This volume of the series entitled Management: Mastering ... · series on his holistic general management system, Management. The Essence of the Craft and Corporate Policy and Governance

This volume of the series entitled Management: Mastering Complexity describes the key models and principles most essential for the self-or-chestrated success of managers, their people and their organizations. Malik has no peer when it comes to diagnosing the dilemmas of our time and identifying the only conceivable way to solve them. His keen analyses offer practical guidance to stressed managers who, while they may be able to recognize the challenges of epochal change, are still at a loss for solutions.

PROF. DR. FREDMUND MALIKis widely known for his clarity of thought, his acute analyses and can-did language. For over 30 years the management scientist and entre-preneur, author of several award-winning bestsellers, has been wor-king on establishing a teachable and learnable occupational standard for the management profession. His holistic management models, which illustrate the way complex systems function, have their origins in the sciences of complexity: cybernetics, systemics, and bionics. Ma-lik’s company Malik Management, with offices in St. Gallen, Zurich, Vienna, Berlin, London, Shanghai, Beijing and Toronto, is the world’s largest think- and action-tank for effective general management.

Malik’s publications in English language include a revised edition of his bestseller Managing, Performing, Living – a plea for right and good management as a profession – and the first two volumes of a six-part series on his holistic general management system, Management. The Essence of the Craft and Corporate Policy and Governance. How Or-ganizations Self-Organize.

His latest book, published by Campus in 2011, was Strategie. Navigie-ren in der Komplexität der Neuen Welt, which is the third volume of the six-part series. It will be published in English soon.

“Fredmund Malik has become the leading analyst of, and expert on, Ma-nagement 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 institu-tions can function autodynamically, in the same way as modern tech-nology 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 fun-ctions 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

Fredmund Malik

Corporate Policy and GovernanceHow Organizations Self-Organize

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

Campus VerlagFrankfurt /New York

7Contents

Contents

What This Is All About . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Concept and Logic of the Series Management: Mastering Complexity . . . . . . . . . . . . . . . . . . . . . . . 16

Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Connections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Possibilities and Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

What Readers Need to Understand in Order to Understand this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Success Programming Its Own Failure . . . . . . . . . . . . . . . . . . . . . . . 23When Thinking Fails to Grow With Practice… . . . . . . . . . . . . . . . . . . 24Problems and Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Old and New Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Cybernetics as a Source of Relevant Insight . . . . . . . . . . . . . . . . . . . . 27Two Leaps of Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Taking Advantage of Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . 28Right Management Is Cybernetic Management . . . . . . . . . . . . . . . . . 30

Part IFrom Organization to Self-Organization . . . . . . . . . . . . . . . . . . . 31

1. Manifesto for Corporate REvolution . . . . . . . . . . . . . . . . . . . . . 33

The REvolutionary Transformation . . . . . . . . . . . . . . . . . . . . . . . . . 33Categorical Change – Change of Categories . . . . . . . . . . . . . . . . . . . . 34Will the Company Survive? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35From Money to Knowledge: Will There Still Be Shareholder Meetings? . . 35

8 Corporate Policy and Governance

From Knowledge to Insight: Mundus Novus . . . . . . . . . . . . . . . . . . . 36Right Corporate Policy is Systems Policy . . . . . . . . . . . . . . . . . . . . . . 37Management in the Age of Complexity . . . . . . . . . . . . . . . . . . . . . . . 38Systemic Corporate Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Systems Logic and Subject-Related Issues . . . . . . . . . . . . . . . . . . . . . 40Effective Master Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Issue Policy vs. Systems Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Corporate Policy, Systems Policy, Governance . . . . . . . . . . . . . . . . . . 43Remaining Blind for System-Immanent Natural Forces . . . . . . . . . . . . . 44

2. Work Plan for Cybernetic Corporate Policy . . . . . . . . . . . . . . . . 47

Roadmap to a Cybernetic Corporate Policy . . . . . . . . . . . . . . . . . . . . 47Orientation in the General Management Context . . . . . . . . . . . . . . . . 52

3. Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

4. Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Part IINew Times – New Management . . . . . . . . . . . . . . . . . . . . . . . . . 61

1. Constants through Change: Invariance, Self-Organization, Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Safe Landmarks at the Top Level . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Master Control, Cybernetics, and Governance . . . . . . . . . . . . . . . . . . 71Two Kinds of Systems – Two Kinds of Management . . . . . . . . . . . . . . 78

2. Prototypes of System and Self-Organization . . . . . . . . . . . . . . . . 89

System Prototype: Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Self-Organization Prototype: Traffi c Circle . . . . . . . . . . . . . . . . . . . . 91

3. Master Control through Corporate Policy . . . . . . . . . . . . . . . . . 93

What Corporate Policy Is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94The Core of Functioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Misconceived Pragmatism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Examples of Complexity-Compatible Corporate Policy . . . . . . . . . . . . 98True Leadership and “Great Man Fantasies” . . . . . . . . . . . . . . . . . . . 100Corporate Policy and Solid System Work . . . . . . . . . . . . . . . . . . . . . 101Noncommittal Nature, Overregulation, Openness, Universal Validity . . . 105

9Contents

Ethics and Morality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108What Should Be Regulated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

4. Navigating in Complexity – Models for Overview, Insight, and Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Brain-Like Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111World System Model Concept . . . . . . . . . . . . . . . . . . . . . . . 113The Model as a Thinking Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Realization and Understanding by Means of Regulation Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Knowing What the Talk Is About: The Babylon Syndrome . . . . . . . . . . 119Like a Brain: Operations Room – Management GPS . . . . . . . . . . . . . . 120Three Purpose-Oriented Models . . . . . . . . . . . . . . . . . . . . . . . . . . . 122Basic Model for Corporate Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 123Farewell to Hierarchy: Embedding Replaces Ranking . . . . . . . . . . . . . . 125Recursive Logic for Cybernetic Systems . . . . . . . . . . . . . . . . . . . . . . 129Specialists, Generalists, Specialists for General Subjects . . . . . . . . . . . . 131Three Subconcepts for Master Control . . . . . . . . . . . . . . . . . . . . . . . 132The Best Media for Master Control . . . . . . . . . . . . . . . . . . . . . . . . 134

Part IIIInstructions for Self-Organization . . . . . . . . . . . . . . . . . . . . . . . 137

1. What the Organization Should Do: The Business Concept . . . . . 139

The Purpose of the Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 140The Business Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159Performance of the Institution: The Cockpit . . . . . . . . . . . . . . . . . . . 167REvolutionizing Corporate Control through CPC towards Brain-Like Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177The Cybernetic Power of Purpose and Mission . . . . . . . . . . . . . . . . . 185

2. Where the Organization Has to Function: The Environment Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

What Needs to be Considered? A Common Topographical Map . . . . . . . . . . . . . . . . . . . . . . . . . . . 189The Master Control Model for the Environment . . . . . . . . . . . . . . . . . 194Master Controls for the Environment Model . . . . . . . . . . . . . . . . . . . 201Categorical Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217


3. How and With What the Organization Should Function: The Management Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

The Same Management Everywhere and for All . . . . . . . . . . . . . . . . . 222Tapping the Performance Potential . . . . . . . . . . . . . . . . . . . . . . . . . 223Inducing Self-Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224Management Models for Master Control . . . . . . . . . . . . . . . . . . . . . 225The General Management Model . . . . . . . . . . . . . . . . . . . . . . . . . . 226The Standard Model of Effectiveness – or “Management Wheel” . . . . . . 228The Integrated Management System (IMS) . . . . . . . . . . . . . . . . . . . . 232Navigation instead of Documentation . . . . . . . . . . . . . . . . . . . . . . . 237An Overview of the Master Control “Management Concept” . . . . . . . . 238Implementing Corporate Policy: Order is Law times Application . . . . . . 239Management Training and Development: Return on Management Education . . . . . . . . . . . . . . . . . . . . . . . . . 241Management Education is Critical for Success . . . . . . . . . . . . . . . . . . 242Charts of the Malik Management System (MMS) . . . . . . . . . . . . . . . . 244

Part IVSovereignty and Leadership through Master Control . . . . . . . . . 251

1. Order, Time, Peace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Their Working Conditions: Proliferating Complexity . . . . . . . . . . . . . 254Their Task: Total System Master Control . . . . . . . . . . . . . . . . . . . . . 255Their Challenge: Change Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . 255Their Choice: Making Use of Complexity . . . . . . . . . . . . . . . . . . . . . 257Their Confl ict: Categorical Change . . . . . . . . . . . . . . . . . . . . . . . . . 257

2. Top-Management Frame of Reference for Change Leaders . . . . . 259

In the Cross-Hairs of Total System Control . . . . . . . . . . . . . . . . . . . . 259The Future is Created Now – Or It Has Been Missed . . . . . . . . . . . . . . 261

3. Mastering the Master Controls – Source of Leadership . . . . . . . . 267

Master Control through Corporate Policy . . . . . . . . . . . . . . . . . . . . . 267Master Control through Corporate Modes . . . . . . . . . . . . . . . . . . . . 269Master Control through Corporate Issues . . . . . . . . . . . . . . . . . . . . . 272

4. A Look Forward – Current Top Management Issues . . . . . . . . . . 274

Informing and “Educating” Shareholders and Representatives of the Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

11Contents

What is Profi t? What is Wealth? . . . . . . . . . . . . . . . . . . . . . . . . . . . 275Entrepreneurship and Top Management . . . . . . . . . . . . . . . . . . . . . . 276The Importance of Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276Thinking through the Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . 277Developing Top Performers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277What is a Functioning Society? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278What Is the Meaning of Responsibility? . . . . . . . . . . . . . . . . . . . . . . 278Top Managers’ Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

5. The Crisis of Top Executive Bodies and Their REvolution . . . . . . 280

Lack of Theory for Top Management Structures . . . . . . . . . . . . . . . . . 280Will Formation Works Differently Today . . . . . . . . . . . . . . . . . . . . . 281Breeding Ground for Conspiracy Theories . . . . . . . . . . . . . . . . . . . . . 282Why Traditional Corporate Governance Is Not Enough . . . . . . . . . . . . 283

6. REvolution: From Chief Executive Offi cer to Master Control Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

Supercontrol instead of Superperson . . . . . . . . . . . . . . . . . . . . . . . . 285Total System Master Control Function . . . . . . . . . . . . . . . . . . . . . . . 286Functioning instead of Personifying . . . . . . . . . . . . . . . . . . . . . . . . 291

7. Top Management Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Three Prerequisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295Six Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

8. Master Controls for Leadership . . . . . . . . . . . . . . . . . . . . . . . . 300

What Distinguishes Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301Leadership Arises – From a Situation . . . . . . . . . . . . . . . . . . . . . . . . 302Master Controls for True Leadership . . . . . . . . . . . . . . . . . . . . . . . . 302Charisma? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

9. Heuristics for Winners: The Logic of Succeeding . . . . . . . . . . . . 310

Principles for Assessing the Situation . . . . . . . . . . . . . . . . . . . . . . . . 312Principles for the Ability to Direct and Relate . . . . . . . . . . . . . . . . . . . 315Principle of Proximity to Information . . . . . . . . . . . . . . . . . . . . . . . . 320Principles for the Power of Conviction . . . . . . . . . . . . . . . . . . . . . . . 322

Epilogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324


Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

The Malik Management System And Its Users . . . . . . . . . . . . . . . . 329

Designations and Identities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330History of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330Applications and Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331Autonomy for Management and Managers . . . . . . . . . . . . . . . . . . . . 332Modularity and Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333A Management System for Self-Thinkers . . . . . . . . . . . . . . . . . . . . . . 334Potential for Success Increasing With Qualifi cation . . . . . . . . . . . . . . . 334Self-Motivation for Self-Developers . . . . . . . . . . . . . . . . . . . . . . . . . 335Care versus Kudos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336Authors and Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

13What This Is All About

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 com-plexity dawned. Almost everybody senses that rapid change is increasingly part of everyday life. Many people today – in particular those carrying great responsibility – fi nd they can only fulfi ll their tasks at the expense of their personal lives. Hardly anybody would doubt that we need new foun-dations 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 fu-ture, 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 Manage ment System. Only when all other parts of the system work together can it achieve its maximum im-pact. This is why I start by explaining the concept and the logic of the se-ries on the following pages.


Everything to be said about the subject of this book is much easier to ex-press (and even easier to implement) in models than to put in succinct words without exceeding the scope of a book. Some of the para graphs may there-fore seem superfl uous to one reader while another will fi nd them to be pre-cisely 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 every-body 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 Manage-ment 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 pro-found knowledge about the cybernetics of complex systems, she has helped me to better sort out my own thoughts and their cybernetics. The interac-tion of speech and thinking is one of her specialties. There is hardly any-thing 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 Elisa-beth 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 con-tent has proven valid in years of cooperation with hundreds of managers

15What This Is All About

– including clients as well as colleagues in various top manage ment bodies – and after both critical discussions and fi eld tests have been passed. I owe my sincerest thanks to all of them.


Concept and Logic of the Series Management: Mastering Complexity

This series of six books has a modular structure. The fi rst 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, fi nd it helpful to have a look at the introductory volume The Essence of the Craft in order to be able to posi-tion an individual topic within the overall context, according to the graph shown in fi gure 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 un-derstanding the contents of the series Management: Mastering Complexity.

Foundations

The basis for all my books and papers is Strategie des Managements kom-plexer Systeme [“Strategy of the Management of Complex Systems”]2, a

1 Führen Leisten Leben was fi rst published in 2000; the English translation Manag-ing Performing Living followed in 2003. A revised and expanded edition of the German version was published in late 2006. All at Campus, Frankfurt/New York.

2 Strategy of the Management of Complex Systems, 10th edition, Berne/Stuttgart/Vienna, 2008.

17Concept and Logic of the Series Management: Mastering Complexity

considerably expanded version of my habilitation treatise. This, in turn, is based on the books Systemmethodik Teil 1 und Teil 2 [“Systems Method-ology – Basic Principles of a Method for Researching and Designing Com-plex Socio-Technological Systems”]3, the joint PhD thesis by Peter Gomez, Karl-Heinz Oeller, and myself. These books cover the theoretical princi-ples of cybernetics and systems science, which represent the cornerstones of all my thinking with regard to management topics.

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

3 Gomez, Peter; Malik, Fredmund; Oeller, Karl-Heinz: Systemmethodik – Grund-lagen einer Methodik zur Erforschung und Gestaltung komplexer soziotech-nischer Systeme, Band 1 u. 2, Bern 1975.

Corporate Policy and GovernanceExecutives

Management.The Essence of

the Craft

Band 2Volume 6

CultureVolume 5

StructureVolume 4

StrategyVolume 3

Volume 1


Connections

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

In the inner circle, we have the summary volume Management. The Es-sence 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 fi gure 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 concep-tual 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 suit-able for describing, capturing, and communicating the complexity of in-terconnected 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 trans-parent?


Figure 2: Systemic relations between the volumes of the series Management: Mas-tering Complexity

Redundancy

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

The fi rst reason why redundancies are inevitable is that the subject mat-ters, while clearly distinguishable, are also inseparable, which is an impor-tant 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

ManagementThe Essence of the Craft

CultureStructure

Strategy

Executives

Corporate Policy and Governance


communication theory, redundancy is by no means superfl uous. Not al-ways 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 com-municate. Language is linear and thus, for all intents and purposes, unsuit-able for describing branches, feedback loops, recursions, and other nonlin-ear concepts. It is also not complex enough to refl ect the real complexity of systems.

In order to describe the non-linearity and complexity of systems with-out resorting to mathematics, the only means that a book has to offer be-sides textual redundancy is illustrations. But even illustrations can be highly inappropriate for complex systems. Firstly, there is only a two-di-mensional 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 Gover-nance, 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 inter-action. To overcome the limitations of the book medium, interested read-ers may want to visit the website www.malik.ch to explore the Malik Management System, better understand its workings, and use it in prac-tice. 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 publiciz-ing 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 fi xed 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 re-search is complexity. With his book Cybernetics and Management, pub-lished in 1959, the British top manager Stafford Beer laid the groundwork for manage ment 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 deci-sive step when writing his Systems-Oriented Management Theory. To-gether with my friend and colleague Walter Krieg, he presented the St. Gal-len Management Model in 1972. Hence, ever since my time as a university student, my thinking has been challenged and infl uenced by thought lead-ers 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 scientifi c background, the purpose of Man-agement: 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 essen-

23What Readers Need to Understand in Order to Understand this Book

tial 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 institu-tions, 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 prac-ticed to date. This conventional kind of manage ment has been so success-ful 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 pro-tagonist 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, fur-ther exacerbating the diffi culties they bring with them.

Whenever diffi culties arise in a period of success, most people try ad-dressing them by doing “more of the same”. This well-known, well-re-searched 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 break through 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 effi ciently 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 fun-damentally 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 manage-ment a process of gigantic complexifi cation has set in, characterized by a progressive inter twining of an ever greater number of systems. As a result of this side effect, the functionality of societies and their institutions is be-ing pushed to its limits. They become ineffi cient, which threatens to over-strain society as a whole.

When entire systems keep getting more and more ineffi cient, clear sig-nals 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 bu-

reaucracy.

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 prac-


ticed 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 cen-tury. This know ledge 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 compli-cated but – another presumed paradox – they were not particularly com-plex.

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 ad-ministrative agencies are, what they all have in common is that they are complex, dynamic, non-linear, probabilistic, networked systems. Their respective environments – complex systems them selves – form an inter-laced and interwoven, dynamic, non-linear system ecology. Healthcare, educational, and social systems, utility, energy, transportation, and logis-tic systems, the fi eld of media and information, the fi eld of information and communication systems, the global fi nancial 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 con-ventional reason.

Complex systems have their own laws, qualities, and behavioral pat-terns 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 accord-ingly.

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 ap-proaches, 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 to-day’s dimensions of complexity.

Successfully mastering this much complexity requires a fundamental re-orientation, starting with the basic model of management. This fundamen-tal 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 sys-tem, which will be indispensable in the future, can be derived from sys-tems, bio-, and neurosciences, as well as from evolution theory. Why is that so? Just imagine what it would be like if living organisms were orga-nized 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 de-signing 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 or-ganisms 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 organi-zations.

Reliable help can only be found where there are regularities that bio-logical 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, reg-ulation and control systems in cars and airplanes, modern security sys-tems, and satellite navigation were developed. In the entire fi eld of tech-nology and in several other disciplines cybernetics has been used for many years. Wherever that is the case, there have been demonstrable and obvi-ously 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 to-day’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 cybernet-ics 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 break-throughs in management as have been achieved in technology, based on the insights from cybernetics, two evolutionary leaps must be taken si-multaneously:


• The fi rst 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 fi rst 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 com-plex 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 diffi cult 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 fun-damental insights of cybernetics: that complex systems organize them-selves, and they do so in accordance with the natural laws defi ned by cy-bernetics. 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 fi rst: 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 them-selves, 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-capa-bilities of systems, are comparable to the historic transition from the fl at-earth to the spherical-earth theory in terms of their dimensions and conse-quences. They have very far-reaching effects.

Cybernetic management does not simply take away the fear of com-plexity and its consequence, the urge to reduce it. On the contrary, by ap-plying 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 orga-nizations and society as a whole, to function better and more indepen-dently.

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 traffi c 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 complex-ity 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 man-aged and regulated by cybernetic principles are able to overcome the para-doxes of simplicity versus complexity, of freedom versus order, of variety versus unity, of autonomy versus centrality, of community versus the indi-vidual, of free economy versus control of excesses, of reason versus intu-ition. Reductionist either-or thinking is replaced or supplemented by sys-temic 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 diffi cult to prepare for a broad audi-ence, and equally diffi cult 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. Cy-bernetic 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 nat-urally 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 man-agement models be studied, evaluated and applied correctly. Where ex-actly they differ from the management theories of the 20th century is de-scribed in the different volumes of the book series Management: Mastering Complexity. The 21st century manager does not need any different quali-ties. What he needs are different skills, another view of the world, other insights, and another way of acting.

www.malik-management.com

Documents

This volume of the series entitled Management: Mastering ... · series on his holistic general management system, Management. The Essence of the Craft and Corporate Policy and Governance