A Proposal to Unterstand Service Relationsships, Stakeholders, Societal Systems and Markets in the Economic Sphere
I like to call the following iO Environmental Model (iO = intelligent organizations) the „playing field of management“, and on the one hand I would like to point out the possible relationships with the environment and on the other hand I want to serve it as a reflection aid by offering an overview of the complex topics of corporate management. The visualization of the model focuses on the economic sphere – this viewpoint is directly integrated into the model, so that no extra space (visual element) for economic actions is shown.
The organization illustrated in this model is based on the following assumptions:
- A company acting in a (relatively) free market,
- The company’s products are sold directly to customers, so there is no wholesale or intermediate trade in the scenario,
- Sales and procurement are defined from a strategic perspective as operative units and are presented as separate Systems 1.
What does the model show?
The basic idea of the model is to break down the various stakeholder groups, social systems and the resulting service relationships. In practice, a distinction is often made between shareholder value, stakeholder value, customer value or employee value, but on closer inspection the other relationships are not further specified, let alone consiously designed.
This line of thought has resulted in a rather extensive range of necessary and possible service relationships, which the company has to and can maintain. The model should serve to prioritize the respective relationships in order to address the tasks to be completed (to meet the expectations of your stakeholders). In other words, although the degree of abstraction may seem quite high, it is intended to improve the practical decision-making ability in everyday life. One could complain that it overwhelms the viewer’s in the first place, because it contains so many elements and details. I can only respond to this understandable objection with the another proposal: then finally let’s start demonstrating against gravity. You get the the point: This would be as pointless as complaining about the complexity of business activities.
Another important aspect of the iO Environment Model is that the company represented as a VSM is embedded in the environment. The usual representation of the VSM unit encourages some folks to perceive the company as a separate entity, as if it would not be coupled with the environment. With this form of presentation it is also possible to assign the responsibilities for the service relationships to the individual systems of the VSM (at least according to my interpretation).
The representation and sorting of the spheres is done with the intention to perceive them as parallel existing entities. Even if it seems, as if society is embedded in the technological sphere, and this, in turn, is embedded in the ecological sphere, this is not my intention. This visual representation is just a 2D graphic. In my view, the phenomenon of simultaneity hits us again. Actually one should imagine the spheres as layers, which keep on interacting for ever and ever. Of course nothing is static und the visualization is just a snapshot in time.
Finally, I want to refer to the distinction between the „Known Unknows“ and the „Unknown Unknows“. The Unknown Unknowns are symbolically located outside the spheres and contain all unthinkable, since unimaginable communications, thoughts and other mental artifacts. It contains all the knowledge of which we do not know, that we do not know. It also includes all communications that have not taken place, including decisions and actions that have not happened. Additionally it contains all the strange effects of complexity like temporal delays or long range/distant effects. Drawing on an analogy of astrophysics, in which unknown phenomena are always preceded by a „black“, I call this space the „Dark Mental Space“. This dark space is, of course, also constituted in the stakeholder groups and the social systems – but this overview has only metaphoric value, therefore it is inserted at the edge of the model. It is not a question of the complete representation of this aspect, but rather of a friendly reminder of how relative knowledge is. Actually one has to mirror the „Inside of the Environment“ with the Unknown Unknowns in order to represent the space of happening and not-happening operations at the same time.
What’s in the model?
Actually, I can’t claim to have created something really new with this model, because it is nothing more than a synthesis of existing models and concepts. In the DJ’s language, you could call it a remix. Therefore I would like to thank the following people for their inspiration:
- Hans Ulrich for the 1st St. Gallen Management Model,
- Niklas Luhmann for his categorization of Social Systems,
- Umberto Maturana and Henry Mintzberg for the ideas of structural coupling,
- Norbert Schröder and his C-ENS business management model,
- Peter Gomez and Timo Meynhardt for their concept of Public Value.
In this context, I would like to highlight the concept of Public Value. Whether entrepreneurs, investors and owners like it or not, a company cannot exist without its nourishing environment. It is therefore not possible to evade the responsibility for society, but one can ignore it. The concept states that values for the common good are always created or destroyed when companies act economically. For this reason, the repertoire of stakeholder groups should be expanded explicitly to include the Public Value. The question now arises as to how the Public Value is understood and determined, and I think that the concept is becoming now very interesting, as it states:
„The Public Value is what the public values.“
This definition suggests that the value for the common good can only be determined by the community, so it relies on a dialogue process (feedback from the population). In this concept, there are no normative specifications other than those that can be determined by means of communication and mutual interpretation processes. This makes it very different from the concept of the so called „public interest economy“ (Felber et. al.).
How do the terms of the relationships evolved?
The titles for the various relationships are intended to describe those values that the company partly must provide for the environment and partly can provide (always from an inside out perspective). Important: The following explanation of the names does not represent a sort order in the sense of a prioritization. The user of the model must determine the priorities himself/herself.
This is intended to remind us of the social responsibility of the entrepreneur and can be reduced to the question: is the (planned) economic action in the sense of the Public Value?
How interesting is the company as a cooperation partner? Are there real partnerships, or is the cooperation characterized by a customer-supplier relationship? If so, then it is more of an activity in the procurement market, but don’t make me believe in cooperation.
How relevant is the company as an employer for potential employees? Is there a sustainable attractiveness? Is it possible to find suitable colleagues? What do potential employees actually expect from the company?
There is also the possibility of maintaining a „slim“ relationship when it comes to purchasing materials that are usually only about volume discounts. Here it is often possible to optimize procurement processes and achieve advantages for buyers and sellers in a business with tight margins.
When procuring services, especially for critical ones, the company is well advised to consciously design collaboration. This gives the company the indirect opportunity to exert a positive influence on the quality of the interplay and the results arising from it. In contrast to the Cooperation Value, the customer-supplier relationship has been clarified here. But this approach can be shaped again in two ways: Do I see the service providers as economically dependent slaves, or as experts on an equal footing, who help the company to eliminate problems? If you lose sight of this aspect, it is possible that the company will not find suitable suppliers at some point in the future.
Financial Reliability Value
This typically describes the relationship with the bank or other financial institutions. Cash flow and liquidity issues need to be settled here, so that companies always have sufficient capital at their disposal in particularly volatile environments. Every managing director knows the importance of this relationship.
As the name suggests, this is about the value added by sales for an organization. What is the quality of the relationship with the prospective customer? Is the sale made by a column of pushers, or is there appropriate advice that leaves a happy customer behind, who will recommend? What promises are made that have to be kept afterwards at the customer?
Which customer’s problem is solved? This formula could be used to reduce the value for the customer. This relationship is certainly the most critical, because without customers no company will exist. At this point I refer to the next chapter and the section on Service Dominant Logic, which looks at the „value of a product in use“ and which calls for radical customer centricity.
What does the company stand for as a brand? Which identity is represented externally? These questions are mainly transported to the outside world in this context. In practice, this aspect is difficult to separate from the following story value.
Current buzzwords such as Content Marketing or Storytelling indicate, that even the last marketing man has now understood that penetrating, flat advertising doesn’t work in the long term. Customers expect stories and entertainment when they pay attention to an advertising message. Some stories are very simple („Buy now“) and others deal with a complex topic („Investing in sustainable funds“) – the client is looking for plausibility so that he can „save“ the company as a brand. It’s about to pass the relevance filter of the client.
The relationship takes care of the legal and fiscal requirements, often related to the location of the company and the local applicable laws. This is definitely a must-have relationship that you can’t choose, at least not in peaceful locations.
Values in this respect can be provided by the company by joining associations or federations and trying to place its interests. The borderline to dirty lobbying is quickly crossed when it comes to influencing the legislative process, for example.
Well being Value
It is not wrong to say that health is the most important thing in life. In today’s times, this means not only physical but also psychological well-being. In a world that is becoming more and more complex, this topic is becoming the focus of attention in the context of people-friendly companies. Key question: Which services can the company use to support its employees (including management) in their individual health care?
Especially for economically active organizations it can be very inspiring to look beyond one’s economic horizons and not to leave it with a pompous sculpture in front of the main entrance of the headquarters as an „art measure“. The art system with its own rules and truths offers companies a lot of potential to adopt new perspectives. Particularly in the field of communication and innovation, the examination of artistic concepts is proving fruitful. Even if it’s just that someone constructively interferes with the system and wakes it up.
For me personally, this is the most sensitive system, since I see myself as an atheist (cf. my premises). Nevertheless, an institutionalized system of beliefs has an influence on the economic scope and affects social norms. An example of this is the conflict in which an oil producing company wants to build pipelines through an area that Native Americans claim as holy land.
In industries such as the chemical and pharmaceutical industries, for example, there are pronounced links with research (sometimes they are even too close). Every research-based company maintains relations with the academic world – ideally, this involves more than just exchanging research results for money (see Public Value).
Overview of the required relationships
It seems logical to me that every company must provide at least the following values, by establishing the specific relationsships:
Customer Value Employer, Value Compliance, Value Financial Reliability Value and Public Value (dramaturgically set to the end!)
All other relationships are optional, in my view, although it is worth doing more than just what is absolutely necessary. According to Heinz von Foerster, one should always act in such a way that the number of options increases. In relation to the environmental model, this means: Which relationships help the company to link itself better to the environment?
How to use the model?
Following on from the Public Value, I would like to start by offering a reading aid. Ideally, each service relationship should be interpreted as follows: Public Value + Customer Value, Public Value + Employee Value or Public Value + Scientific Value. You recognize the pattern: Public Value should always be placed in front of the value stream when it comes to identifying and prioritizing the tasks that need to be performed.
The model is to be understood as a Lego box: It contains a few standard building blocks from which the user selects the appropriate components in the specific context and combines them accordingly. In this respect, the environmental model is similar to the VSM because it requires an independent transfer in order to work with it in practice. Therefore, only a few examples of overlaps with respect to social systems and stakeholders are included. Outside in the wild, of course, there are many more overlaps to be imagined. Depending on the situation, it can also make sense to merge stakeholder groups, markets and social systems with each other – again it’s about the context.
Risks and side effects
When using the model, I always ask you to keep in mind that the complexity of the environment is always many many many times higher than your own cognitive and information processing capacity. According to Ashby, it can only be a matter of recognizing the relevant patterns, but not of dealing with the claim of completeness. To put it briefly: It is hard enough to create the completeness of the „inside“ – but the outside can’t be arranged directly.
John Boyd (American military strategist) sums it up with the following formula:
IQ (theirs) ≥ IQ (ours)
Conclusion: You should never underestimate the intelligence of the environment and be happy, if you succeed in applying an almost matching intelligence.
PPS: Kudos to the people of deepl! Your service accelerated the translation by the factor of 10 or more!
Picture Credits: Jungle Picture, Pexels.com