Managing in a Complex World

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]