Managing in a Complex World - Johannes Rüegg-Stürm

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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.

      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).

      • 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-

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