Schlagwort-Archive: Value creation

The VSM provides, what everybody needs

For a very long time, the horizontal and vertical division of labor was the basis for the breakdown of economic endeavors. The lack of availability and the slow flow of information required many handover points to propagate the intentions of the management and to create transparency of the business. At the same time, the tasks, authorities and responsibilities were designed in such a way that the actual value creators could fulfill their tasks without understanding the big picture. With the introduction of computers and their interconnectedness nowadays, all parties involved can reach the relevant information wherever and whenever, without the need for additional coordination expenditure. Since the companies reached the end of the one-way street of reducing costs, they are looking for new approaches, e.g. Holocracy, Platforms, Agility, Connected Company, etc. Although, there is already an approach available for a long time that fits perfectly with today’s requirements – the VSM.

The Viable System Model (VSM) describes the setup of a viable distribution of tasks. Stafford Beer introduced this model as early as 1959 in his book Cybernetics and Management. The VSM is part of a new view that has been developed for decades under the term System Thinking in the shadow of classical organizational theory. In this article we start looking at the model in general. Henceforth there will be more blog posts on this.

  • System 1 – Value creation (S1)
    In this area subsystems generate the deliverables. The products are manufactured respectively the services are executed. There is a direct contact with the environment, for example with the customers, the suppliers, and partners. This is where the value-adding activities take place. Each of these units is by itself a VSM with the corresponding components. In the new approaches these would be the sub-circles, the producers, the agile teams or the pods.
  • System 2 – Harmonization (S2)
    The value creation takes place in a small „company” (S1a) that behaves autonomously and self-organized. So that the individual subsystems interact, it is necessary to agree on the scope, the functionality and the interfaces. The vague exchange of information of the new approaches is made more specific in the VSM.
  • System 3 – Coordination (S3)
    Even though the everyday interaction in the S2 is harmonized, there is still a need in the here and now to focus on the big picture. For this purpose, the means to be used, the responsibilities and decisions are here made and disseminated in the operational units. Besides S3, an independent unit (S3*) is available in order to collect information that reflects the current state of the value creation as unspoilt as possible. The new approaches coordinate with, for example, backlog refinements and daily scrums, interaction platforms and governance.
  • System 4 – Alignment (S4)
    The company is constantly on the move in a direction that should be determined. This adjustment is influenced by the opportunities that arise in the environment. The direction of the company is determined by the leadership based on the new technical solutions that will be incorporated into future deliverables and on market opportunities that emerge. The insights will then be digested into a strategy and the associated planning that have an impact on all areas, including the development of employees and executives. In the new approaches, the alignment is left to the acting people.
  • System 5 – Final instance (S5)
    The areas of tension between the present (S3) and the future (S4) as well as between the company and the environment can not be resolved in Systems 1- 4. The last authority for such dilemmas makes the decisions that prevent the company from being damaged by its different internal interests. In contrast, the new approaches are based on a natural resolution of disputes through transparency and open exchange of positions.

Bottom line: Companies can not avoid putting themselves in a position that serves their purpose. The division of labor that eventually has a henchman performing simple activities dissolves. These same processes can nowadays be performed by machines and robots. The cascade for the distribution of information is also no longer needed due to the pervasive availability. As a result of the increasing digitization, there is a need to re-position the own company. The VSM provides, what everybody needs, since it allows realizing the bundling of tasks, authority and responsibility in one hand at the point of action as well as the agilization of lumbering companies.

What do I do?

Enterprises should actually be able to describe, what they do. Corporate areas and departments, which supply internal customers, often do not even have the idea to describe their business – let alone individuals. It is ever more important to explain oneself comprehensively, because when the business model (BM) is tangible, it is far more easy for customers and partners as well as employees and colleagues to fulfill their contribution. It does not matter whether one is working in a large or small company, a unit or a department, as employee or an executive, employed or self-employed, commercially or honorary. But how does an outline looks like for what I do?

The BM is an outline for explaining your activities. You have the following advantages. It

  • clarifies the different aspects of the activities,
  • supports the specification of procedures,
  • shows double work,
  • makes decisions easier,
  • identifies synergies and
  • helps saving money and time.

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It focusses on the following content-wise elements.

  • Deliverable concept
    The deliverable concept consists of five segments. There is an idea behind each activity. It is the basis of the undertaking and concretizes the solutions and the desired market with its sales opportunities. The better the preferred value discipline is specified (i.e best process, best product or customer intimacy), the better you can align the activities with it. The clear descriptions of the advantages motivate partners and customers to do their best. The description of the proposed results is the most important aspect. These can be products or services. Be aware, in which state of the life cycle your deliverables are.
  • Earning model
    You receive wage, salary or other kinds of remuneration for your core business based on the individual contracts. They are mostly of physical nature, e.g. money or assets. Sometimes it can be additionally non-material advantages, like reputation or personal satisfaction. The look outside the box extracts additional earning sources from the context, e.g. through the network that comes from a honorary activity.
  • Value creation
    The creation of value happens along the value chain. It starts from the moment, when the value-add rises for the first time and ends, when no further value increase occurs. Some parts we produce by ourselves and others are created by others. The smart allocation of tasks to the steps of the value creation offers opportunities for improvement.
  • Relationships
    The exact image of the partners and the customers facilitates the joint work. This contains not only the list of the relations, but also the description of tasks, authorities and responsibilities as well as a verbal characterization.
  • Resources
    Most of the activities need resources, i.e., financial means, qualified capacities, and an intact infrastructure. They should be clearly specified and available at the right time. Restrictions on resources obstruct the performance. Plentiful means extend the possibilities.
  • Communication and Coordination
    As soon as people cooperate, the exchange of the information and the controlling of the involved ones becomes important. Open channels between the target audience and oneself ensure a good flow of information. This provides clarity about the intentions, the current situation and the mental states of the people and organizations concerned. With appropriate mechanisms for coordination you manage the co-operation.

The more people work together, the more important is it to convey the business model.

Bottom line: Today the companies, organizations, teams and individuals need a clear comprehension of their business model. This is also valid, if it is not concerned a business per se, but an activity that is not focused on profits. By describing it with the aspects specified above, you create a meaningful representation of your own field of work.

Same series:

Who am I?

Where do I want to go?