Corporate Policy and Governance E-Book

Fredmund Malik

• Herausgeber: Campus Verlag
• Kategorie: Fachliteratur
• Sprache: Deutsch
• Veröffentlichungsjahr: 2011

Seitenzahl: 536

Beschreibung

Fredmund Malik has become the leading analyst of, and expert on Management in Europe (…). He is a commanding figure - in theory as well as in the practice of Management. Peter Drucker Man-made organizations such as businesses and other societal institutions can function autodynamically, in the same way as modern technology steers, regulates and controls itself. With this book, Fredmund Malik offers insight into his cybernetic toolkit, along with instructions for its use. General systems policy and master controls are the key functions of future corporate policy and corporate governance. Fredmund Malik shows how organizations have to be organized so they can subsequently organize themselves. With this book series he presents his cybernetic general management system for the age of complexity. "With this book, Malik lives up to his reputation as a mastermind." Financial Times Deutschland

Leseprobe

Fredmund Malik

Corporate Policy and Governance

How Organizations Self-Organize

Translated from German by Jutta Scherer, JS textworks (Munich, Germany)

Campus VerlagFrankfurt/New York

About the Book

In Corporate Policy and Governance, Fredmund Malik offers insight into his cybernetic toolkit along with instructions for its use. He argues that businesses and other societal institutions can function “autodynamically” – in much the same fashion that modern technology steers, controls, and regulates itself – by adopting general systems policies. Explaining the way that organizations must be structured so they can organize themselves, Malik presents his cybernetic general management system for the age of complexity in this compelling book that every corporate executive should read.

About the Author

Prof. Fredmund Malik numbers among Europe’s leading management thinkers. As a consultant and management instructor for the last 30 years he has advised, educated and shaped executives at all levels and in all industries. He himself has been a successful entrepreneur for decades as CEO and principal of Malik Managementzentrum St. Gallen, with roughly 200 employees in St. Gallen, Zurich,London, Vienna, Shanghai and Toronto.

“Fredmund Malik has become the leading analyst of, and expert on, management in Europe. He is a commanding figure – in theory as well as in the practice of management.” (Peter F. Drucker)

For Hans Ulrich,

who gave me the freedom and the courage

to think beyond limits

Contents

What This Is All About

Concept and Logic of the SeriesManagement: Mastering Complexity

Foundations

Connections

Possibilities and Limits

What Readers Need to Understand in Order to Understand this Book

Success Programming Its Own Failure

When Thinking Fails to Grow With Practice…

Problems and Systems

Old and New Sources

Cybernetics as a Source of Relevant Insight

Two Leaps of Evolution

Taking Advantage of Complexity

Right Management Is Cybernetic Management

Part IFrom Organization to Self-Organization

1. Manifesto for Corporate REvolution

The REvolutionary Transformation

Categorical Change – Change of Categories

Will the Company Survive?

From Money to Knowledge: Will There Still Be Shareholder Meetings?

From Knowledge to Insight: Mundus Novus.

Right Corporate Policy is Systems Policy

Management in the Age of Complexity

Systemic Corporate Policy

Systems Logic and Subject-Related Issues

Effective Master Controls

Issue Policy vs. Systems Policy

Corporate Policy, Systems Policy, Governance

Remaining Blind for System-Immanent Natural Forces

2. Work Plan for Cybernetic Corporate Policy

Roadmap to a Cybernetic Corporate Policy

Orientation in the General Management Context

3. Hypotheses

4. Terminology

Part IINew Times – New Management

1. Constants through Change: Invariance, Self-Organization, Evolution

Safe Landmarks at the Top Level

Master Control, Cybernetics, and Governance

Two Kinds of Systems – Two Kinds of Management

2. Prototypes of System and Self-Organization

System Prototype: Water

Self-Organization Prototype: Traffic Circle

3. Master Control through Corporate Policy

What Corporate Policy Is

The Core of Functioning

Misconceived Pragmatism

Examples of Complexity-Compatible Corporate Policy

True Leadership and “Great Man Fantasies”

Corporate Policy and Solid System Work

Noncommittal Nature, Overregulation, Openness, Universal Validity

Ethics and Morality

What Should Be Regulated?

4. Navigating in Complexity – Models for Overview, Insight, and Perspective

Brain-Like Models

World → System → Model → Concept

The Model as a Thinking Tool

Realization and Understanding by Means of Regulation Models

Knowing What the Talk Is About: The Babylon Syndrome

Like a Brain: Operations Room – Management GPS

Three Purpose-Oriented Models

Basic Model for Corporate Policy

Farewell to Hierarchy: Embedding Replaces Ranking

Recursive Logic for Cybernetic Systems

Specialists, Generalists, Specialists for General Subjects

Three Subconcepts for Master Control

The Best Media for Master Control

Part IIIInstructions for Self-Organization

1. What the Organization Should Do: The Business Concept

The Purpose of the Organization

The Business Mission

Performance of the Institution: The Cockpit

REvolutionizing Corporate Control through CPC towards Brain-Like Processes

The Cybernetic Power of Purpose and Mission

2. Where the Organization Has to Function:The Environment Concept

What Needs to be Considered? A Common Topographical Map

The Master Control Model for the Environment

Master Controls for the Environment Model

Categorical Change

3. How and With What the Organization Should Function: The Management Concept

The Same Management Everywhere and for All

Tapping the Performance Potential

Inducing Self-Organization

Management Models for Master Control

The General Management Model

The Standard Model of Effectiveness – or “Management Wheel”

The Integrated Management System (IMS)

Navigation instead of Documentation

An Overview of the Master Control “Management Concept”

Implementing Corporate Policy: Order is Law times Application

Management Training and Development: Return on Management Education

Management Education is Critical for Success

Charts of the Malik Management System (MMS)

Part IVSovereignty and Leadership through Master Control

1. Order, Time, Peace

Their Working Conditions: Proliferating Complexity

Their Task: Total System Master Control

Their Challenge: Change Leaders

Their Choice: Making Use of Complexity

Their Conflict: Categorical Change

2. Top-Management Frame of Reference for Change Leaders

In the Cross-Hairs of Total System Control

The Future is Created Now – Or It Has Been Missed

3. Mastering the Master Controls – Source of Leadership

Master Control through Corporate Policy

Master Control through Corporate Modes

Master Control through Corporate Issues

4. A Look Forward – Current Top Management Issues

Informing and “Educating” Shareholders and Representatives of the Financial Sector

What is Profit? What is Wealth?

Entrepreneurship and Top Management

The Importance of Knowledge

Thinking through the Strengths

Developing Top Performers

What is a Functioning Society?

What Is the Meaning of Responsibility?

Top Managers’ Compensation

5. The Crisis of Top Executive Bodies and Their REvolution

Lack of Theory for Top Management Structures

Will Formation Works Differently Today

Breeding Ground for Conspiracy Theories

Why Traditional Corporate Governance Is Not Enough

6. REvolution: From Chief Executive Officer to Master Control Function

Supercontrol instead of Superperson

Total System Master Control Function

Functioning instead of Personifying

7. Top Management Teams

Three Prerequisites

Six Rules

8. Master Controls for Leadership

What Distinguishes Leaders

Leadership Arises – From a Situation

Master Controls for True Leadership

Charisma?

9. Heuristics for Winners: The Logic of Succeeding

Principles for Assessing the Situation

Principles for the Ability to Direct and Relate

Principle of Proximity to Information

Principles for the Power of Conviction

Epilogue

Appendix

The Malik Management System And Its Users

Designations and Identities

History of Development

Applications and Effects

Autonomy for Management and Managers

Modularity and Interfaces

A Management System for Self-Thinkers

Potential for Success Increasing With Qualification

Self-Motivation for Self-Developers

Care versus Kudos

Authors and Acknowledgments

About the Author

Literature

Index

What This Is All About

There are many ways to systematically solve problems – but only one way to systematically avoid them: the cybernetic way. The design of a system to avoid problems must begin with the permanent realities at the core of all beings and things – their function. At the same time, it needs to integrate today’s perception of the problem if it is to be understood at all. This is why I gave this book a title relevant to most top managers’ world view: Corporate Policy and Governance. Only a few such managers, however, will be familiar with its content: the constants of how complex systems work – how general systems policy and its Master Controls can be used to organize organizations in such a way that whatever needs to be organized in them will organize itself.

Every organization, and indeed every human being, senses the effects of the profound change we have been undergoing ever since the age of complexity dawned. Almost everybody senses that rapid change is increasingly part of everyday life. Many people today – in particular those carrying great responsibility – find they can only fulfill their tasks at the expense of their personal lives. Hardly anybody would doubt that we need new foundations for management that are better suited to meet the new challenges than those still in use.

With this volume of my series Management: Mastering Complexity, I am presenting the key element of what general management needs in this age of complexity: the chief prerequisite for the organizations of the future, organizations that will work autodynamically. However, the concept will only unfold its elementary power, as it were, in conjunction with both the entire book series and the Malik Management System. Only when all other parts of the system work together can it achieve its maximum impact. This is why I start by explaining the concept and the logic of the series on the following pages.

Everything to be said about the subject of this book is much easier to express (and even easier to implement) in models than to put in succinct words without exceeding the scope of a book. Some of the paragraphs may therefore seem superfluous to one reader while another will find them to be precisely what he needs to understand the subject matter well. That is the price of rigorous management writing: it needs to use a language suited for everybody yet sometimes requires newly invented terms.

The questions as to what exactly needs to be done in corporate policy and governance can only be answered individually for each organization. With this book, I am making available a fully equipped toolbox, so to speak, along with the operating instructions for each of the tools, so that top managers will be able to perform the necessary craftsmanship in their organizations.

Directions regarding this volume and the entire series are given before Part I. That part then describes the key premises to be observed in order to master complexity. It also contains a roadmap for developing a corporate policy as I understand it. The roadmap explains how the remaining three parts of the book are structured. Part II explains the concept of a Master Control in complex systems: what it is, how it works and what it is needed for. The modules of Master Control will be presented in Part III. In Part IV, I will address top executives in charge of developing a corporate policy, explaining what needs to be done in order to achieve the system behavior required and what Master Controls managers need to apply to themselves. The appendix provides some concise information on the Malik Management System.

At this point I want to thank Maria Pruckner for her invaluable help in structuring and formulating this manuscript. As a student of Heinz von Foerster and an experienced management practitioner, and with her profound knowledge about the cybernetics of complex systems, she has helped me to better sort out my own thoughts and their cybernetics. The interaction of speech and thinking is one of her specialties. There is hardly anything that could be more important for an author and his readers.

Further, my thanks go to the members of the Board of Directors and the Group Management Board at Malik Management, in particular to Elisabeth Roth, Walter Krieg, and Peter Stadelmann for relieving me of some of my management tasks while I was writing this book.

It is a principle of mine not to publish any of my books until their content has proven valid in years of cooperation with hundreds of managers

including clients as well as colleagues in various top management bodies

and after both critical discussions and field tests have been passed. I owe my sincerest thanks to all of them.

Concept and Logic of the SeriesManagement: Mastering Complexity

This series of six books has a modular structure. The first book, Management. The Essence of the Craft, provides the basis and gives an overview of the series’s overall concept, as well as of my approach to right and good management. The remaining volumes elaborate on the topics of each individual chapter.

In other words, each of the volumes deals with a subject matter en bloc. Each can be read independently of the others, and in any order. Readers of one individual volume may, however, find it helpful to have a look at the introductory volume The Essence of the Craft in order to be able to position an individual topic within the overall context, according to the graph shown in figure 1.

A key concept for this series of books is my “Basic Model of Right and Good Management”, frequently referred to as the “Management Wheel” due to its shape. In my book Managing Performing Living it is described in detail1. The statements I made in that book are a prerequisite for fully understanding the contents of the series Management: Mastering Complexity.

Foundations

The basis for all my books and papers is Strategie des Managements komplexer Systeme [“Strategy of the Management of Complex Systems”]2, a considerably expanded version of my habilitation treatise. This, in turn, is based on the books Systemmethodik Teil 1 und Teil 2 [“Systems Methodology – Basic Principles of a Method for Researching and Designing Complex Socio-Technological Systems”]3, the joint PhD thesis by Peter Gomez, Karl-Heinz Oeller, and myself. These books cover the theoretical principles of cybernetics and systems science, which represent the cornerstones of all my thinking with regard to management topics.

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Figure 1: Concept of the book series Management: Mastering Complexity

Connections

For the present volume on Corporate Policy and Governance, I have expanded figure 1 to make the connections between the six books more transparent. Figure 2 shows how the subject matters of all six books overlap, which corresponds with the systemic relations between the individual topics. Together they form a whole: an inseparable system for the integrated management of a complex societal institution – the General Management System I have developed, and tested in practice, over the past 30 years.

In the inner circle, we have the summary volume Management. The Essence of the Craft. It is embedded in the second volume, Corporate Policy and Governance. The latter, in turn, is embedded in four outer circles: the volumes on strategy, structure, culture, and executives. All are connected to each other in the manner illustrated in figure 2.

Possibilities and Limits

The systemic relations between the individual volumes come up against the limits of descripteveness of complex systems – with consequences for both the content and design of the individual volumes. The subject matters of the books stretch to the limits not only of language but also of conceptual comprehension.

While complex systems are relatively quick and easy to demonstrate and even easier to experience in certain ways, they are almost impossible to describe. The medium of language, and thus this book, is not really suitable for describing, capturing, and communicating the complexity of interconnected systems. This is one reason why maps and nautical charts were invented. With complex systems, the everyday maxim “easier said than done” is quickly reversed to “easier shown and done than said…”

What possibilities do we have, then, despite the limitations of language and books, to make complex systems halfway comprehensible and transparent?

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Figure 2: Systemic relations between the volumes of the series Management: Mastering Complexity

Redundancy

As the six volumes describe one system with its subsystems, repetitions are inevitable, and indeed intended.

The first reason why redundancies are inevitable is that the subject matters, while clearly distinguishable, are also inseparable, which is an important but rarely mentioned aspect of systemic thinking. They form one whole and must therefore be understood with regard to their interrelations.

Secondly, redundancy is intended because it is an indispensable tool to ensure certainty of communication and understanding. Thus, according to communication theory, redundancy is by no means superfluous. Not always are these two kinds of redundancy clearly distinguished. Functional redundancy facilitates orientation and comprehension by the reader.

Here, redundancy is not simply repetition but dealing with the same subject matters from different perspectives. One of the reasons why this is necessary is that the interrelations between subsystems are mutual but not symmetrical. For instance, the relation from strategy to structure is not of the same kind as the one from structure to strategy.

Graphs

As has been pointed out before, descriptions and explanations of complex systems are pushing against the limits of what language is capable to communicate. Language is linear and thus, for all intents and purposes, unsuitable for describing branches, feedback loops, recursions, and other nonlinear concepts. It is also not complex enough to reflect the real complexity of systems.

In order to describe the non-linearity and complexity of systems without resorting to mathematics, the only means that a book has to offer besides textual redundancy is illustrations. But even illustrations can be highly inappropriate for complex systems. Firstly, there is only a two-dimensional surface – the book page – to depict multi-dimensional systems. Secondly, the depictions in a book are static while systems are dynamic by nature.

For representing the systemically constitutive phenomena of complex systems, such as their being embedded, interconnected, and dynamic, the book is basically an outdated medium. More adequate means of depiction include hypertext, hyperlinks, and the whole browser technology which is making ever more rapid advances.

The subject matter of this second volume, Corporate Policy and Governance, more than any other book of the series, requires the use of system models and corresponding illustrations to explain complex systems, and the modern techniques mentioned above would be much better suited for that.

Exploring Things on the Web

The dynamics of a cybernetic system are best explored in dialog-type interaction. To overcome the limitations of the book medium, interested readers may want to visit the website www.malik.ch to explore the Malik Management System, better understand its workings, and use it in practice. This website offers the easiest possible access to the management of complex systems.

What Readers Need to Understand in Order to Understand this Book

With the book series Management: Mastering Complexity I am publicizing my management theory and my management system for the age of complexity. In retrospect, historians will probably date its beginning, as well as the associated emergence of a new society, to the early 21st century, knowing that epochal transformations can hardly be pinned to a fixed date.

It is a fact, though, that as far back as in the late 1940s, at the legendary Josiah Macy Conference, a new science emerged in response to the issue of complexity: the science of cybernetics. The focus of interest for related research is complexity. With his book Cybernetics and Management, published in 1959, the British top manager Stafford Beer laid the groundwork for management cybernetics because the core problem in management is complexity. We later cooperated closely. In 1968, my academic teacher and mentor at St. Gallen University, Prof. Hans Ulrich, took the next decisive step when writing his Systems-Oriented Management Theory. Together with my friend and colleague Walter Krieg, he presented the St. Gallen Management Model in 1972. Hence, ever since my time as a university student, my thinking has been challenged and influenced by thought leaders far ahead of their time. I was privileged enough to work with several of them, research and develop things with them, experiment and discuss with them. My doctoral thesis deals with the methodology used to research and design complex systems, and the title of my habilitation treatise of 1978 translates as Strategy for the Management of Complex Systems.

Against this historical and scientific background, the purpose of Management: Mastering Complexity is to enable the men and women of our New Society to survey and take advantage of the output of the relatively quiet yet enormously fruitful development work that has been going on over the past approximately 60 years. In this book series, the most essential things about complexity, management, and cybernetics will be pointed out in clear and comprehensible language. It is intended as a contribution to support the viability of the New Society, the functioning of its institutions, and the safe orientation of people in a world driven by complexity.

The change that the 21st century brings will be more dramatic than most people can imagine. The conditions for fundamental restructuring are in place. Although this may appear to be a paradox, its main cause is the enormous worldwide success of the kind of Western management practiced to date. This conventional kind of management has been so successful that it is no longer able to understand and control the systems it has generated, as they have become too complex. It is analogous to the protagonist of the famous ballad by Goethe, the Sorcerer’s Apprentice, who was unable to control the spirits he had called. The complex systems of the 21st century cannot be managed with 20th century thinking – because this is what has called them forth.

Success Programming Its Own Failure

Never in history has a period of success been permanent. It is inherent in every success that it will systematically overtake itself because it generates the conditions of its own failure. This is one of the many paradoxes of complex systems.

Few people are capable of recognizing previous success as a cause of current problems. Few are capable of understanding that new solutions are required because the previously successful methods, owing to their very success, tend to lose impact or even become counterproductive, further exacerbating the difficulties they bring with them.

Whenever difficulties arise in a period of success, most people try addressing them by doing “more of the same”. This well-known, well-researched human behavior in complex situations is typical. It is also very wrong.

When Thinking Fails to Grow With Practice…

History has shown that periods like this keep demanding new ways of thinking, new methods and systems. Drawing on previous practices has seldom been successful; in most cases, radically new concepts were called for.

Today, we are facing the conditions for radical change on a global scale. The Western world’s practices have been such breakthrough successes that they have spread all over the world. Hence, all over the world there is a challenge to create a new order of systems of organizations, the nature of which cannot be predicted in advance.

The two successful concepts of the West are market and management. Wherever they have been applied so far they have caused the forces of free markets to be unleashed, and all available resources to be used ever more efficiently by management.

The impact of free markets is still being maximized by the elimination of boundaries and of national regulation. The impact of management is being maximized by computers and MBA programs. Unless they are fundamentally changed, both of these success methods will be hard pressed to survive the conditions they have created. A synthesis of both methods can lead to a sweeping success. However, this success will set clear limits for managing it, for simultaneously with the synthesis of market and management a process of gigantic complexification has set in, characterized by a progressive intertwining of an ever greater number of systems. As a result of this side effect, the functionality of societies and their institutions is being pushed to its limits. They become inefficient, which threatens to overstrain society as a whole.

When entire systems keep getting more and more inefficient, clear signals are exhibited. These include:

more and more input being required to obtain less and less output,

former liberties leading to excesses, and

previously decreased regulation returning as exponential degrees of bureaucracy.

In other words, the system gets under pressure from its own coercions. What used to be success turns into its opposite and becomes a liability. All the systems of our society are becoming increasingly unstable because the market and management-focused success methods that have been practiced are now generating systemic risks and potential collapses. What used to be healthy growth turns into cancerous tumors.

Problems and Systems

It is in the nature of problems resulting from success that they cannot be solved with the same methods which led to that success. It is also in their nature that the success methods in practice turn into a problem and, over time, into the underlying problem. A main reason for that is that these methods are based on the knowledge of the 20th, in part even the 19th century. This knowledge stems from a world where the main issues to be dealt with were substance and force or, to put it differently, matter and energy. It was a world consisting of simple systems. They may have been complicated but – another presumed paradox – they were not particularly complex.

The texture of the age of complexity is different: as the name implies it is an unprecedented complexity which was brought about by the success of the approaches so far used. That is the common denominator of today’s societies and their institutions.

Different as commercial enterprises, hospitals, universities, and administrative agencies are, what they all have in common is that they are complex, dynamic, non-linear, probabilistic, networked systems. Their respective environments – complex systems themselves – form an interlaced and interwoven, dynamic, non-linear system ecology. Healthcare, educational, and social systems, utility, energy, transportation, and logistic systems, the field of media and information, the field of information and communication systems, the global financial system, legal and tax systems – to mention just a few – form a network of complex systems which are essentially fuzzy, opaque, and absolutely inscrutable to conventional reason.

Complex systems have their own laws, qualities, and behavioral patterns which are fundamentally different from those of simple systems. Consequently, the focus of management in and of a complex system must be very different from that of the management of a simple system: it must work with the inherent laws of the particular complex system in itself. These laws are what enable us to correctly predict the mode and behavior of a system, at least in its fundamental orientation, and control it accordingly.

For most organizations, operating in the highly complex system ecology of the age of complexity requires a radical redesign of the way they are managed, as well as of their strategies, processes, and structures. However, society and its institutions are presently not equipped to comprehend the natural conditions created by complexity.

Old and New Sources

Managers intuitively feel that they need to adopt new ways and approaches, although few are able to explain why. Their search for suitable solutions is tedious experimentation and groping around, because they still lack the necessary theories, models, and concepts for dealing with today’s dimensions of complexity.

Successfully mastering this much complexity requires a fundamental reorientation, starting with the basic model of management. This fundamental change of perspective is comparable to the Copernican transition from the geocentric to the heliocentric view of the universe. On the one hand, it requires radically new concepts of management; on the other, taking into account fundamentally new insights about information, systems, and their complexity.

The knowledge required for this reorientation cannot be found where people have been looking for it. It is derived neither from economic science nor from the classical natural sciences. They were the sources of the old solutions – those that are now outdated. The insights about complex system, which will be indispensable in the future, can be derived from systems, bio-, and neurosciences, as well as from evolution theory. Why is that so? Just imagine what it would be like if living organisms were organized in the same manner as our present social organizations. They would not function, they would not be viable. However, as biological systems are amazingly viable and versatile, we need to use them as a reference in designing man-made organizations and complex systems. We can and must learn from them.

Cybernetics as a Source of Relevant Insight

It is not enough, however, to simply draw upon the analogies between organisms and organizations, because while organisms are organizations, organizations are not organisms. Insights from the bio- and neurosciences cannot (or can only very rarely) be transferred directly to societal organizations.

Reliable help can only be found where there are regularities that biological and man-made systems have in common. These regularities have been researched and revealed in the context of cybernetic studies. This is how, among other things, computers and modern medical technology, regulation and control systems in cars and airplanes, modern security systems, and satellite navigation were developed. In the entire field of technology and in several other disciplines cybernetics has been used for many years. Wherever that is the case, there have been demonstrable and obviously break-through achievements.

Cybernetics is the science of structuring, controlling, and regulating complex systems by means of information and communication. Related skills are crucial for society and its institutions’ ability to function in today’s complex world, and generally necessary for the management task as such.

Few things are more important for man in the age of complexity. It is not so much different attributes or qualities that distinguish him from the man of previous centuries, but his fundamentally different knowledge and, even more, what he does not know, as well as the conditions in which he needs to act and decide. This is precisely where the insights from cybernetics can be of invaluable use.

Two Leaps of Evolution

There is no doubt that cybernetics works well in technological systems. The management of complex organizations, however, includes much more than technical applications. To achieve the same kind of breakthroughs in management as have been achieved in technology, based on the insights from cybernetics, two evolutionary leaps must be taken simultaneously:

The first is applying cybernetics to much more complex systems than there are in technology, namely to living and social systems which, in relation to the former, can be referred to as

hypercomplex.

The second is applying cybernetics to the

results

achieved with the first step, or in other words, to systematize cybernetics

itself.

In principle, complex systems are inscrutable and incalculable. Due to their complexity they cannot be analyzed or understood, which is why they cannot be organized and controlled in detail. For particularly complex systems, as those entailed by an organized society, this is all the more valid. Cybernetics with its questions and search routines shows us how to successfully deal with such systems, master their complexity, and even take advantage of them. This is difficult to imagine as long as you assume that man, and in particular a manager, is in complete control of the functioning of systems. It only becomes plausible when you apply one of the most fundamental insights of cybernetics: that complex systems organize themselves, and they do so in accordance with the natural laws defined by cybernetics. Man can either come to terms with them, or otherwise be dominated by them just like he is dominated by any other force of nature.

The second evolutionary leap is a logical consequence of the first: since in principle we cannot know enough to control, regulate, organize and develop a system, we need to make sure it will do all these things by itself – as intelligently as nature is able to. Hence, cybernetic management is the application of cybernetics to management, and the decisive step towards a systematic use of all the “self-concepts” and “self-skills” (as I call them) provided by nature. It is the step from regulating to self-regulating, from organizing to self-organizing, from structuring to self-structuring, from coordinating to self-coordinating, from developing to self-developing – or, in other words, to evolution. In this context, and particular when talking about corporate policy, I also use the term Master Control.

Taking Advantage of Complexity

Today’s societies and their institutions are systems which restructure themselves, permanently and unpredictably. They are systems of a particular type. They are characterized by the fact that they are a result of human action but not a result of human intent and purpose, in that these systems are more complex than man could ever plan and design them to be. They generate themselves, and that is the main reason why man will not readily accomplish what he wants and expects. Heinz von Foerster has referred to this circumstance in a manner now legendary when he used the metaphor of “trivial” and “non-trivial machines”.

The two evolutionary leaps mentioned above, which are responses to the hypercomplexity of our self-originating systems and to the self-capabilities of systems, are comparable to the historic transition from the flatearth to the spherical-earth theory in terms of their dimensions and consequences. They have very far-reaching effects.

Cybernetic management does not simply take away the fear of complexity and its consequence, the urge to reduce it. On the contrary, by applying cybernetics to management it becomes possible to take advantage of the properties of complexity and its perpetual self-generation. This is done by creating simple and often ingenuous solutions which enable organizations and society as a whole, to function better and more independently.

All major achievements and advancements result from the increase and better use of complexity, not its reduction. For instance, Ancient Rome drew its superiority from the greater complexity of its traffic routes and from the expertise in orchestrating complex armies. Gothic builders knew better than Romanic ones how to deal with complexity. Global business is facilitated by the complexity of modern communication technology, which is exponentially higher than the technology of the 20th century.

Cybernetic management and the deliberate, systematic use of complexity also help dissolve most of the contradictions and paradoxes that exist in traditional management thinking. Seemingly irreconcilable opposites can effortlessly be integrated by using this way of thinking. Systems managed and regulated by cybernetic principles are able to overcome the paradoxes of simplicity versus complexity, of freedom versus order, of variety versus unity, of autonomy versus centrality, of community versus the individual, of free economy versus control of excesses, of reason versus intuition. Reductionist either-or thinking is replaced or supplemented by systemic as-well-as thinking.

Right Management Is Cybernetic Management

Sixty years of research into complexity and cybernetic phenomena are not that easy to summarize, even more difficult to prepare for a broad audience, and equally difficult to communicate in a credible manner. One could almost say that only those who have experienced and done it themselves may feel reasonably certain. With such certainty, and looking back at my 40 years of research, 30 years heading a business organization, and over 20 years as an entrepreneur, I can say this much: cybernetics – and only cybernetics – helps us recognize what right and what wrong management is under complex conditions. It shows what kind of overall management system complex institutions in complex environments need in order to function, and what subsystems they need to have. It provides insight on what the components of that management system should be, and how these – such as corporate policy, strategy, structure, and culture – should be designed so an organization will be able to deal with complexity. Cybernetic management shows us how, in the age of complexity, power and money need to be replaced by information and knowledge.

Understanding the regularities of complex systems is the key knowledge of the age of complexity. The key skill will be to use these insights gained from cybernetics. Both together provide the fundamental prerequisite for managing and mastering complexity in a system-compatible way. It is naturally required for the functionality of societal institutions, and for the ability of individuals to cope with life.

Mastering and taking advantage of complexity is the purpose of my management system. Only by keeping this purpose in mind, can my management models be studied, evaluated and applied correctly. Where exactly they differ from the management theories of the 20th century is described in the different volumes of the book series Management: Mastering Complexity. The 21st century manager does not need any different qualities. What he needs are different skills, another view of the world, other insights, and another way of acting.

PART I

FROM ORGANIZATION TO SELF-ORGANIZATION

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Two CEOs over late-night drinks

A: This is going to be my last whisky for the day, I’ve got a stack of documents to go through tomorrow.

B: What for? Nobody else knows what they’re all about.

A: That’s why I need to know – otherwise no one will have a clue of what’s going on, complex as everything is these days. Don’t you ever take any work home with you?

B: Pretty much never. In our company, because of all the complexity everyone has to know their stuff at all times. So our folders are usually quiet thin. I can read them at the office.

Chapter 1Manifesto for Corporate REvolution

This book is a program for Revolutionizing top management. Its main focus has to be on top managers, as only they are in a position to take the decisions needed in due time.

Radical changes are managed at the top – or not at all. In the latter case, they simply happen. There is no choice, no option to say yes or no. The only option we have is to carry through this REvolution, well or badly, to be proactive and precipitate it or to be passive and let it happen – in which case we will probably be on the losing end.

The REvolutionary Transformation

The reason for Evolution is simple. Both the world of business and society at large are going through one of the most fundamental transformations that ever occurred in history. What is currently happening is not simply change. It is change of a new logical dimension, a meta- and mega-change. About one-third of the managers I work with are aware of this but do not see a solution. Another third sense the change, but feel uncertain and are unable to pinpoint it. The final third turn a blind eye, believing in today’s world as the only possible one.

The REvolution will not leave any of today’s organizations unscathed, be it commercial enterprises, universities, hospitals, or government. This must be the a basic assumption for top managers. I have been discussing this with top executives for years. They force themselves to accept this premise, in order not to run the risk of underestimating the change ahead. Many organizations will go down, either because they are unable to accomplish the transition or because they are no longer needed. Almost everything will have to be given a new order and many new organizations will emerge, with new purposes and tasks.

Forecasts are useless, but certain outlines are already discernible. One thing that is quite certain is that we are in the midst of the emergence of a new society, which can most accurately be referred to as the society of complexity – in a transition from the information to the knowledge society, from the society of organizations to the society of complex systems. Companies will no longer essentially be engines of force intensification but of intelligence intensification; rather than economic money machines they will be information and communication systems. Steering, regulating, and organizing become self-steering, self-regulating, and self-organizing. Predominant terms will be complexity, system, and cybernetics.

Categorical Change – Change of Categories

I prefer the term categorical change to the well-worn “paradigm change”, which has become useless for anything save banalities. What is happening is nothing less than a revolution of the fundamental categories in which society and economy have to be perceived in order to understand them – comparable to the Copernican transition from the geocentric to the heliocentric concept of the world, but encompassing many more dimensions.

Few of today’s categories for understanding the economy, organizations, and management will remain useful; they will no longer be able to guide people’s actions in any reliable way. That is true even for the world and for what we call reality, as the sciences teach us ever more spectacularly – in particular the bio- and neurosciences, but lately also physics again.

These sciences and their results are visible and they shape public awareness. By contrast, the sciences truly relevant for top executives in societal institutions have not had that much influence to date, although they are already bringing permanent changes to our lives: specifically the sciences of complexity, cybernetics, bionics, and the systems sciences. From a logical perspective, these sciences rank even “higher” because they will bring a change of categories, thus revolutionizing traditional sciences as well.

Quite certainly, in retrospect historians will speak of an epochal change and of a profound break in thinking, when they attempt to categorize the epoch we live in. And the crucial effects will have been brought about by executives’ actions and by the workings of societal institutions.

Will the Company Survive?

In parts of the business sector, enterprises of the current type will continue to exist. But even they will have to restructure radically and redesign their management from scratch.

In the New Society there will be many top managers who will be functioning as the nervous systems and brains, as it were, but “below” them there will not necessarily be companies in the current sense because everything can be sourced from outside. It will not even be necessary to buy resources because it will suffice to control them; it will be possible to source, re- and outsource, to form alliances and other forms of cooperation, create networks, dissolve them, configure and reconfigure them. A substantial share of the smartest top management bodies will confine themselves to “composing and directing” while the “orchestra” will keep changing, as is common in the world of music.

From Money to Knowledge: Will There Still Be Shareholder Meetings?

While we might continue to pay with money, the complex world will not be driven by it. It will be driven by knowledge, even though economists and analysts will try to uphold the monetary illusion for quite a while. For instance, the knowledge of how to set up successful business deals in China is several times more important than the money required to invest there, since without such knowledge investments will be lost faster than they are placed. Conversely, those who know how it is done will always be able to raise the necessary funds.

Taking this into account, what kinds of rights should be conceded, for instance, to shareholder meetings largely populated by investors, who – apart from their money – usually have little to contribute to the knowledge and intelligence required for the business, or to the functionality of its complex systems? Let them have generous dividends, let them enjoy handsome share price gains – but why should they have a part in electing the supervisory board, the group of people that is responsible for directing and supervising the company’s fate? So will there be two general meetings, one for investors and one for the owners of knowledge? Imagine, say, three dozen companies cooperating in constantly changing network structures, which jointly establish an integrated management of the entire problem-solving process, from the identification of the customer’s problem to its solution. How is our present form of corporate governance supposed to work in such a structure? Instead of corporate governance we will need systems governance. But how will it have to work when the performance networks of a global society will be systems continually reconfiguring themselves?

From Knowledge to Insight: Mundus Novus

Even knowledge is not enough. What we need is perspective, insight, and comprehension. After all, knowledge is nothing but a resource. Only its application, comprehending and understanding how complex systems work, lets us take the decisive step towards exploiting complexity – utilizing it to persist in a new dimension of global competition and to succeed in a new business environment. To create and apply knowledge and transform it into benefits, we also need knowledge – but of another kind: rather than knowledge of the subject matter we need system knowledge.

Most of the ingredients of the New Society are in place for everyone to see, even if not everyone can understand them. Hence, a better comparison than Copernicus, although less known, is Amerigo Vespucci, the Florentine explorer after whom America was named. Amerigo realized that it was a New World, while Columbus, who had discovered the new territory, never until his death understood what he had accomplished. He kept on thinking he had landed in India, and so, regardless of his discovery, he tragically remained a citizen of the Old World. Amerigo Vespucci was the first citizen of the New World because he had understood the significance of the newly discovered territory. Stefan Zweig has left us an impressive account of these events.

As discussions regularly show, seasoned top executives are well able to conjecture how the existing components will reconfigure themselves to form systems of systems. But even they find it difficult to recognize the parts as elements of a new whole, because they still lack the categorization system, the grid, the coordinates of the new dimensions that one would need for true understanding. Hence, many are only able to see a number of puzzle pieces – but they have yet to develop an idea of the image that these pieces will form.

With this book, I am providing the categorization system required for safe navigation, for the reconstruction of societal institutions, and for corporate REvolution. The remaining volumes of the series will describe the thinking devices and tools required.

Right Corporate Policy is Systems Policy

The most accurate title for this book would be General Systems Policy. Yet this title would not immediately be associated with the management of business organizations, with corporate policy and governance. It can therefore be an ultimate goal for this book but not the way to get there.

The double title Corporate Policy and Governance is a concession to the way these issues are still perceived in the world of business. While this book takes account of those perceptions, it goes much further in that I talk about the general management tasks in all institutions, although with a focus on business organizations. As far as language is concerned, I will use the terms largely common in the business world. It will, however, be clear from the context that (and how) the respective content can be applied to other than commercial institutions.

The book should really be entitled General Systems Policy because it deals with the shaping and directing of all organizations – including business ones – at the top level, corresponding to the nature of complex systems. This requires more than the usual understanding of policy, referring to specific subject matters. It requires a systems policy taking into account the universal laws of a special kind – the cybernetic kind – which apply to any complex system.

From the entirety of the management system I have developed, I will only select the modules by which every organization directs, regulates, and organizes itself, starting from the top and going all the way down to the peripheral units. Thus, the terms comprised in the book title relate to my new concept only to the extent that they address its application to a certain subject area – the top management of companies, organizations, and institutions4.

Management in the Age of Complexity

Important as it may be, the economic dimension alone does not suffice for the management of a company, and even less for other kinds of societal institutions. Hence, the issues raised in this book go beyond the prevalent one-dimensional, economics-centered way of looking at things, as well as the associated neo-liberal perspective with its exclusive focus on profit optimization. The book addresses the following questions:

What is a functioning system?

How can it be made to work, and maintained that way?

What are the regularities underlying its functioning?

How do systems need to be regulated so that they can basically expand without limits?

How can systems be regulated so as to make them regulate and organize themselves?

The answers to these questions can be found in the laws of complex systems. They have been investigated and described in both cybernetics and systems sciences. They apply in a double sense: for all productive social systems that need to be managed and for all systems needed to manage them (i.e., their management systems).

Cybernetics as the science of functioning provides new solutions to many fundamental issues and unsolved problems of management, solutions that are more effective than traditional concepts. For some questions it provides the very first answers. Hence, the insights from cybernetics are what my understanding of general management and the Malik Management System is based on.5

Among other things, a cybernetic consideration of the issues of corporate policy and governance will provide the following:

new answers to questions of influence, power, and leadership at the top,

new solutions for a professional way to deal with and take advantage of complexity,

new opportunities for and requirements of the regulation, control, direction, and development of companies,

new possibilities for the organization of companies,

new solutions for change management,

new possibilities and requirements for information and communication,

in general, new approaches to questions of the overall functionality and viability of any institution.

Furthermore, my perception of right and good management, as outlined in Management. The Essence of the Craft and in Managing Performing Living, has new consequences for the abilities, ways of thinking, and skills required both from the professional manager and from management as a profession. Above all, this concerns the continuous education of an ever greater number of people with general management tasks. In the 21st century they face unprecedented challenges. This calls for different concepts, models, methods, and tools than have been customary so far – of the kind that I am presenting in this book series, each as a separate module, in the overall context of the entire Malik Management System.

Systemic Corporate Policy

As has been mentioned at the beginning, this book is a part of the series by which I present my management system in its entirety. Hence, corporate policy and corporate governance are not to be viewed as an isolated topic – neither in this series nor in the context of my management system. They are architectural elements of my overall system for general management. As such, the subjects of corporate policy and governance in several important respects assume a different meaning than they would if they were considered separately, that is, independently of the overall context of management, as is still fairly common today.

In my management system, corporate policy and corporate governance are part of a greater whole. Their function and their design result from the interaction with all other parts of the overall system. On the one hand, they are only systemic modules within a greater configuration, just as atoms are modules of molecules and molecules are modules of more comprehensive structures. On the other hand, the modules of corporate or systems policy are what turns systems into effective systems.

It is fairly comparable to the way a computer needs an operating system so that individual software programs running on it can function properly. Hence, corporate policy and its “little sister”, corporate governance, have particular and absolutely crucial significance. Whatever goes wrong here cannot be corrected in any other part of an organization. Whatever is regulated correctly here will not have to be dealt with anywhere else, because it will enable the system to function.

Systems Logic and Subject-Related Issues

If this book was a monograph, or a textbook or specialist book, I would have structured it differently. As one component in an overall system, however, this book has to fulfill its function in the context of my management system. To this end, I need to lift corporate policy to a higher logical level than is presently common in expert discussion. In my management system, corporate policy and corporate governance are not addressed at the subject-specific level but at the subordinate level of system regulation. Corporate policy and governance are the existential and constitutive controls required for an organization to work. They are the architectural and functional principles which rank similarly to the articles of a constitution, and which I refer to as Master Controls.

This overriding perspective of system regulation is necessary because statements referring to concrete subject matters at companies can hardly be generalized, or if they are, they quickly become outdated because they are overtaken by reality. Consequently, books about corporate policy tend to become irrelevant within a short period if they focus on the subject level. Attempts to generalize statements at the subject level, in order to make them permanently valid, will usually render them devoid of meaning. At this level, statements of true political significance – that is to say, fundamental, general, and permanent stipulations – are hardly possible.

By contrast, at a higher level – from the perspective of system regulation and direction – we encounter an invariant logic; that is to say, rules, basic principles and organizing principles which we could actually refer to as “eternal truths” because they have two critical qualities: they have significance with regard to content and they are universally valid. Hence, their effectiveness results from providing orientation above and beyond the specific issues at hand. Using them as a point of reference, it is possible to define in advance how specific issues are to be dealt with. They are superordinate to specific issues. It is a question of knowing how to avoid problems from the start, or how to solve them thoroughly enough to prevent them from reappearing.

Effective Master Controls

The effectiveness of superordinate system regulations, in the sense of system or corporate policy, is powerfully demonstrated using a few examples. For instance, a principle often violated in company acquisitions is the system rule to never buy a company unless you will be able to manage it with your own people within 12 months. The proven failure rate for mergers & acquisitions of over two-thirds could be reduced to less than onethird, íf this system-political rule was strictly observed.

Another example is the principle permanently disregarded in innovation management: separate the new from the existing business! This rule helps avoid most of the typical difficulties and failures occurring in innovation efforts.

Rules like these not only exist in corporate management but in practically all areas, such as sports or games. Modern game theory, which was awarded the Nobel Prize for economics, is the scientific approach to dealing with such rules. It exceeds the realm of economic issues by far and also originates from cybernetics. In chess, apart from the well-known rules of the game there is also a set of principles not everybody is familiar with, such as: keep your knights in the center. Or, to put it more generally: try to strengthen your position with every move.

Principles of this kind – we call them heuristics – are part of the wellguarded know-how of every chess pro, and they allow him to keep his calm in situations where anyone with a lesser knowledge would long have lost his bearings. Heuristics gain relevance when any other type of decision has become impossible due to the immense complexity of the game. In a detailed study of the decision routines of humans and computers in chess, the Russian grand master and former world champion M. M. Botvinnik has dealt with principles of this kind. They are the principles of succeeding and winning in hypercomplex situations.

Issue Policy vs. Systems Policy

While the subject level and the system-related management level are related to each other, they are entirely different in nature. In natural systems and in corporate management practice, they overlap or are often interlinked to an extent where it is difficult to tell them apart. In order to do so, one needs to develop an eye, even a sense for their interaction, and have access to the right models and methods to differentiate them and put them into a sensible order. Part of that is dealt with in this book.

At the two levels – the subject-matter and the systems level – we face different core problems in the management of business organizations. The key issue at the subject level is how to make profit. At the system level, the key issue is how to maintain a business system for an unlimited amount of time. Doing business and staying in business are two entirely different sets of skills and targets. At the system level we have the phenomena of shaping, directing, and regulating complexity. Regulating, direction, sorting out, and shaping are different forms of the same thing: of dealing with complexity. Hence, the subject level and the system-related directional level rest on two different knowledge bases.

The subject level is all about markets, products, technologies, personnel, and finances. It is about growth, revenues, costs, and profits. These are the familiar categories of managers’ business environment. The foundation of the subject level is the economic sciences, in particular business economics, as well as technical disciplines and natural sciences.

At the directional level, however, it is not the growth targets for each business line that are of primary concern. The central topic here is the principles for regulating growth as such, or the way in which the company grows. Typical questions are, for instance, whether growth is healthy or unhealthy, stable or unstable, and how much growth the company can take without getting out of control.

In other words, at the level of direction-setting and regulation, as opposed to the subject level, the central theme is functioning sustainably. It is all about the company’s basic ability to operate, about issues of stability and flexibility, of conservation and renewal, of adaptation, evolution, and the ability to develop further. The foundation for the directional level is cybernetics, the science of regulating and functioning (as has been mentioned before). Closely linked to it are its sister disciplines, system theory and bionics.

So the subject level is about operating the business, the directional level is about shaping a system for the operating of businesses, and about the shaping of systems for entire business systems. For instance, the global success of McDonald’s is not owed to hamburgers but to the system that McDonald’s has chosen for the way it works. The company’s general managers are really system architects and system designers, which in the complexity-driven society will be the central tasks of top and general management, in particular of CEOs. Another case in point is Microsoft, whose success stems from the company’s general management rather than its product, while DaimlerChrysler was not able to master, at the top management level, the complexity of a major merger.

Corporate Policy, Systems Policy, Governance

What has been discussed so far leads us back to the question posed at the beginning, whether this book should better be called Corporate Policy or Systems Policy. An alluring thought would be the argument that the term corporate policy in the traditional sense should be restricted to the subject level. However, I have decided to keep using the term corporate policy when relating to the tasks of systems policy. It is actually quite appropriate as far as it relates to corporate policy as an element of system regulation. The important point is that, demonstrably, corporate policy can have the substance it often lacks in practice due its non-binding nature – the very substance that brings about high-performance systems.

The ideal term for the corporate policy module in the Malik Management System, however, would have been corporate governance – and, in more general terms, systems or institutional governance – because it entails the crucial radical of cybernetics. The word cybernetics comes from the Greek kybernetes, meaning helmsman, which in English changed into governor and governance over time. Even the original definition of corporate governance by the Cadbury Committees fits my own thoughts: Corporate Governance is the system by which companies are run. However, the current perception of corporate governance has diverged so much from this line that the term, used as a synonym for system-oriented corporate policy, would cause more confusion than it could provide clarity.

Today, corporate governance is associated with a travesty of corporate management, characterized by the scandals and white-collar crime of the past 15 years rather than by a comprehensive understanding of complex systems. In truth, this has resulted in an extremely questionably practice of misled corporate government, as I have pointed out and argued in my book Wirksame Unternehmensaufsicht – Corporate Governance in Umbruchzeiten