bound. The SGMM regards society as the central communicator and evaluator of economic, technological, and ecological developments.
One of today’s key management tasks is to establish the preconditions for two crucial processes: first, recognizing early on fundamental development trends and controversies concerning an organization’s environmental spheres; second, carefully analyzing their concrete significance for the organization. [44]
1.1 Economy
The first environmental sphere discussed here – the economy – consists of diverse procurement, sales, labor and financial markets. It is as such the “biotope” or “seedbed” of enterprises and their value creation. The economy’s task is to provide a society with goods and services but also with resources, as needs-oriented and efficiently as possible. This sphere is therefore geared toward efficiently allocating scarce resources. This is meant to ensure that a society’s value creation activities are aligned as effectively as possible with meeting a population’s needs, and thus to optimize societal prosperity.
The economy is not only relevant for private enterprises but also for many other organizations that, for example, depend on procuring cheap capital, that seek qualified workers, or that depend on taxpayer money or donations. The following aspects may be highly important for any specific organization regarding the economy as an environmental sphere:
• Economic conditions
• Access to procurement and sales markets
• Regulation of markets
• Efficiency of goods, labor, and financial markets
• Availability of capital
• Concentrations of suppliers and customers
• Transport infrastructures • Telecommunications infrastructures
• …
These examples illustrate that the economy, as one of several environmental spheres, cannot be viewed in isolation. For instance, an economy’s innovative strength depends greatly on developments in the three other environmental spheres: technology, nature, and society. [45]
1.2 Technology
The second environmental sphere – technology – is closely linked to the dynamics of the first sphere (economy). Technological innovation often results from the interaction between enterprises and public research and educational institutions such as universities. Innovative technologies may bring forth new products and services, new needs, and new market potentials. Conversely, technological innovation depends on economic investment. Technological developments in the following areas may be significant for an organization:
• Communication and information technology
• Digitalization
• Biotechnology and genetic engineering
• Process technologies
• Materials technologies
• Energy production technologies
• Mobility technologies
• …
It is important to closely examine the conditions either favorable or detrimental to technological innovation and diffusion. These include the designing of licensing procedures for innovative experiments and intellectual property rights. But overall location attractiveness is also relevant for innovative organizations. Such areas include Silicon Valley in semiconductor technology, or Boston (USA), Cambridge (UK), and Basel (CH) in biotechnology and genetic engineering. The proximity and density of development hubs, and the corresponding synergies, make such areas “powerhouses” for high developmental dynamics.
It may be important for organizations to not only closely heed technological development but also form location-based technology clusters or innovation ecosystems. At the same time, today’s technologies enable global interconnectedness regardless of location.
These considerations show that technology, as an environmental sphere, is strongly influenced by overall societal developments, for instance, regarding risk perception and risk acceptance. [46]
1.3 Nature
The third environmental sphere – nature – represents the basic space for human life and survival. It is also a key resource supplier for organizational value creation. How nature is perceived, and which attitude is adopted toward it, depends essentially on current societal discourses. These discourses may differ greatly depending on the country, culture, and societal and economic context, above all regarding controversial ecological concerns (e.g., global warming, ocean pollution, loss of biodiversity). Such considerations are particularly important for globally active companies – especially concerning the respective NGOs. Different aspects of this environmental sphere may be important for an organization:
• Resource wealth
• Sea access
• Threat of natural disasters
• Agricultural potential
• Topography
• Climate and climate change
• Biodiversity
• Degree and severity of environmental pollution
• …
The SGMM considers not only the objective properties of these aspects of nature essential, but also their local impact, and how they are assessed and discussed more or less controversially by which stakeholders in which contexts. The various environmental spheres must always be observed and analyzed in terms of their concrete societal relevance. [47]
1.4 Society
In the SGMM’s task perspective, the most comprehensive environmental sphere is society. Societal discourses and controversies decisively influence various key issues: how the relationship to nature is shaped, how developments in nature are perceived and evaluated, how technological innovations are assessed and implemented, and which forms of economic value creation are considered desirable or suddenly become problematic (e.g., diesel engines). Essential spaces of action and communication in society include politics, law, science, religion, art, and the public sphere. This diversity is an expression of ongoing societal differentiation.
The fundamental aspects of society listed below may become relevant for an organization:
• The population’s willingness to perform and its educational level
• Its openness to the foreign and the new
• Its willingness to take risks
• Its age structure
• Income and wealth distribution
• Social problems and conflict potential
• The role of the media in the public sphere
• The role of the state and the forms of political opinion formation
• National norms and conditions
• Political stability, political forces, and development dynamics
• Public infrastructure, education, public safety
• … [48]
1.5 Relationships between Dynamic Environmental Spheres
As mentioned, the division of an organization’s environment into four environmental spheres is merely an example. Under no circumstances are we suggesting that these “spaces” are clearly identifiable and easily distinguishable. Rather, they constitute overlapping spaces of action (→ PPP, 3). For example, it is impossible to determine whether developments in intellectual property law should be attributed to society as an environmental sphere (influence of NGOs on political opinion-forming), to technology (implications of the patentability of life for further developing biotechnology and genetic engineering), or to the economy (supplier, partner, and customer migration to countries with “business-friendly legislation”). Environmental spheres merely help structure analysis, in order to identify success- and existence-critical trends and controversies as seen from a specific organization. [49]
2 Stakeholders
2.1 Individuals, Communities, and Organizations
For the SGMM, an organization’s raison d’être depends largely on how far it generates relevant value, i.e., creates a specific benefit or another form of added value for selected value creation addressees. An organization creates value through actively engaging (interacting) with diverse stakeholders. An organization’s stakeholders are the individuals, communities, or organizations participating in or (currently or potentially) affected by that organization’s value creation.
The SGMM’s task perspective (Figure 4) places an organization’s stakeholders in an outer circle, which is embedded in the various environmental spheres. Dependence on success-critical resources is crucial to identifying key stakeholders. On the left are those stakeholders that tend to provide enabling conditions or resources. On the right are those that tend to benefit directly and essentially from organizational value creation. The latter include key target groups (e.g., customers, citizens, patients, students).
This visualization is illustrative rather than conclusive. Every organization must carefully consider over and again which individuals, communities, or organizations fundamentally benefit from its value creation or are affected by any negative (side) effects, and thus can be addressed as stakeholders.
Carefully identifying relevant stakeholders is particularly important and also critical in case of controversial discussions. Such disputes may make new stakeholders relevant, e.g., social media. In turn, these media may bring together previously unrelated stakeholders in the shortest possible time as well as mobilize protest potential.
However, concrete disputes may also entail more precisely differentiating already identified stakeholders. If aircraft noise increases significantly in an airport’s conurbation due to political disputes, it will not be enough to merely consider governmental or specific agencies as relevant stakeholders. In such disputes (as happens in Switzerland, for instance), the directly-affected municipalities, the home canton, and the federal government (Swiss Confederation) may be pursuing very different concerns and interests. Stronger stakeholder differentiation (e.g., into different [50] customer segments or employee categories) should help to identify and appropriately assess concerns and interests previously unaccounted for as early as possible in the context of all existing concerns and interests.
2.2 Stakeholder Concepts
Relevant stakeholders can be identified and prioritized based on either a strategic or a normative-ethical stakeholder concept (for details, see P. Ulrich, 2008). These two concepts are based on ideal-type guiding ideas, which are briefly discussed below.
• In a strategic stakeholder concept (Freeman, 1984), selecting and weighting relevant stakeholders is based primarily on how strongly stakeholder interests and demands affect securing an organization’s future and its value creation (stakeholder power): Who can decisively influence an organization’s future existence in the short or long term, e.g., by controlling scarce resources or by exercising sanctioning power?
Answering this question requires assessing power and dependency. Hence, when designing stakeholder relationships according to a strategic stakeholder concept, the main aim is to maintain all participants’ willingness to cooperate and to secure the acceptance of influential stakeholders.
• A normative-ethical stakeholder concept (P. Ulrich, 2008) recognizes as relevant stakeholders all individuals, communities, and organizations – regardless of influence or power constellation – that are potentially or actually affected, positively or negatively, by organizational value creation, and that are entitled to human dignity and moral rights (e.g., children without a lobby or future generations). The relevant selection criterion is not simply how powerful a stakeholder’s claims are, but above all how far individuals, communities, and organizations are currently or potentially affected. Hence, shaping stakeholder relationships in line with a normative-ethical stakeholder concept requires ensuring that conflicts of interest are dealt with consensually. It also requires carefully and ethically weighing up and legitimizing claims as a respectful, impartial, and responsible cosmopolitan would do. It is crucial in this respect to recognize affectedness and to systematically ensure that the benefits and burdens of organizational value creation are fairly “distributed.” [51]
2.3 Interrelations between Different Stakeholder Concepts
When comparing these two ideal-type stakeholder concepts, we do well to note that a normative-ethical stakeholder concept includes essential aspects and selection criteria that are part of a strategic stakeholder concept. It does so without absolutizing these aspects and criteria, and instead places these within a larger ethical context. Applying a normative-ethical stakeholder concept also ought to involve carefully considering dependence on external stakeholders, who control resources existentially relevant to one’s organizational value creation. Even with a normative-ethical stakeholder concept, (financial) claims by an enterprise’s owners are legitimate. When making momentous decisions, such claims must be carefully weighed against those of other stakeholders. It is hence barely surprising that, when applied, these two ideal stakeholder concepts often assume a mixed form.
In contrast, advocates of the shareholder-value approach firmly believe that systematic stakeholder management is dispensable. They also argue that concepts not focusing solely on owners’ immediate economic interests systematically invite glossing over the enterprise’s poor performance. Based on utilitarian thinking, they claim that a firm’s societal responsibility is primarily to maximize profits (Milton Friedman). They justify this position as follows: Free, transparent, and efficient markets guarantee, through the disciplining “invisible hand” (Adam Smith), that – within legal boundaries – consistent orientation toward self-interest automatically maximizes societal welfare and thus optimally satisfies stakeholder needs.
Those advocating a strategic stakeholder concept would counter this argument by claiming that shareholder value one-sidedly favors owner interests, and that shareholder value can only be maximized by giving the needs of all stakeholders long-term and balanced consideration. Thus, adopting a differentiated stakeholder perspective is in shareholders’ own interest. [52]
Furthermore, those advocating a normative-ethical stakeholder concept point out that far from every legally compliant contract is necessarily legitimate. In fact, a contract not only unanimously expresses the will of free and responsible economic entities, but also always reflects a specific relationship of power and dependence. A “smart deal” may be legal, yet need not be fair and ethically legitimate.
Finally, those advocating an ethical-normative stakeholder concept counter both the shareholder-value and the strategic-stakeholder concept by indicating that ethically justifiable and morally necessary decisions favoring certain stakeholders may never positively affect shareholder value in the long term. In other words, some decisions, in terms of an ethical-normative stakeholder concept, may require investors to consciously forgo their interests in favor of other stakeholders. [53]
3 Interaction Issues
Organization-stakeholder interaction involves manifold exchanges and communicative relationships. These relationships are shaped by specific topics and issues. Thematic points of reference may be ideal or material. They may also be conflictual and ignite controversy. And they are conveyed communicatively – in an open communicative space, which the SGMM visualizes as an overlapping “bubble” (Figure 4).
Thus, we understand interaction issues (e.g., customer wishes, job security, transparency requirements), which shape stakeholder-organization relationships, as whatever stakeholders bring to an organization, place at the disposal of its value creation, or dispute. Or vice versa: whatever an organization must actively strive for and develop to reliably create its organizational value. The SGMM distinguishes three descriptive categories of interaction issues: concerns and interests, norms and values, and resources.
3.1 Concerns and Interests
Individuals, communities, and organizations in an organization’s environment are stakeholders if they are directly or indirectly involved in or affected by its organizational value creation. Stakeholders may enjoy a benefit or added value, may face negative emissions or risks, or may experience short- or long-term enhancement or impairment of their quality of life and development opportunities.
Against this background, stakeholders articulate specific claims and demands toward an organization by addressing specific concerns relative to different environmental spheres and by expressing their interest in realizing these concerns and interests. Depending on stakeholder composition, these concerns and interests may be homogeneous, heterogeneous, or even contradictory.
Hence, the concerns and interests of the various stakeholders require careful consideration and appreciation. Whether producing genetically modified organisms is concerned, or new working time and remuneration models, or closing down a production facility: Such activities raise controversial concerns and conflicting interests. On the one hand, genetically modified organisms highlight new possibilities (e.g., higher yields of cereal varieties, [54] better pest resistance, etc.). On the other, they involve irreversibly interfering with nature’s gene pool, without us being able to conclusively anticipate how genetically modified organisms as a whole will affect the human ecosystem. Especially in terms of a normative-ethical stakeholder concept, these different concerns and interests require respectful appreciation and careful argumentation. Finally, any decision must be comprehensibly justified to be considered legitimate.
3.2 Norms and Values
Central to controversial disputes with stakeholders and legitimizing corresponding positions are the norms and values existing and valid in a particular society at a given time. On the one hand, these norms and values require interpretation, while on the other they are constantly evolving. “Security” in the field of energy supply may mean that companies need not worry about power failures. It may, however, also mean forgoing nuclear power plants in order to avoid exposing the population to the risk of nuclear disasters. A nuclear incident may lead to completely new interpretations and assessments of secure energy supply.
These norms and values, as well as an organization’s decisions and actions based thereupon, require new ethical reflection. Such reflection – and not simply short-term market success or maintaining long-term viability – must form the key point of reference within normative orientation processes for legitimizing organizational value creation as outcome and process. Such reflection thereby shapes an organization’s ongoing strategic and operational decision-making processes.
Conversely, a society’s norms and values are also strongly influenced by organizational legitimization and decision-making processes. What “health” means as a value, and what may be expected of health, is heavily affected by healthcare providers (via treatments, therapies, publications, medicines, etc.). This becomes particularly evident in controversial discussions with the critics of today’s healthcare system.
On the one hand, legitimization and decision-making processes, which may go hand in hand with controversial disputes with stakeholders, result in an organization’s independent normative orientation (→ PPP, 2.3). On the other, these processes also result in specific access to important, sometimes even existence-relevant, resources needed for organizational value creation. [55]
3.3 Resources
Resources are the material and immaterial preconditions for organizational value creation. They must be tapped, maintained, and utilized. Which resources are available to an organization and under which conditions (e.g., price, condition, restrictions), i.e., what exactly is available as a legitimate and usable resource (e.g., raw materials, energy, land, rights of use, funds, human labor, knowledge, technical expertise, attention, or reputation), depends crucially on the applicable norms and values and on the related disputes over the normative orientation of organizational value creation.
For instance, it may be ambivalent to describe employees as human resources. On the one hand, this term may suggest that employee capacities are being utilized similarly to technology in order to achieve an organization’s goals: Employees are instrumentalized and regarded as a useful production factor, which must be optimally deployed or dismissed in order to continuously increase productivity. On the other hand, the term human resources may also be used to emphasize the necessity of systematically promoting and realizing human aptitudes and potentials.
3.4 The Importance of Interaction Issues for Normative and Strategic Orientation
An organization’s environment is opened up through stakeholder relationships. Against the background of certain norms and values, stakeholders assert specific concerns, interests and demands. These must be evaluated and prioritized in the context of sometimes controversial processes of clarification, negotiation, and legitimization involving diverse stakeholders. These processes crystallize a certain normative orientation within an organization. This orientation – often stated explicitly and presented as a vision, mission, or guiding principle – conveys fundamental guidelines for determining which value creation is considered desirable, and which is excluded. Normative orientation also conveys behavioral maxims on how conflicts of interest should be dealt with – for instance, more power- or more communication-oriented. This has far-reaching consequences for opening up and handling resources. [56]
Ideally, an organization’s normative orientation creates a fundamental decision-making framework for developing robust strategic positioning within a network of stakeholder relationships. The focus lies on establishing the prerequisites for success and on securing one’s long-term existence. Pursuing these goals, an enterprise orients itself primarily toward the economic market logic, i.e., business opportunities. Positioning itself, an enterprise selectively takes up the needs of specific target groups, prioritizes these needs and, on this basis, defines strategic development directions, implementation initiatives, and projects. The specified expectations and goals must be “translated” into efficient operational value creation processes.
Adequately understanding the tasks and challenges involved requires closely examining how value is created. This should help us to better understand how an organization “functions.” How can an organization specify its desired organizational value creation to meet its addressees’ needs and to create that value as efficiently as possible? What are the prerequisites for achieving these goals? How can the measure of quality desired by stakeholders be achieved and continuously guaranteed? And what are the resulting fields of work for management practice? [57]
4 Processes
4.1 The Growing Importance of Process-Oriented Design Work
The value creation of today’s organizations is characterized by intense division of labor and specialization (→ INT, 2.2). The work required to create a product or service is more or less differentiated into specific value creation activities. This involves employee specialization.
Tasks and employees possessing the same or similar technical expertise are grouped into functional areas (e.g., procurement, production, sales, HR, or finance; → TPP, 5.3.3). These areas or departments deploy specific expertise and infrastructure to perform specific tasks within overall value creation. Establishing specialized units or departments enables purposefully developing, pooling, and efficiently utilizing the specialist expertise required for specific value creation.
The organization-specific division of value creation activities into specific specialist areas can be illustrated with an organizational chart. This visualizes an organization’s hierarchical structure, i.e., organizational configuration (→ TPP, 5.3). This structural or institutional view of an organization emphasizes the competence and responsibility of employees, organizational units, and their managers in fulfilling important value creation tasks.
In recent decades, economic, technological, political, and societal developments have strongly dynamized the environment. Increasing customer demands, the deregulation and globalization of many markets, yet above all the rapid development of new information and communication technologies (digitalization) have drastically intensified competition.
Time is increasingly becoming a scarce resource. Hence, speed and punctuality are gaining massive importance alongside quality and price, and have become a decisive competitive criterion. Time competition is becoming more and more dominant (Stalk & Hout, 1992): The bigger no longer “eats” the smaller, but the faster the slower (or the faster learner the slower one). Strategic agility is becoming a decisive prerequisite for success. [58]
Thus, temporally structuring specialization by division of labor and cooperation is becoming increasingly important. This development requirement collides with historically evolved, highly specialized areas of expertise. As these tend to optimize themselves internally (“blinkered thinking”), or even become little “fiefdoms,” they tend to degenerate into more or less isolated “operational islands” in terms of overall value creation (Figure 5).
Figure 5: Fragmentation trend of organizations Operational Islands
What is needed, instead, is designing organizational value creation across departments “from customer to customer,” i.e., carefully designing customer-centric processes. This requires careful temporal structuring of task fulfillment in order to meet the new needs of one’s value creation addressees (e.g., flexibility, speed, and responsiveness). Designing customer-centric processes takes priority (Osterloh & Frost, 2006): “Structure follows process.”
At the same time, the target groups of today’s organizations increasingly expect integrated organizational value creation from a single source (“one face to the customer”) – as if the entire organization comprised a single, fully informed, and competent person approachable at any time and oriented completely toward the constellation of customer needs.
This desideratum is particularly evident in service-intensive organizations (e.g., banks and hospitals). There is a demand for reliable, trustworthy contacts (“case manager”): one consultant for all banking services or one doctor for an entire treatment process. How a bank or a hospital structures itself internally is irrelevant for value creation addressees. Two other factors, however, are crucial: First, the relationship with the organization needs to be transparent; second, the “one face to the customer” experience needs to be positive. [59]
4.2 Process-Oriented Design Concepts
Since the early 1990s, these expectations have been met by process-oriented design efforts based on the latest information and communication technologies. These include concepts such as Business Process Redesign, Business Process Reengineering (Hammer & Champy, 1993), Process Management and Process Organization (Hammer & Stanton, 1999). All these concepts strive to make an organization’s value creation processes as lean as possible. This goal is pursued by minimizing error-prone interfaces, by systematically eliminating any “idle steps” generating no customer benefit (i.e., non-value-adding work, e.g., unnecessary waiting times or transportation, multiple clarification of the same facts), and by orienting these toward exhausting one’s core competencies.
Several other approaches also serve this purpose: Lean Production (Ohno, 1988) or Lean Management (Womack et al., 1990), as well as process-oriented approaches designed to continuously improve value creation processes, e.g., Kaizen (Imai, 1986) or Total Quality Management (Seghezzi et al., 2013).
All of these concepts increasingly highlight the systematic process-oriented interconnecting and optimizing of organizational value creation activities rather than institutional questions of establishing formal, hierarchical structures and departments. Design efforts ought to focus on customer-centric and well-coordinated organizational value creation rather than on creating optimal organizational units (Figure 6).
Horizontally oriented design supplements an organization’s traditional vertical structure by functional areas with the horizontal customer-oriented optimization of all business processes (e.g., service innovation, service provision). The horizontal perspective enables considering the value chain in terms of the customer, i.e., to consistently bundle value creation activities in order to maximize customer benefit. For instance, order processing begins (e.g., first contact with a customer advisor) and also ends with the customer (e.g., when the goods are shipped, when the customer settles the invoice, or when after-sales services are provided). The same applies to other processes: approving an extensive construction project, processing a complex loan application, or treating a serious illness. [60]
Today, the process-oriented design of organizational value creation (i.e., cross-departmentally or even cross-organizationally coordinating and synchronizing timely task fulfillment) is decisively supported by suitably applying modern information and communication technologies.
An organization’s processes do not end at its boundaries. Rather, they “couple” an organization with its specific environment by manifoldly involving stakeholders in organizational value creation.
Consistently applying a process view enables understanding every organization as an interconnected interplay of processes. Between these exist manifold interdependencies as well as customer and supplier relationships. This interplay of processes can also be described as process architecture (Österle, 1995).
Figure 6: Interplay of functions and processes in a process-oriented organization [61]
4.3 Process Categories
The idea to systematically consider an organization’s value creation is not new. Porter’s (1985) approach to the value chain distinguishes primary activities, which contribute directly to customer benefit, and supporting activities, which create the conditions for primary activities to be customer-centric (Figure 1).
Figure 7: Interplay of process categories
Similarly, the SGMM assumes that an organization’s value creation processes can generally be assigned to three large categories of higher-level processes (Figure 7): management processes; business processes and business model; support processes. [62]
4.3.1 Management Processes
Management processes comprise task complexes needing repeated handling and related to designing, stabilizing, and further developing either organizational value creation as a whole or an organization’s essential subsystems. This involves, for example, appropriately structuring task areas (e.g., budgeting, multi-year financial planning, evaluating major investments, project initiation and monitoring, strategy development, clarifying basic normative questions, acquiring and integrating other organizations). The SGMM distinguishes three basic categories of management processes: normative orientation processes, strategic development processes, and operational coordination processes.
Before explaining these categories, we briefly clarify the terms normative, strategic, and operational. These are used to describe key design dimensions of management practice (see also P. Ulrich & Fluri, 1995).
• The term normative refers to questions and tasks concerning ethically legitimizing organizational value creation (as outcome and process) and arising from assuming societal responsibility beyond primary value creation. The focus lies on high responsiveness to societal values, on questions of meaning, and on recognizing moral intrinsic values.
• The term strategic refers to questions and tasks relating to securing an organization’s long-term future. In view of changing stakeholder expectations, new opportunities, and development trends, this requires pronounced responsiveness. Two processes are central to such strategic efforts: establishing and further developing the prerequisites for successful long-term organizational value creation.
• The term operational refers to questions and tasks relating to running and stabilizing everyday business, above all efficiently utilizing scarce resources.
Thus, we understand the three categories of management processes as follows (Figure 8):
• Normative orientation processes serve reflecting on and clarifying the normative foundations of organizational activity. This may involve developing basic (procedural) behavioral principles for dealing with various stakeholders, in case of controversial concerns and interests, or for applying hazardous technologies. [63]
• Strategic development processes comprise integrated strategy and change work (Müller-Stewens & Lechner, 2011; Nagel & Wimmer, 2014). Such tasks must be performed when developing a robust strategy and successfully implementing it in everyday operations.
• Operational coordination processes involve diverse prioritization and coordination processes, e.g., prioritizing tasks and orders, or allocating scarce capacities (personnel, infrastructure), including holiday regulations, maintenance, etc.
Figure 8: Overview of management processes
4.3.2 Business Processes and Business Model
Business processes (sometimes also referred to as service- or patient processes depending on the type of organization) include an organization’s primary value creation. This includes target-group-oriented core activities intended to contribute directly to creating benefits for primary value creation addressees (e.g., customers, citizens, students, patients) (→ INT, 2.3). [64]
Customer-oriented business processes are central to an enterprise’s value creation – from identifying specific customer needs to effectively and efficiently creating customer benefits.
Business processes can be further subdivided, e.g., in the case of an enterprise as follows: Customer processes include customer acquisition and customer retention as subprocesses. Customer processes ultimately lead to repeat purchase decisions. Service provision processes comprise all activities resulting in customers receiving the agreed service at the agreed time and in the agreed quality. This includes subprocesses such as order processing, logistics, and production. Service innovation processes include subprocesses that contribute to systematic product innovation. In the case of industrial goods, R&D activities are central (Bieger, 2019; Bieger et al., 2009).
In line with the common term core competencies, business processes helping an organization to create strategic differentiation are often referred to as core processes (→ TPP, 5.2.4). For instance, the product development process can be a core process in an enterprise widely known for its innovation leadership. Core processes contribute significantly to customers’ perception of a superior benefit compared to the enterprise’s competitors.
In recent years, a new, expanded way of thinking about organizational value creation has emerged, above all due to rapidly developing information and communication technologies, as these create the prerequisites for completely new forms of organizational value creation. Innovative business models are central to the corresponding strategic development efforts (Gassmann et al., 2014).
A business model (Figure 9) describes how added value is generated for all stakeholders involved in organizational value creation processes, and how customers pay for this added value (commercialization).
It is essential to consider value creation – and this includes both business and support processes – across various organizations. Central to a business model is the entire value creation chain or value creation configuration – and often also a new self-understanding of value creation if, for example, a railway company develops into a mobility service provider (e.g., car rental, car-sharing services, Park & Ride, bicycle stations). Embedding organizational value creation in a comprehensive value creation configuration emphasizes developing new roles and functions, for both cooperation partners and value creation addressees (e.g., customers). [65]
Figure 9: Business Model Canvas as a widely used instrument for structuring business models (Osterwalder & Pigneur, 2010)
New technological possibilities enable an organization to outsource essential subprocesses (e.g., ordering processes to customers), or to develop completely new value creation configurations (e.g., in transport or accommodation services). This corresponds to increasingly and newly differentiating value creation, which is attractive as the latest developments in information and communication technology (e.g., apps, GPS) establish the conditions for integrating all participants’ business and support processes into the desired value creation configuration far more efficiently.
4.3.3 Support Processes
Support processes provide basic infrastructures and resources. Many such processes are critical to success and enable effectively and efficiently conducting management and business processes.
• For example, HR processes serve recruiting, developing, evaluating, and appropriately rewarding employees.
• Occupational training serve systematically further qualifying employees and developing an enabling teaching and learning culture.
• Facility management serves providing and cost-effectively maintaining all types of infrastructure facilities.
• Data and information handling serve processing customer, operational, financial, and risk data. [66]
• Corporate communications and public relations serve developing and maintaining robust stakeholder relationships far beyond safeguarding direct economic interests (corporate identity, public relations). In particular, this includes professional crisis communication (“issue management”).
• Risk management serves appropriately evaluating and handling the market-related, financial, technical, and communicative risks associated with business activities.
• Legal and compliance serve meaningfully designing, monitoring, and supporting business activities, from stakeholder claims to the regulatory design of governance.
These processes are designed and further developed as part of human resource management, training management, facility management, information management, communications management, risk management, and legal management. No difference in value exists between business processes and support processes. It is, for instance, crucial that professional service firms (consultancies, law firms, auditing firms) recruit, integrate, promote, and further develop qualified staff. The same applies to information and communication technology in a financial services company or in a hospital.
4.3.4 Financial Management Processes
In many organizations, financial management issues play an important role because finances are scarce resources and hence critical to an organization’s development opportunities. Which process categories can these processes be assigned to?
In fact, no single financial management process exists, but several subprocesses. These can be assigned to different process categories depending on task and effect:
• Financing, i.e., capital procurement and liquidity management as well as external accounting and reporting, provides the resource configuration with the necessary funds. These, in turn, enable making investments, building up potentials, and meeting payment obligations at any time. These processes significantly influence an organization’s financial stability (risk) and profitability. Thus, profitability indicates not only economic capacity but also spaces for action and development.
The SGMM regards these processes as support processes because they involve providing an appropriate resource configuration, one also including sufficient liquidity. The latter is a vital resource as it is the most [67] malleable of all resources: In a sense, liquidity is sheer potential, since its possession in no way determines when funds are spent, nor by whom or for what purpose.
• On the other hand, annual and multi-year financial planning, including investment planning, operational accounting and controlling, serve to create financial transparency. These are key preconditions for ensuring that the overall impact of an organization’s decisions (e.g., major investments or acquisitions) can also be adequately assessed from a financial viewpoint.
The SGMM regards these processes as management processes. They help to ensure that value creation can be designed to flourish in the short and long term in association with a dynamic environment. In addition, financial planning processes may also be used to fundamentally question the status quo of organizational value creation and, if necessary, to realign it.
4.4 Process Development
In practice, designing and developing processes frequently involves flow charts and process maps. These reflect an understanding of design instruments crucially important to the SGMM: “Tools” are aids for structuring communication in collaboratively seeking to advance organizational value creation (→ PPP, 1.3).
Process maps are used to visually reconstruct and illuminate the complex and intertwined nature of the routinized interactions structuring everyday business (Figure 10). As such, they have two important benefits: First, they clearly and comprehensibly visualize the spatially and temporally distributed communication, decision-making, and action patterns shaping everyday organizational flux; second, they enable discussing these patterns together.
Hence, process maps allow developing idealized theoretical concepts of organizational value creation. Importantly, they also enable making the effects (advantages and disadvantages) of the concrete division of labor and specialization accessible to enabling discussion. Such visualization permits participants to capture the overall dynamics of routinized interaction patterns and, on this basis, to collaboratively identify and unlock optimization and innovation potentials. [68]
Using process maps to carefully and jointly examine one’s working reality is indispensable to understanding and sustainably changing routinized interaction patterns. This is important because neither optimized nor newly designed processes serving one’s value creation addressees, nor the routinized communication and cooperation this requires, can simply be imposed on and implemented in an established organization. Instead, they require experimental testing, anchoring, and continuous optimization. This clearly reveals the limits of simply disseminating and multiplying “best practices.”
Figure 10: Detail of a process map (project documentation, ITEM-HSG) [69]
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