Systematic Process Modeling: Basis for Efficient Management
- 5-th International Conference of the countries Central and the East Europe "National programs of quality and national awards of quality - tools of development of movements for quality and perfection", Kiev, Ukraine, Aug 22-23, 2005
The analysis shows that an approach based on process could not be fully utilized due to lack of scientifically substantiated methodology that could embrace all aspects of corporate operation. A practical mechanism for implementation of a process based approach was absent. Today the theory called systematic process modeling (SPM) has been created and actively developed. The theory operates with a developed postulation system and definitions harmonized with cybernetics, system analysis, theory of solution of invention tasks, theory of self-organization, theory of physical structures, fractal theory, etc. SPM does not only explore and explain in depth mechanisms of corporate functioning, but also provides a powerful practical tool for solution of a multitude of practical production and management tasks. In essence efficient management practices for which people paid dearly could be logically derived from solution of the tasks. SPM is not another tool for corporate management or recipe for its improvement, but a technology for designing these tools “here and now” in a form most adopted for the situation. SPM is a theory that explains the composition and functioning of the company as it is.
SPM adopts an essential view on operation of the company and it explains the main reason for low efficiency of systematic approach adopted under ISO 9000 standards. It turned out that what they erroneously call “processes” are in essence functions, operations, activities. But each of these terms have its own inherent semantics! Process is not an activity but its consequences; changes that occur in the object to which the activity is applied. Process is a transition of the object or the event from the state with certain initial characteristics to the state with different finite characteristics. The difference between terms “process”, “operation” and “function” is shown in the following chart:
Chart 1. Process, operation, function.
2. Corporate processes as they are in essence
What is the main process? From the first sight the answer is evident – it is a transformation of a resource to which efforts are applied aimed at obtaining a more valuable resource or at multiplication of the existing resource. Consequentially the main process is a chain of transformation of the money being a universal resource and being the means of valuation of all other resources, which is reflected in the famous formula “money – commodity – money plus profit: M Þ C Þ M’. It is reflected in a Harvard definition of commerce: «commerce is a means of satisfaction of customer’s demand which brings profit to the provider”.
According to chart 1 the company (provider) will be processing venture capital M into commodity C and back into capital plus profit (M’) – which is the result of the main process for the owner of the company (consumer of the result).
But from the point of view of the management of the company the main process will be transformation of inputs into the commodity (I Þ C), because in absence of the commodity there is nothing to sell. From the point of view of suppliers of inputs the main process will be transformation of their commodity into money for their company: I Þ M. The consumer views the situation differently: he becomes a consumer when he exchanges his money for the commodity provided by the company, but in order to do that it is necessary to transform a potential consumer into an actual consumer: Cp Þ C. Only after that exchange of consumer’s money for the commodity takes place C Þ M’. For the government the main process here is transformation of money into taxes: M Þ T, etc.
It is evident that there is no overall main process for the company, but only the processes which are perceived as main by specific users (stakeholders) of specific results. Description of each of these processes presents an ideal picture – the model that reflects corporate behavior within a certain interaction. The company as any other material object can be characterized through a multitude of external and internal interactions. External (main) interactions and processes are ensured through internal (main) interactions and processes. Thus other users could perceive the process perceived by one user as the main as subordinate.
At the same time all processes are interconnected. For example, the main element in the chain of processes M Þ C Þ M’ is the commodity. But the final result of the chain occurs only when company’s product interacts with the consumer – owner of the money. The exchange takes place only if the consumer has a demand, wants to satisfy it and selects the products. It is evident that he has to undergo a number of transformations (processes) from a “potential consumer” to “user of the commodity”. Ultimately he may turn into a “loyal consumer”. For every company the aim of these processes is the main sequence of processes (MSP) applied to the consumer – the company gradually drives a kind of conveyor undergoing which the consumer into direction desirable to the company:
Chart 2. Main sequence of processes.
Number of links in the chain depends on the competition – the tougher the competition is the longer is the chain. The chain may consist of up to complete 15 links. The more detailed description for MSP you provide the more effective you may develop necessary strategy for the company (operations). In essence MSP is the basis for building up marketing strategy for the company or any other strategy necessary for the company from HR management to production process management.
MSP for the consumer objectively frames production process sequence – an algorithm of efforts applied to transform the consumer from his initial state into his final state:
Chart 3. Sequence of processes and operations
MSP for the consumer requires resources: both material and information resources. Resources should be available and finished by the time operation occurs. But, as a rule, finished resources do not exist, they should be processed into finished state. Processes for preparation of resources for the main process are called main processes and they also make up chains:
Chart 4. Chain of resource preparation processes
That is, organization of the main process does not differ substantially from consumer’s MSP apart from changeable resource and is common for all companies: the only difference is in number and length of chains. Number of intermediate resources (length of the conveyor) is defined by the technology. Finished resources are also necessary for execution of main processes. So the chain of processes consists of nods, cross-sections of the chains of processes, which include necessary resources as inputs and products and waste as outputs. Expenditure of resources occurs in the nods, which correspondingly leads to occurrence of costs:
Chart 5. Process organization (process nod).
Process nods can be used for analysis of the overall complex of the factors that influence each of the processes and correspondingly final result. Probability of obtaining preset parameters and characteristics (references) during transition from initial to final state is a criterion of quality of organization of the chain of processes.
All process chains have their initiation and their completion: partially within the company, partially outside. But external initiation and completion of the process chains is arbitrary: before and after processes occur that are outside company’s control and management. That is why its homeostasis may be improved through extension of the homeostasis for uncontrolled processes, which is shaped as vertical integration. Control over processes of product consumption ensures stronger influence of provider on consumer. Sometimes this control logically leads to setting up conditionally wasteless productions that include utilization of wastes generated by independent consumers. Analysis of external process chains provides for designing and implementing operations and technologies for their management, which includes generation of flawless business ideas. As an example we can provide consumer’s MPS all of which is practically located externally. Combination of the external process chains that are directly or indirectly managed by the company makes up thermostat of the company. Thermostat is a kind of cocoon or an artificial oasis that ensures favorable conditions for operation of the company.
The complex of process chains makes up a tree with the branches that represent sequences of main processes of different levels:
Chart 6. Process tree (fragment)
The process tree is characterized by the fact that the management of the company has to realize all its sequences regardless of its competence or preferences. It is the objective factor that in reality provides the structure for interactions and functions for the employees of the company. Their interaction is more logical and more graphic when organizing of the process tree if fully realized. It remains unchanged regardless of all administrative modernizations. The process tree ensures optimization of positioning of control points and monitoring of processes. Strictly speaking, only through interaction of processes that transform different resources it is possible to ensure viability of the company.
Essentially it is difficult to present the whole tree. Conventionally it can be presented as a system of parallel chains made up from nods of processes for every resource:
Chart 7. System of processes (fragment)
Each chain may be represented as a set of functions of different variables (resources). Complex of the functions allows us to tackle mathematical modeling of the company.
3. Signaling and Regulatory Systems
SPM is based on perception of the company as a living extrabiological object – social organism. As any organism the company seeks for stability of internal processes under changing circumstances – homeostasis which acts as natural attractor for open biological and extrabiological structures (organisms) and companies also fall under the category. Viability of the company improves when homeostasis is stable with flexible responses to changing external conditions. It is better when responses are proactive. Toward this end the company possesses a regulatory mechanism – homeostat. It exists objectively (even though, as a rule, unconsciously), otherwise the company would not be able to survive a day. Homeostat is a complex of systems of company management. Efficiency of homeostat ensures viability of the company. For example, one of the elements of homeostat is a marketing in its advanced forms, when the signals that denote current or impending changes generated by it are of imperative character strengthened by response models, that is by innovation technologies.
Homeostasis, homeostat and thermostat are not new notions, they have been in use since the 30s of the previous century. But they were not applicable to corporate practices. The simplest and at the same time the most complete homeostat is a complex of management contours:
Chart 8. Management contour
In essence it is a graphic presentation of the general principle of any business. Here we see occurrence of signaling regulatory systems (SRS) that regulate the “provider’s” feedback with remote consequences of its operation. SRS ensures analysis of external and internal environment, prognosis for changes and actions aimed at support of homeostasis of a certain process. Management contour is the first fully-fledged homeostat within a series of multiple attempts to build up an elementary management structure. It not only stabilizes the process per se but also ensures its adequacy to changing conditions of external environment. Each its link is a nod of processes.
The management contour unites participants of the process tree with the SRS complex (represented by a dotted line with the letter ‘K’) that make up a specific structure of the linear homeostatic system (LHS):
Chart 9. LHS as homeostatic complex of SRS
Due to evolutionary character of its development SRS and LHS having been exposed to a multitude of accidental factors gradually adopt more regular form lining along the process chain. But neither SRS nor LHS possess a stable configuration and composition of elements. In practice SRS (and even more so LHS) can be documented in the context of production processes. Apart from that they exist more in the form of informal personal relations (self-regulation effect). Here an important characteristic of SPM becomes transparent: if the management structure is built on the basis of process, the functions are delegated from bottom to top on a residual principle, whereas when it is built on the basis of the function, it is built vice versa. LHS is the “systems of quality management” widely referred to but never specified.
The feeling of inadequacy of static management schemes leads some management and consultants to adoption of reengineering, personnel rotation, merging/splitting, project oriented units, managed chaos, etc. But in essence nothing is changed apart from change of names and personnel.
Is there any ultimate solution to the problem? No, there is not. Ideal corporate organization is unattainable in principle. The ideal can be only approached, improving certain chains and branches of process tree and subordinating one’s own actions to support of homeostasis, improvement of homeostat and extension of thermostat of the company with the help of SPM. This means that interaction of providers of certain processes needs more improvement than separate units and division of responsibilities.
Usually improvement of company’s homeostat is carried out through evolutionary selection – using try and fail technique when the companies that possess less useful mutations are screened out. SPM protects the company from evolutionary screening out through deliberate adoption of useful and efficient changes. Gradual improvement of the company is reflected in the level of evolution of its homeostat that may be characterized by the following parameters:
1st level – the most primitive level of company’s evolution, period of extensive growth. Only sales based cash flow is evaluated – the shortest SRS. Homeostasis is absent. Functional approach to management: employer hires personnel and distributes responsibilities. No time to analyze quality of performance – time is money and money talks! Quality of personnel is of secondary importance. Personnel turnover is not a problem.
2nd level – attempts to evaluate quality of homeostat through impact of previous costs on current conditions of the company. The employer starts to think how to more effectively place the personnel and divide responsibilities. Costs analysis becomes important. It is a preparatory stage to operation based approach. Qualification of providers becomes important.
3rd level – attempts to improve homeostat through cost management. Characteristics: better quality of consumed resources, higher profit generated, deeper processing, etc. Operation based approach to management.
4th level – perfection of homeostat. Evaluation of impact of budgeted costs on subsequent conditions of the company. Qualification and loyalty of personnel becomes really important: the higher is qualification the better is employee, but it also makes it easier for him to leave the company. Corporate mission is gaining substance and ceases to be a mere statement. Dependence on quality of personnel resources and external environment becomes weaker, whereas quality of corporate structure improves.
5th level – evaluation of impact of costs on quality of homeostat. Further substantial weakening of dependence from external intellectual resources. Thermostat extends through more competence generation.
Sequence of levels is graphically presented through so called S shaped evolution curves:
Chart 10. Resulting sequence of levels of company’s evolution.
The chart reflects growth of levels of regulation of LHS and of quality of homeostat, which increases independence of the company from current changes of external environment. Elements of the company are developed similarly (units, personnel, technologies, etc.). By the end of evolution creative intellectual potential becomes the main product of the company. Diagnostics of the current level of evolutionary perfection of the company allows us to accurately define critical points for application of organizational efforts of the management, including demand in certain consulting services.
From the viewpoint of SPM theory there is no difference in approach to different companies. Process trees and homeostats of different companies occur and develop on the basis of identical fractal principle with the only difference in dimensions and in branching. And it does not depend on awareness of the management. It is not a coincident that many companies are subject to identical economic rules. Certainly companies differ to a certain extend (of course they have different products). Individuality of the company is created by subjective perception of processes that take place in the company and based on experience.
In the process of its development SPM gradually transforms into a more powerful theory, a practical and reliable tool for solution of various tasks that are constantly faced by the managers. In essence all these tasks may be formulated and efficiently solved with the use of one and the same model, which adequacy is defined only by willingness of management of the company. For solution of simple tasks simplified model is sufficient, for more complicated tasks it could be expanded to necessary dimensions in order to find optimal incorporation of external and internal factors.
Vladimir Alexandrovich Korolev