theoretical and practical advances in management

THEORETICAL AND PRACTICAL ADVANCES IN MANAGEMENT



Contributions to Theoretical and Practical Advances in Management A Viable Systems Approach (VSA) edited by

Sergio Barile

Contribution by Roberto Aguiari Sergio Barile Alberto Bilotta Luciano Bologna Mario Calabrese Francesco Caputo Luca Carrubbo Primiano Di Nauta Valerio Eletti Francesca Iandolo Vincenzo Maggioni Jaqueline Pels Francesco Polese Antonio Renzi Marialuisa Saviano Cristina Simone

Copyright © MMXIII ARACNE editrice S.r.l. www.aracneeditrice.it [email protected] via Raffaele Garofalo, /A–B  Roma () 

 ----

No part of this book may be reproduced by print, photoprint, microfilm, microfiche, or any other means, without publisher’s authorization. I edition: June 

Contents

V

VII 1

About aSvSa and the ‘Studies and Research on Viable Systems’ Book Series Preface Chapter I An Introduction to the Viable Systems Approach and its Contribution to Marketing 1.1. Introduction, 1 – 1.2. A brief introduction to systems theories, 2 – 1.3. The Viable Systems Approach, 13 – 1.4. The contribution of VSA to marketing, 20 – 1.5. Marketing approaches and perspectives: A final overview, 25 – 1.6. Managerial implications and future research directions, 27 – 1.7. Acknowledgements, 28 – References, 29.

39

Chapter II Dynamic capabilities and T-Shaped knowledge. A Viable Systems Approach 2.1. Introduction: the theoretical context of transition to a knowledge based view of the firm, 39 – 2.2. The relevance of the dynamic capabilities: a VSA perspective, 40 – 2.3. The emerging need for “T-Shaped” professionals, 42 – 2.4. Towards a VSA interpretation of a T-Shaped knowledge, 44 – 2.5. A VSA T-Shaped knowledge management approach: from competencies back to dynamic capabilities, 48 – 2.6. Concluding remarks and managerial implications, 54 – 2.7. Acknowledgments, 54 – References, 55.

I

II Contents

61

Chapter III A theoretical framework for measuring value creation based on Viable Systems Approach (VSA) 3.1. Introduction, 61 – 3.2. Value in business, 63 – 3.3. Models for the interpretation and measure of value creation, 66 – 3.4. Evolution in value creation interpretative model: a contribute coming from VSA, 69 – 3.5. A VSA-based model proposition, 72 – 3.6. Not conclusive reflections, 87 – References, 88.

95

Chapter IV Decisions and Business Communication within a Psychological Ericksonian Perspective 4.1. Introduction, 95 – 4.2. Elements of the Viable Systems Representation of the Firm, 101 – 4.3. The Possible Contribution of Ericksonian Therapeutic Strategies, 112 – 4.4. Conclusions, 118 – References, 119.

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Chapter V Time factor in managerial decisions 5.1. Introduction, 123 – 5.2. Managerial decisions under uncertainty, 125 – 5.3. Conclusions, 128 – References, 129.

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Chapter VI Governing business dynamics in complex contexts 6.1. Introduction, 133 – 6.2. Government and management of relations in emerging Service theories, 135 – 6.3. Government and management of relations in emerging network and systems theories, 136 – 6.4. Viable Systems Approach and its roots in systems thinking, 138 – 6.5. (VSA) contribution to the government of business dynamics and to relational aspects of Many-to-Many, S-D logic and SSME, 139 – 6.6. The (VSA) theoretical contribution to the service paradigm, 144 – 6.7. A proposal for decision making in complex contexts: the (VSA) ConsulCube, 147 – 6.8. Conclusions, 152 – References, 153.

Contents III

161

Chapter VII The complexity of corporate diversification. organizational design, entropy and operating risk 7.1. Diversification strategies: historical perspective, 161 – 7.2. Diversified companies and organizational planning: main M-form features, 163 – 7.3. Conglomerate diversification vs. correlated diversification, 169 – 7.4. Entropy as proxy of corporate diversification, 174 – 7.5. Corporate diversification as a factor of reduction and amplification of corporate risk, 181 – 7.6. Intrinsic business risk, operating leverage and corporate diversification: towards a analysis model of operating risk based on firm fundamentals, 187 – References, 193.

199

Chapter VIII Cognitive Prostheses for the Web 3.0. How to find one’s way in the complex contents and contexts networks of massive data sets 8.1. Introduction, 199 – 8.2. Big Data, 201 – 8.3. Semantic Instruments, 204 – 8.4. Cognitive Prostheses, 208 – Appendix A- Soft computing, 214 – Appendix B - Visualizing Information in Complex Environments, 215 – References, 216.

219

Chapter IX Managerial choices between Systems, Knowledge and Viability 9.1. Introduction: complexity and knowledge in business management, 219 – 9.2. Franchising networks between theoretical view, legislation and empirical reality, 222 – 9.3. The interpretative contribution of the Viable Systems Approach, 229 – 9.4. The management of franchising networks as cognitive systems, 231 – 9.5. Concluding remarks, 237 – 9.6. References, 237.

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Authors

About aSvSa and the ‘Studies and Research on Viable Systems’ Book Series

Some years ago, the Italian University system, on the crest of a wave and enjoying an ideal phase - at least in theory – marked the break in its lengthy path of ascent in the social firmament and determined involuntarily the conditions for an inevitable phase of decline. It was during the pleasant and carefree interim that precludes the start of any downturn, that a group of keen researchers, lulled in their sense of wellbeing, began debating on the systems thinking vision of reality. The intriguing studies of Authors such Korzybski, Bogdanov, von Bertalanffy, von Foerster and later Beer, Varela, Flores and others were provoking a growing interest in the scientific community relative to concepts of systems thinking. This triggered the development of an innovative conceptualization of systems thinking in the social sciences: the Viable Systems Approach (VSA). With the English version of Professor Gaetano Golinelli’s work – who in recent years has systemized the fundamental concepts of VSA – there has been an extension of the approach to a multidisciplinary audience of international scholars. Acknowledgement of the validity of VSA relative to organisations and organisational behaviour has arrived from numerous researchers and scholars engaged in investigating individual and collective features of social organisation as a whole. To date, VSA-based studies are to be found not only in the context of management, marketing, organisational theory, but also in that of anthropology, psychology, sociology and in some pioneering aspects of physics and neurology. V

VI About ASVSA

With the aim of disseminating the findings of research carried out to date and not least, in an effort to favour the interest and participation of an ever wider number of researchers attracted and intrigued by the conceptual trends of the Viable Systems Approach (VSA), the Association of research on Viable Systems (ASVSA) has been created. The VSA research stream counts now hundreds of contributions of scholars and researchers from different disciplinary domains. With the aim of stimulating an ongoing debate at international level, fostering a rich production of theoretical and practical contributions and favouring a knowledge co-creation process through interaction between different perspectives on the basis of a multi- and interdisciplinary approach, the Studies and Research on Viable Systems Book Series has been founded. The book titled Management sistemico vitale. Decisioni scelte in ambito complesso, by Sergio Barile, founder of the ASVSA and one of the main Italian reference for studies on complexity and viable systems approach, opens the Series in 2011. Within the series, the section Theoretical and Practical Advances in Management collects books with contributions from Various Authors. The first issue, titled Contribution to Theoretical and Practical Advances in Management. A Vaiable System Approach, was published in 2011 and proposes reflections inspired by system thinking and in particular by VSA. The present book, edited by Sergio Barile, is the second issue and collects further theoretical and practical advances in the VSA research context that Author aim to share with the wider systems research community.

Rome, May 2013 Marialuisa Saviano President ASVSA, Associazione per la ricerca sui Sistemi Vitali, Italy www.asvsa.org

Preface

Scholars of business economic disciplines are aware of how difficult it is to define their field of study; such definition concerns both the specific objective of study –what the business economy studies–, but also the survey methods adopted –how business economics conducts its studies–. This problem is common to many not formalized disciplines, which aspire to the discovery of general laws but are affected by the lack of homogeneity for what concerns approaches and purposes. It should be said, indeed, that this difficulty is in absolute terms for disciplines such as philosophy, economics in its various branches (including business economics), sociology, psychology, and for all the related disciplines. It should also be noted that the difficulty exists, even if to a lesser extent and with different shades, for medical disciplines, for natural sciences (physics, chemistry, biology, etc.) and even math. At the risk of oversimplification, it could be argued that if “social” disciplines are addressed to the adoption of the scientific method from the natural (formal) sciences, what is detected as a hardly surmountable difficulty must be brought back to the “ontological” phase (which is, how the object of study is made, how it behaves?), and not to the procedure suitable to the growth of the scientific knowledge (epistemological path). It should be noted that, while the path dealing with the identification of the field of study is almost always formalized and, consequently, not transferable from one research area to another, the methodological advances consolidated in the context of the exact sciences, are profitably recoverable in the less formalized sciences.

VII

VIII Preface

The intent of this book is to provide the information needed to define, in a sufficiently complete way, the concept of paradigm, and then, to make it possible to develop further advances useful to frame the Viable Systems Approach (vSa), proposed as a new paradigm for organizations management . In effect, the interest for the approach or, in vSa terms, the consonance, is already a reality; here, we propose the information in a form that could be accessible, for what concerns the “language patterns”, to the scholars who were already thinking along those lines, in order to generate “resonance”. Here, the reference is not to information, but to ideas, as we believe that what really counts is the general scheme underlying an idea, not the specific scheme through which, from one context to another, ideas take shape. This means that, if we deal with a product or a service, rather than with a structure or a system, it does not make much difference, if it is clear that both specific schemes originate from the most general cause-effect scheme . In this logical context, the various manifestations of the same conceptual trend easily emerge. Similarly, as in business sciences the emphasis moves from product to service, in the psychological sciences from individual to context, in sociology from the social structure to the social process, in epistemological studies from reductionism to holism. The contribution of vSa consists in highlighting the existence of general schemes as fundamental “laws” that act on the way we perceive reality and, consequently, in encouraging scholars from different disciplines to recognize the possibility of bringing their concepts, not in terms of content (otherwise falling into the trap of a kind of epistemological reductionism), but in terms of the process of elaboration of the constructs, to find a common denominator. In essence, vSa has highlighted that, when a concept is likely to be explained through a metaphor, and if the metaphor explains several concepts, it is possible to identify a general scheme. The metaphor finds its basis on such a general scheme which supports the specific schemes that take shape in different contexts and different concepts. In the light of the above, the attempt to find a logical connection based on a specific scheme characterizing the contributions collected in this volume, is logically not a feasible goal. The “set theory” description, structural in itself, is hardly appropriate

Preface IX

for such a requirement. Contributions find a cohesive reason to exist only by virtue of an interpretation process that the reader, subjectively, derives from his/her information variety and cultural aims. Our hope is that you enjoy reading the volume!

Sapienza, University of Rome, Italy, May 2013

Sergio Barile

Chapter I

An Introduction to the Viable Systems Approach and its Contribution to Marketing*

1.1

Introduction

Given the dynamism and instability of contemporary markets, all businesses and economic actors encounter conditions of growing complexity (Ng et al. 2012). In defining strategy, each actor should consider all of the other actors and stakeholders that might influence its relationships with the market (Gummesson & Polese 2009; Vargo & Lusch 2011; Vargo, Lusch & Polese 2012). The resulting scenario is characterized by a high number of dynamically changing interconnections to be considered. In such a scenario, events are not characterized by simple cause-effect relationships but define networks of relationships within which complex patterns of interactions occur (Gummesson 2001). Consequently, decision makers experience difficulty in making successful and effective choices, and rational decision making thus becomes challenging (Barile 2009; Barile & Saviano 2010b). These new contextual conditions have prompted the belief that both management and marketing theories are in need of a new paradigm of conceptual thought (Ghoshal & Moran 2005; Lusch 2007). During the second half of the last century, numerous disciplines have attempted to develop new models that are capable of adequately representing the observed reality and its dynamics by pursuing studies of system theory (von Bertalanffy 1968; Parsons 1971; Beer 1972; *

By Sergio Barile, Francesco Polese, Jaqueline Pels, Marialuisa Saviano

1

2 Chapter I

Maturana & Varela 1975). Based on a general perspective of observation, systems theories have been adopted in several disciplinary domains, including management and, more recently, marketing (Ng et al. 2012). Despite the widely accepted view of business as a socio-technical open system, we observe that the implications of this qualification are rarely explored in depth. Thus, although they generally agree on a systems view of business organizations, scholars have neglected the exploration of the systemic properties of business, which are illustrated only superficially or are implicitly present as premises or implications of the representation of business as a system. As a consequence, many relevant system characteristics are not considered in decision-making processes. A growing dissatisfaction with existing business and marketing models, stimulated an Italian research community to seek a more satisfactory scientific approach, capable of representing better the complex context. This scientific effort has led to the introduction and development of the Viable Systems Approach (VSA). Rather than representing another theory, the VSA adopts the premise of the systemic functioning of business and market actors and offers a general framework of reference within which each theoretical contribution has a clear positioning (Golinelli 2010). Thus, the purpose of this paper is to explain why a systems approach is needed to understand business and market dynamics, and why the VSA may represent a good integrator of management and marketing theories and practices. The paper begins with a brief review of systems theories as proposed in the general context of management and marketing. The paper proceeds by illustrating the fundamental principles and concepts of the VSA and its contribution to marketing. The paper closes by discussing future research avenues and suggesting implications for researchers and practitioners.

An Introduction to the Viable Systems Approach 3

1.2

A brief introduction to systems theories

1.2.1 Systems theories in management: initial thoughts and developments Today, systems thinking is present in all management disciplines (Golinelli 2000). Systems theories have characterized management research from various perspectives that have offered different contributions to the understanding of governance and operation mechanisms (Golinelli 2010). The initial contribution to the development of a systems view of firms was offered by Taylor (1911), who adopted an analytic reductionist approach to business studies on the basis of a mechanistic view of the firm by emphasizing the structure’s components and relations. At that time, conditions of stability characterized the environment, and firms could focus on production processes to improve efficiency. Building on Taylor’s scientific proposals, Urwick and Gulick (1937) theorized firms as closed systems operating according to deterministic schemes whose dynamics were completely controlled. Although appreciated decades later, a fundamental contribution to systems thinking studies was offered by the 1922 Bogdanov Tektology studies (see Bogdanov 1980), which may represent the first attempt to define a real science of structure, to describe its organization and to explain all connections existing among the parts of any system. Towards the middle of the last century, a prolific research stream represented by open systems theories developed and challenged the conception of firms as closed systems.. According to this view, which build on a parallelism with living entities, firms are characterized by a life cycle, absorb external resources to pursue their own finality (survival), reflect an articulated structure of different components (each with a specific function) and are adaptable entities according to a progressive specialization (Hannan & Freeman 1977). At that time, a strong influence on business studies was exerted by Stafford Beer (1972) with his view of firms as cybernetic systems that are strengthened by self-regulating capacities to enable better management of changing contextual conditions. According to Beer, governance ability relies on a self-regulation mechanism that is capable of increasing the fulfillment of a system’s finality or the ability to undertake corrective actions.

4 Chapter I

Each of these systems theory proposals within the management field has been developed by focusing on specific aspects of systemic functioning that have led to the identification of relevant properties. The first attempt to propose such a general framework of systems theory was accomplished with the studies of von Bertalanffy, founder of the “general system theory” (GST) (1968). Another systems thinking contribution was proposed by Katz and Kahn (1978) who studied the mutual inferences of organization (the system) and the environment in which it is involved. The Theory considers cybernetics adaptive capacity of organization in order to evolve in environmental conditions (with or without information processing need) (Katz & Kahn 1978). A more recent contribution of systems thinking to business studies is represented by the works of Capra and its insightful studies on networks (1997), or by the view of firms as cognitive systems; this view highlights the importance of knowledge and learning processes that are fundamental for system viability (Clark 1997). 1.2.2 Systems theories developments

in

marketing:

initial

thoughts

and

The systems approach is not new within the marketing field. Within marketing, systems thinking was adopted by various research streams, each of which has provided a contribution to the overall understanding of market mechanisms. These perspectives are synthesized in Table 1. We shall focus specifically on Alderson, the macro-marketing school, the IMP group, service-dominant logic and service science. The first step occurred in the 1960s, when Alderson’s view of marketing as a function was appraised for its “vital role in the dynamic process of matching goods and needs and in organizing institutions and processes to serve this ultimate purpose” (Alderson 1964, p. 94). His functionalist view was grounded in a total systems approach, which devised “descriptive generalizations of marketing activities and institutions” (Alderson 1964, p. 106) in which organized behavior systems played a central role. Hence, marketing theory was based on a functionalist approach to studying “a nested hierarchy of systems of


action in which system levels are differentiated in terms of their functions” (Dixon & Wilkinson 1989, p. 64). Alderson’s work will later for the basis to the development of vertical marketing systems, thinking. This system logic is revealed to be primarily a means of better controlling the market and does not overcome the transactional logic of exchange (Saviano 2003). Through vertical marketing systems, in fact, marketers essentially gained control over distribution channels by developing means of blocking com-petitors from entering these channels. These trends led to the devel-opment of direct marketing with the aim of maintaining a longterm relationship with consumers (McCammon 1965). However, although researchers had already begun to attribute a prominent role to a systems approach in marketing in the late 1960s (Lewis & Erickson 1969), it was more than a decade later that, through the introduction of macro-marketing studies, systems assumed a lead role in promising marketing research avenues. In fact, macromarketing was proposed as the study of: (a) marketing systems, (b) the influence and consequences of marketing systems on society, and (c) the influence and consequences of society on marketing systems (Hunt 1981, p. 7). Hence, the macro-marketing perspective allows for varying levels of aggregation to capture systemic views that embrace businesses and business interactions with different legal, political, and social value systems. In this context, the adoption of general systems theory in marketing specifically led to a wider view of market exchange, in which a marketing system could be considered “a complex social mechanism for coordinating production, distribution and consumption decisions” (Dowling 1983, p. 22) or even as “a differentiated subsystem of the society […with…] an impact on other social systems, the cultural system, and the material environment” (Dixon 1984, p. 4). Systems thinking has also influenced the first works of the IMP (Industrial Marketing and Purchasing) research group. For example, Hakansson’s view of the “visible hands”, stimulated beneficial situations for enterprises immersed in networked contexts (Hakansson

6 Chapter I

1987, p. 89). However, only in the last decade authors have begun proposing business and networks as complex adaptive systems that are not centrally directed (Ritter, Wilkinson & Johnston 2004; Miller & Page 2007). Significant contribution to the systems view within marketing can be traced back to the work of Chase (1978); only through the servicedominant (S-D) logic (Vargo & Lusch 2004) and service science (SS) (Spohrer et al. 2007) can we truly appreciate the full integration of systems thinking within marketing research. Hence, dynamic network structures have been conceptualized as “open system[s]”, as systems that are “capable of improving the state of another system through sharing or applying its resources…and capable of improving its own state by acquiring external resources” (Spohrer et al. 2008, p. 7). Accordingly, S-D logic proposed a service ecosystem as a spontaneously sensing and responding spatial and temporal structure of largely loosely coupled, value-proposing social and economic actors that interact through institutions, technology, and language to (1) co-produce service offerings, (2) engage in mutual service provision, and (3) cocreate value (Lusch, Vargo & Tanniru 2010). The dynamics and complexity of a system may be influenced by two key variables, both of which are driven by value co-creation with customers (Vargo, Maglio & Akaka 2008): first, component knowledge (of each type of transformation); and second, architectural or system knowledge (that provides an understanding of integration and how the value proposition will enable value co-creation with customers) (Ng et al. 2011). In addition, the concept of reconfiguring system elements to ensure relevance for its focus on system dynamics began to influence marketing ideas; in fact, each instance of resource integration, service provision, and value creation changes the nature of the system to some degree and thus the context for the next iteration and determination of value creation. Networks are not merely networks (aggregations of relationships); they are also dynamic systems (Vargo & Lusch 2011). Indeed, a focus on the dynamics aspects of systems enables the acknowledgment of the crucial implications of complexity. Hence, as markets and marketing become increasingly complex, complexity theory, network theory, and systems theory are likely to play more prominent roles in future marketing developments.


Accordingly, given the systemic nature of value creation, the adoption of a systems approach, which includes a general observation of phenomena, enables value exchanges with other socio-economic actors (Barile & Polese 2011, p. 167). Only through a high level of observation it is possible to create successful value proposition by stimulating flexibility and adapting to and embracing change as outcomes emerge (Barile, Saviano, Polese & Di Nauta 2012). Recently, Layton (2007) proposed an effective definition of a marketing system as a network of individuals, groups, and/or entities that are linked directly or indirectly through sequential or shared participation in an economic exchange that creates, assembles, transforms, and ensures the availability of both tangible and intangible products that are provided in response to customer demand. Subsequently, the relevant systemic property of emergence has been captured by qualifying marketing systems as emergent patterns in flows of transactions (Layton 2011). This view prompts a focus on interaction, and some streams have extended the contribution of systems thinking to service research advances by specifically focusing on the concepts of ‘interaction’, ‘whole’ and their relations to the issue of complexity and control mechanisms (Ng, Maull & Smith 2011). Tab. 1.1: Focus points in the evolution of systems thinking in marketing Authors Focus Year Alderson W. Within his functionalist view 1964 grounded in total systems approach, he attributed to marketing function a vital role in the dynamic process of matching goods and needs. McCammon Marketers gained control over 1965 channels of distribution and developed means of blocking competitors from entering into these

8 Chapter I

Lewis R., Erickson L.

Chase

Hunt S.

Dowling G.

Dixon D.

Dixon D. and Wilkinson I.

channels. Only two approaches have the potential of providing a theoretical base for marketing: the functional and the systems approaches. The ‘customer contact model’ holds that the potential efficiency of a service system is a function of the degree of customer contact entailed in the creation of the service. Macro-marketing is the study of (a) marketing systems, (b) the impact and consequences of marketing systems on society, and (c) the impact and consequences of society on marketing systems. A marketing system is a complex social mechanism for coordinating production, distribution and consumption decisions. The marketing system is a differentiated sub-system of the society… and it has an impact on other social systems, the cultural system, and the material environment. Marketing theory is based on a functionalist approach in which the system of action studied was “a nested hierarchy of systems of action in which system levels are differentiated in terms of their functions.”

1969

1978

1981

1983

1984

1989


Layton R.

Spohrer, Vargo, Caswell, Maglio

Vargo, Maglio, Akaka Lusch, Vargo, Tanniru

Mele, Pels and Polese

A marketing system is a network of individuals, groups, and/or entities linked directly or indirectly through sequential or shared participation in economic exchange. Dynamic network structures are conceptualized as “open system[s]” that are “capable of improving the state of another system through sharing or applying its resources…and capable of improving its own state by acquiring external resources” (p. 7). The dynamics and complexity of the system may be influenced by value co-creation with the customer. A service ecosystem is a spontaneously sensing and responding spatial and temporal structure of largely loosely coupled, value-proposing social and economic actors interacting through institutions, technology, and language to (1) co-produce service offerings, (2) engage in mutual service provision, and (3) co-create value. Systems theories and perspectives can effectively contribute to management, marketing and service research due to their dual approach: the global, holistic view of observed phenomena and the

2007

2008

2008

2010

2010

10 Chapter I

Barile and Polese

Vargo and Lusch Barile and Polese

Layton R.

specific, reductionist view of their specific components and traits. The systems perception in manyto-many marketing is strictly linked to networks, in VSA to dynamic interactions, and in service logics to dynamic resources reconfigurations. As theories based on systems thinking, networking and value co-creation, VSA and many-tomany marketing are strongly supportive of the future developments of S-D logic and service science. Networks are not just networks (aggregations of relationships); they are dynamic systems. Given the systemic nature of value creation, it is important for managers to adopt a systemic approach, a general level observation of the observed complex phenomena to enable value exchanges with customers. Marketing systems are identified and categorized as emergent patterns in flows of transactions.

2010

2011 2011

2011

However, following the identification of theoretical and/or practical proposals that express the adoption of a systems perspective to some extent, it is worthwhile to underline that the systems view that is adopted in the context of marketing clearly reflects the adoption of this view in the more general context of management. Thus, when referring to, for example, a systems view in marketing in the 1960s, we should recall that this view would have differed significantly four


decades later, being influenced by the evolving context conditions. In particular, the systems approach that has been identified as characterizing marketing in the 1960s (Guatri, Vicari & Fiocca 1999) prior to the instability that emerged a decade later significantly differs from the systems approach that currently characterizes marketing. Indeed, the stable or unstable conditions of markets have a strong influence in shaping relational configurations (Pels & Lefaix-Durand 2009) and the systems approach. At this point, the specific contribution of the VSA relates to systems in conditions of rapid change and instability as opposed to what may be identified as a systems in stable conditions (Saviano 1999). The latter approach qualifies a systems perspective that characterizes a conception of systems that is strongly connected to the stability of rules and procedures that are identified as routines, is effectively governed by a central power that authorizes and regulates deviations, and reflects the hierarchical structure of the mass production of large companies (Saviano 2003). Thus, when scholars associate system-business governance with the logic of technical management-oriented planning and negotiation for control purposes, they qualify a business model that is an expression of managerial and mass production and that is strongly oriented toward standardization and economies of scale (Rullani 1999). This conception of systems significantly differs from that of the VSA that represents, as we will illustrate in the next section. The VSA is construed on the basis of a version of Beer’s (1972) Viable System Model that is updated by considering implications of the highly dynamic environment that characterizes business contexts and in which complexity plays a central role. 1.2.3 The contribution of systems theories to marketing: a research gap The trend toward a shift in marketing has led to a service-based view that is centered on the concept of co-creation emerging from multi-actor interaction. This view underlines the dynamic nature of the service exchange and highlights aspects that are truly of a systemic

12 Chapter I

nature. The shift from a traditional transactional view of exchange that is focused on the dyadic level of relations has addressed a view of value as being co-created through many-to-many interactions (Gummesson 2008). This central aspect in turn highlights the emergent and contextual nature of the service outcome (Smith & Ng 2012) that would benefit from a systems thinking approach, as underlined within the community of SS when referring to the broader field of service systems management (Spohrer et al. 2008; Mele & Polese 2011). As previously mentioned, marketing theory is currently at a turning point in the contrasting paths of overarching prevailing research mainstreams that have successfully characterized marketing practices during the last century (Gummesson, Lusch & Vargo 2010) and emerging needs that are arising from current market contexts and are traced by more recent research streams of S-D logic (Vargo & Lusch 2008), SS (Spohrer et al. 2007; IfM-IBM 2008). These emerging research streams have addressed issues, such as complexity, systems thinking, human behavior, competitiveness, and service systems; nevertheless, we continue to believe that there is a missing element. The relevant changes in customer culture and behavior, globalization and competition, information and communication technology, and many other areas suggest the need for a need to rethink marketing roots in contrast with the trend that is interpreting marketing as an over-organized and isolated function and marketing in search of new approaches (Grönroos 2002). If the community of marketing scholars and their professional associations do not assume a lead role in studying and researching marketing as a societal process and institution, then this type of research will be exclusively left to scholars outside of marketing and likely outside of business (Lusch 2007, p. 267). In this view, it appears that marketing theory could benefit from a greater perspective of interpretation of the discipline in a shift from the description of substantive detail to abstraction and generalization (Gummesson 2005). The shift in perspective from a goods-dominant logic to a servicedominant logic (Vargo & Lusch 2004) has been related to the assumption that relationship marketing reflects the evolution from a reductionist view to a systems view in the marketing approach, defines the


basis for a service-based systems view of market exchange (Golinelli, Barile, Saviano & Polese 2012). Accordingly, the identified trends and signals suggest the need for communities to work together in cocreating knowledge through the development of a common frame of reference by sharing information, schemes and, most importantly, values and beliefs. Thus, in three decades, new marketing proposals have challenged the 1960s marketing management and marketing mix approach, and the discipline currently appears to have reached a turning point calling for more systemic and integrative theory (Saviano 2001; Gummesson, Mele & Polese 2009; 2011). Hence, there is an emerging “effort to better utilize accumulated knowledge fragments through reconceptualization, thus making complex knowledge more coherent and presentable […since…] it is an arduous task to raise theory at a higher level” (Gummesson 2012).

1.3

The Viable System Approach

The VSA has been developed within the Italian research community (Golinelli 2000, 2010; Barile 2000, 2009; Barile, Bassano, Calabrese et al. 2011) and is based on an updated version of the Viable System Model of Stafford Beer (1972). As mentioned, the VSA has been developed within the disciplinary field of business management from the early works of Barile (2000) and Golinelli (2000) following a rich research stream of systems theories, such as the theories of open and closed systems (von Bertalanffy, 1968), socio-technical systems (Em-ery & Trist 1960), the law of requisite variety (Ashby 1958), and sys-tems dynamics (Forrester 1994). The goal of this research community was to develop a methodological approach to address system dynam-ics in conditions of complexity, with the ultimate aim of achieving system viability through a sustainable governance approach to business phenomena. Thus, the VSA was proposed as an interpretative governance methodology that offers a systems thinking contribution to the understanding and management of social and business organizations, as this approach provides a general framework that accounts for both structural

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configuration and the dynamics of functioning. Its general schemes are useful for interpreting the concept of complexity in that these schemes highlight its systemic nature and support the investigation of its implications for decision making (Barile 2009; Barile & Saviano 2011b; Saviano & Di Nauta 2011). When acting in conditions of complexity, the VSA allows identifying (and qualifying) relevant actors who influence decision making and the actions that must be pursued to accomplish sustainable performance. Thus, by offering both a methodological key to understand complexity and a governance approach to complexity, the VSA provides support to decision makers under uncertain conditions (Barile 2009; Saviano & Berardi 2009). As complexity implies uncertainty and making choices without a rational basis in terms of available information and solutions to which to refer (Barile 2009), acting in such a context requires organizations to be well equipped not only with experienced techniques and tools but also with schemes of reference that are sufficiently general to be compatible with any problematic situation or decision-making context. This type of support is fundamental in providing orientation when any traditional approach does not appear to be useful in addressing choices. Therefore, we argue that that VSA allows addressing the gap in marketing management research regarding complexity. To illustrate the concepts, schemes and criteria of the VSA, we propose an outline of the basic elements of the VSA general framework in the next section. 1.3.1 The VSA as a meta-model to interpret business and social phenomena As a premise, we must clarify is that the VSA, as its abbreviation suggests, is essentially an ‘approach’ that proposes the adoption of ‘systems’ thinking interpretative schemes as meta-models for understanding any social or business phenomenon. The ‘meta’ positioning of this approach underlines that it should not be viewed as a set of operative models to apply to a specific problematic context.


As a methodological approach, the VSA aims to direct perspectives according to the nature of investigated phenomena and, consequently, the choice of appropriate techniques and tools to help distinguish problem-solving from decision-making situations according to the subjective interpretative capacity of decision makers (rather than the objective characteristics of the investigated problem). Consistent with its basic assumptions and disciplinary roots, VSA also proposes a terminological setting (equipped with a glossary) that is useful for sharing systems-based language and avoiding common misunderstandings resulting from the use of different terms to express the same concepts and ideas. In this manner, this approach offers a coherent theoretical framework of reference for both interpreting and governing the dynamics of social entities from the perspective of social sciences. The VSA proposes a model of firms (or any organizations) as ‘viable systems’, and this model can easily fit the representation of any social entity at both the individual and organizational levels. Thus, the VSA offers a methodological framework that is useful for analyzing and governing the dynamics of businesses and social systems by adopting the logic of adjustment, transformation, restructuring and redefinition of a system’s traits in accordance with the trends and expectations of a rapidly changing environment from which complex conditions continuously arise and challenge the decision-making process. Viewing individuals and social organizations as viable systems enables their interpretation as open systems that aim to survive in their context by dynamically interacting with several other systems entities that the observed system perceives as relevant in that they offer resources that are critical for its functioning and viability. In this respect, a viable system satisfies three fundamental systemic conditions (Barile & Saviano 2011a): x (partial) openness, which is the ability to exchange resources with the other systems of the context in a selective manner x contextualization, which is the search for viability through interaction with certain privileged entities, such as supra-systems that influence its survival

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x dynamism, which is the development of structure in accordance with emerging changes To clarify its basic principles and to render the methodology sharable, the VSA offers some premises to its general framework as basic propositions to be accepted when adopting this approach (Barile 2008; Golinelli 2010) (see Table 2). By referring to these basic propositions, researchers and decision makers can capture the features and properties that are recognized as universally representative and generally true in any investigated systemic entities or phenomena.

Tab. 1.2: The VSA Propositions Proposition I A viable system in a specific context has the main purpose of surviving. Proposition II The viable system in its ontological representation can be conceived with a dual perspective: that of structure and that of system. Proposition III The viable system in its behavioral qualification is characterized by the identification of two distinct logical areas: that of decision making and operations. Proposition IV The viable system, in its existential dynamics, is conditioned in its pursuit of final purpose and goals by interaction with sub-systems and supra-systems from which and to which, respectively, it obtains and supplies direction and rules. Proposition V For a viable system, all the external entities are also viable systems, or rather components that trace back to a viable system on a superior level. Source: Elaboration on Golinelli 2010 and Barile 2008


Survival and viability Proposition I affirms that any system, as a viable entity, is naturally inclined toward survival within its context; thus, the ultimate goal of viable systems is viability. This concept, which is intriguing and powerful, integrates efficiency, effectiveness and sustainability perspectives by stimulating business behavior and competitiveness based on value creation. Structure and system Proposition II refers to the most general interpretation scheme that is proposed by the VSA, which is the structure-system dualisim (Barile & Saviano 2008, 2010, 2011a). This proposition essentially suggests a fundamental distinction between static and dynamic perspectives and underlines the necessity of considering that the structural (and static) representation that focuses on the parts that compose the observed entity and the relations that link these parts according to an organizational pattern can objectively describe that entity and thus benefits from the support of an analytical-reductionist approach. However, when we need to interpret the dynamics of the functioning of an entity or observed phenomenon, we shift from a static perspec-tive to a dynamic and holistic perspective that requires a focus on in-teraction and the whole and implies a recognition that our interpreta-tion or observation and its results will inevitably depend on our sub-jective view, aims and interpretative capacity. The structure-system dualism supports the interpretative orientation that addresses the appropriate perspective and identifies the relevant elements while being aware of the limits of a subjective interpretation and its implications. Specifically, it addresses the issue of selecting the correct approach, whether analytical-reductionist, synthetic, or holistic, that is consistent with the nature and features of the investigated phenomenon/problem. Decision making and operations To identify and evaluate the viability of a system, two distinct areas must endow a system with the functions that are necessary to survive: the decision-making and operation areas (Proposition III). To be and remain viable, all systems must be capable of selecting and pursue their goals (decision making) and implementing planned activities

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(operations) to produce outputs. To assess the extent to which a system is capable of achieving its goals, one must determine the degree of completion of the system in terms of both governing and acting capabilities. Supra-systems, sub-systems and borders Finally, Proposition IV and V explain the mechanisms of the viable functioning of systems by establishing relationships and interactions with other viable entities within an open environment. These propositions introduce the concepts of supra- and sub-systems that are fundamental to the understanding of the conditions of viability of the observed system. As mentioned, viable systems exist and pursue their goals by interacting with multiple actors, each with his/her own goal/perspective. Thus, with a VSA, a system must be able to direct multiple perspectives toward a common and shared goal. The clear identification of a system’s goal specifically enables the definition and selection of the resources that are needed to ensure the effective functioning of the system. Indeed, these resources are owned by actors who must be engaged within the system to gain access rights to their own resources (Maglio & Spohrer 2008). This delicate process defines a system’s relational context composed of other systems, distinguishing the internal (sub-systems) from the external context (supra-systems). However, this distinction is significant only from a structural organizational perspective; in fact, any of these systems, whether internal or external to the system in focus, are perceived as ‘supra-systems’ when relationships with the system in focus are concerned. Evaluations of the degree of relevance of supra-systems are made in terms of how critical their resources are and how capable of influencing the system’s dynamics they are. This governance activity fundamentally results in orienting the system in the correct direction when defining the relational strategies and exerting adequate effort toward satisfying the needs of supra-systems. The fundamental criteria that guide a system’s decision maker in defining a relational strategy are consonance and resonance. According to the VSA, the term ‘consonance’ refers to the relational compatibility between two or more entities that aim to interact for the purpose of an emerging system in terms of the potential


harmony of their interaction. However, this approach merely offers a ‘static’ evaluation of a potential harmonious relationship. Accordingly, real systemic harmony must be achieved as ‘resonance’ when entities begin their interaction. Drawing again on the dualism between the ‘structure’ and ‘system’ perspectives, resonance is the process and the output of harmonious systemic interactions that emerge on the basis of conditions of consonance at the structural relationship level. 1.3.2 A VSA contribution to understanding complexity As underlined, business and social organizations encounter conditions of growing complexity when managing systems with the aim of achieving their goals and surviving in this rapidly changing environment by maintaining their viability. Next, adopting the systems thinking lens, we highlight some aspects of complexity that are relevant when managing business and social systems (Barile & Saviano 2010, 2011b): x Different observers perceive different levels of complexity. x The ‘same’ observer perceives different levels of complexity at different systemic states. x The perception of an event from inside of the system that has generated it differs from observing the event from outside of the system. x Structure representation rather than system representation induces the perception of different levels of complexity. x A system itself is not simple or complex based on its structural features; rather, a system is simple or complex depending on the observer’s knowledge, capacity and ability to understand it. x A system is a phenomenon that can generate chaos, complexity or simply complication, depending on the interpretative capacity of the observer (decision maker). These aspects of complexity make decision makers aware of the need to identify actors who are involved in the investigated problem and consider their perspectives and to specify the system’s level of

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observation, the collocation of the observer within or outside of the observed problem’s dynamics, the subjective interpretative capacity of the observer and the consequent qualification of the problematic context as simple, complicated, complex or even chaotic (Barile 2009). To evaluate and consequently identify possible lines of action within a problematic context, one must distinguish between conditions of complication and complexity. In the former, the manger finds itself in a context of problem solving and it is always possible to find support in consolidated models, techniques and tools. In the latter, the manger finds itself in a decision-making context in which variables may not be measurable or even known, the use of current techniques or tools may even worsen the situation. In other words, when encountering complex conditions, decision makers are unable to fully comprehend emerging problems or phenomena by identifying variables or the expected cause-effect relationships. As a consequence, these individuals become disoriented (Saviano & Di Nauta 2011) and are forced to resort to criteria and actions that are primarily based on emotional feelings (Barile 2009). 1.4

The contribution of VSA to marketing

The VSA propositions that were introduced above enable the introduction of the VSA 10 fundamental concepts (FCs). The FCs are adopted as an interpretation scheme for the discussion of VSA contributions to marketing. The 10 FCs help highlight the parallelism between VSA and marketing theory. Tab. 1.3: The 10 fundamental concepts (FCs) of VSA Fundamental Concepts FC1 Individuals, organizations, and social institutions are systems that consist of elements directed towards a specific goal. FC2 Every system (of level L) identifies several supra-


FC3

FC4

FC5

FC6

FC7

FC8

FC9

systems, positioned at a higher level (L+1), and several sub-systems, located at a lower level (L-1). The interpretation of complex phenomena requires interdisciplinary approaches and should synthesize both a reductionistic view (analyzing elements and their relations) and an holistic view (capable of observing the whole). Systems are open to connection with other systems for the exchange of resources. A system boundary is a changing concept within which all the activities and resources needed for the system’s evolutionary dynamic are included. Viable systems are autopoietic and self-organizing; that is, they are capable of selfgenerating internal conditions, which through selfregulation, support the reach of equilibrated conditions, thus synthesizing internal possibilities and external constraints. Every organization is constituted by components that have specific roles, activities, and objectives, which are undertaken within constraints, norms, and rules. From structure emerges a system through the transformation of relations into dynamic interactions with sub-systems and supra-systems. Systems are consonant when there is a potential compatibility among the system’s components. Systems are resonant when there is effective harmonic interaction among components. A system’s viability is determined by its capability, over time, to develop harmonic behavior in sub-systems and supra-systems through consonant and resonant relationships. Business dynamic and viability require continuous structural and systemic changes focused to the alignment of internal structural potentialities with external systemic demands.

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FC10 Viable systems continuously align internal complexity with external complexity in order to better manage changes affecting its viable behavior. Decision-makers within these cognitive processes are influenced by strong beliefs, his/her interpretational schemes, and information. Source: Adapted from Barile & Polese 2010b FC 1: Systems approach VSA FC1 basically asserts that people, families, networks, enterprises, and public and private organizations are complex actors that can be understood as systems. In marketing, this concept is applicable when observing customers, business, communities, and any other economic actors: all these actors can be considered systems. FC 2: Systems hierarchy VSA FC2 posits that every system hierarchy is determined by observation from a specific perspective. Thus, the designation of a ‘supra-system’ or a ‘sub-systems’ is subjective. In a market context, this concept suggests that every actor (system) is a resource integrator that coordinates its own resources (components/sub-systems) and a set of acquired/available resources (released by supra-systems). FC 3: Reductionism and holism According to VSA FC3, the transition from a reductionist view to a holistic view implies a shift of attention from the parts to the relationships to the interactions. Thus, for a full understanding of the market and co-creation interaction, a holistic view of the whole and an analysis of individual elements and their relationships are required. FC 4: Open systems and systems boundaries VSA FC4 asserts that nothing happens in isolation and that the exchange of information and service of open systems is fundamental within every system dynamic. Accordingly, marketing strategies tend to valorize not only property resources but all accessible resources that are possessed by engaged actors. Modern marketing theory recognizes that enterprises do not create value in isolation. There is now an appropriate recognition of the roles of multiple actors and interested


parties in various value co-creation processes within a customerbalanced centricity. Moreover, the notion of co-creation is inherently associated with vanishing boundaries between actors within markets. FC 5: Autopoiesis, homeostasis, and self-regulation VSA FC5 implies that every system is autopoietic (that is, able to generate new internal conditions). In addition, every system is also self-organizing, as it continuously aligns internal and external complexity. In a market scenario, these two characteristics form the basis for sustainable behavior during encounters of opportunities and threats. In pursuing its ultimate goals, every business requires the internal capacity to evolve and self-regulate to adapt to external changes and survive in the long term. Businesses constantly strive to meet market requirements by changing their value propositions. FC 6: Structures and systems VSA FC6 suggests an iterative passage from structure to system, which involves a passage from a static view to a dynamic view, and a focus shift from individual components (and relations) to a holistic view of the observed reality. From the same structure, many systems can emerge as a consequence of the various combinations of internal and external components that are designed to pursue various objectives. Every actor has a structure (a set of capacities) that must be organized to meet the demands of the market. In so doing, businesses are transformed from static structures to dynamic systems. The shift from a structure to a systems perspective has relevant implications for marketing and essentially suggests to shift focus from the object to the process of exchange that means from a static to a dynamic view of market exchange considering the multiple emerging viewpoints and expectations. FC 7: Consonance and resonance VSA FC7 posits that consonant relationships refer to a static view (structure) in which one could merely evaluate the likelihood of a positive and harmonic relation. In contrast, resonant relations are referred to as a dynamic view (systemic) in which one could evaluate the concreteness and effectiveness of positive and harmonic

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interactions. Consonance and resonance aptly represent a model that describes ideal and rewarding co-creation exchanges among actors of service experiences. FC 8: Systems viability The key concept of VSA FC8 is related to the notion of viability, which refers to a system’s competitiveness and co-creation capability. That is, in a market context, every actor attempts to behave in a viable, sustainable, and harmonious manner in pursuit of its own goals. FC 9: Adaptation and relationship development According to VSA FC9, the evolutionary dynamics of viable systems demonstrate continuous alignment between internal potential and external expectations (Golinelli et al. 2010). Service systems seek to establish positive and harmonious interactions with other systems to strengthen value co-creation processes and experiences. Positive interactions between providers and customers are dynamic and always changing as subjective judgments vary over time. FC 10: Complexity and decision making VSA FC10 proposes that the internal and external alignment in a system is achievable through a cognitive process that enables an evolution from conditions of chaos, complexity, complication, and certainty (Barile 2009c). Marketing theory is increasingly focused on networks of relationships within which interactions occur. Network configurations can pose problems in terms of the knowledge and cognitive alignment that implies the necessity of managing cognitive alignment among all of the engaged actors. An overview of the 10 FCs of the VSA essentially highlights the underlying assumption that enterprises do not create value in isolation (Håkansson & Snehota 1989); rather, enterprises engage in cooperative value creation processes that involve multiple actors and resources (Prahalad & Ramaswamy 2004). Indeed, the term ‘cocreation of value’, which has emerged prominently in the context of SD logic (Vargo & Lusch 2004, 2008; Lambert & Garcia-Dastugue 2006; Lusch et al. 2007), is inherently associated with vanishing


boundaries between actors within markets. In this regard, all 10 FCs of the VSA are clearly applicable to modern marketing theory in describing the concept of shared value co-creation among multiple actors. Hence, new value co-creation models lead us to shift our attention from production to utilization, from product to process, and from transaction to relationship and thus enhance our sensitivity to the complexity of roles and actor systems (Vargo, Maglio & Akaka 2008). Value co-creation is not limited to the activities of any one exchange or a dyad of service systems; rather, it occurs through the integration of existing resources with those resources that are available from a variety of service systems that can contribute to system well-being as determined by a system’s environmental context (Payne, Storbacka & Frow 2008; Vargo, Maglio & Akaka 2008). In fact, a deeper examination of the implications of S-D logic for market relationships shows the extent to which value co-creation processes are fundamentally based on multiple actors exchanging expectations and dynamically fulfilling needs (Polese, 2009; Pels & Polese 2010), which intrinsically implies a systems view to capture the essence of every exchange (Pels, Polese & Brodie 2012) and viability conditions in service systems (Golnam, Regev & Wegmann 2011). At this juncture, VSA emerges as a viable approach for marketing research. 1.5

Marketing approaches and perspectives: A final overview

By proposing an overview of marketing approaches, Table 4 compares the VSA with various developments in marketing theory, beginning with the ‘4Ps’ and progressing through relationship marketing, many-to-many marketing, and S-D logic. Comparing these developments with the VSA, one can observe that the progression of marketing theory is congruent with the characteristics of the VSA. In particular, focus shifts from a traditional object-based view to a view focused first on the dyadic dimension of exchange then on a wider network view and finally on a service-based view. This shift accomplishes a passage from a static, structure-based to a dynamic

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systems-based view of market exchange that can significantly benefit from the contribution of a systems approach. Tab. 1.4: Comparison of marketing approaches and perspectives Paradigm

Focus

Traditional Transactions Marketing Manageme nt

Main aspects Client acquisition

Final purposes Market share and growth

Point of view Internal (business unit)

Relationshi p marketing

Relationshi ps

Cooperatio n

Long-term competitivene ss

External (relationa l)

Many-tomany marketing

Networked interactions

Customerbalanced centricity

Network reinforcement

External (reticular)

S-D logic

Service

Cocreation

Competitive adaptive actors

VSA

Systems

Viability

System survival

Both internal and external Both internal and external (systemic )

Focus Customer oriented on the supplier’s conditions Two-party focus (suppliercustomer relationship ) Multi-party focus (network of all stakeholder s) Multi-party focus

Multi-party focus

Source: Barile and Polese 2011 Thus, the VSA appears to be fully consistent with contemporary market theory, which emphasizes that the survival capacity of a firm (that is, the end goal of a viable system) is a function of its value creation capacities through cooperation with other actors and is linked to the technical, cognitive, and relational aspects of the particular context in which the firm is located (Polese & Di Nauta 2012). The


result is a complex value creation process of consonance and competitiveness in which value creation and value diffusion are complementary aspects of the same process of “extended value” (Gummesson & Polese 2009). Finally, the contribution of the VSA to marketing theories is derived from its wider systemic perspective and suggests direct efforts to elevate marketing discussions to a higher level; in fact, more general theories increase our ability to understand major changes in market conditions and the usefulness of technological advances (Gummesson 2002). Because value can be accessed only on a relative basis, that is in comparison with competitor offerings (Lusch, Vargo & Tanniru 2009), we believe that it is important for managers to adopt a systemic approach that includes wider perspective that comprises customers, partners, competitors, and other actors. 1.6

Managerial implications and future research directions

According to its definition, the VSA is essentially an approach that suggests the adoption of a systems thinking view to address the complex conditions in markets. The underlying assumption is that through the adoption of systems thinking, researchers and practitioners could benefit from meta-models that are useful to integrate existing shared scientific models and theories. We believe that marketing is among those scientific fields in which the VSA could support research and practice. Nevertheless, we feel the need to clarify the extent to which this outcome can be achieved. The VSA is not a set of operative ‘models to apply’, and it does not provide optimal solutions. Rather, this approach is a general ‘method to adopt’ to increase the effectiveness of other well-established and consolidated marketing operative models in addressing market scenarios. This approach also provides a terminological setting, contributes clarity and provides a systems language within service research. The VSA, when adopted by itself, does not solve any practical marketing issue. However, we may extend the same considerations to S-D logic. Nevertheless, both S-D logic and the VSA support a

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service-centered culture and a methodological framework: systems thinking. The practical consequences of the VSA contribution are clear when applied to marketing practices. The majority of marketing (and management) models and theoretical proposals originated several decades ago in business and market contexts that differed from the current business context. The mere interpretation of a worldwide accepted marketing model, such as the Growth Strategy Matrix (Ansoff 1957), could be misleading on its own. The model could be applied if its suggestions are filtered by insights from the VSA. For example, the model could be well supported when the four growth strategies (market penetration, market development, product development and diversification) are evaluated in addition to other theories, conceived during a period in which business decision makers were forced to address significant turbulence and complexity, and are capable of raising different perspectives (such as S-D logic, the VSA and other scientific proposals). We believe that the interpretation of the fundamental concepts of the VSA and their implications to marketing has great potential for both marketing theory and practice; therefore, we invite scholars to engage in the further interpretations of the 10 FCs in specific marketing contexts. Additional efforts could be made to integrate the VSA perspective with more specific marketing constructs. The paper has introduced the VSA and proposed a systems perspective as a useful meta-model to capture the inner nature of marketing scientific advances. It has stimulated scientific integration and convergence. We believe that the implicit common roots, in systems thinking, of different research communities have not yet been sufficiently exploited and that marketing researchers should contribute to valorizing any unifying attempt. This is our wish for future marketing research to tune in with the most recent systems thinking proposals. 1.7

Acknowledgments

The article was first published by the authors within the Special Issue of the Journal of Business Market Management titled “Network


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Gummesson, Evert and Francesco Polese (2009), “B2B is not an island”, Journal of Business & Industrial Marketing, 24 (5), 337– 350. Gummesson, Evert, Robert F. Lusch and Stephen L. Vargo (2010), “Transitioning from service management to service-dominant logic: Observations and recommendations”, International Journal of Quality and Service Sciences, 2 (1), 8–22. Gummesson, Evert, Cristina Mele and Francesco Polese (2011), “Integrating the 3 Pillars of the 2011 Naples Forum on Service: SD logic, Network & Systems Theory and Service Science”, in Service-Dominant Logic, Network & Systems Theory and Service Science, Evert Gummesson, Cristina Mele and Francesco Polese, eds. Napoli: Giannini, 5–6. Gummesson, Evert (2012), “The Three Service Marketing paradigms. Which one are you guided by?”, Mercati & Competitività, 2, 5–13. Hakansson, Hakan (1987), Industrial Technological Development – A Network Approach. Beckenham: Croom Helm. Gummesson, Evert and Ivan Snehota (1989), “No Business Is an Island – The Concept of Business Strategies”, Scandinavian Journal of Management, 5 (3), 187–200. Hannan, Michael T. and John Freeman (1977), “The Population Ecology of Organizations”, American Journal of Sociology, 82 (5), 929–964. Hunt, Shelby D. (1981), “Macromarketing as a multidimensional concept”, Journal of Macromarketing, 1 (1), 245–249. IfM, IBM (2008), Succeeding through Service Innovation: A Service Perspective for Education, Research, Business and Government. Cambridge: University of Cambridge Institute for Manufacturing. Layton, Roger A. (2007), “Marketing Systems: A Core Macromarketing Concept”, Journal of Macromarketing, 27 (3), 227–242. Layton, Roger A. (2011), “Towards a theory of marketing systems”, European Journal of Marketing, 45, 1-2, 259–276. Lambert, Douglas M. and Sebastiàn J. Garcia-Dastugue (2006), “Cross-functional business processes for the implementation of service-dominant logic”, in The service dominant logic of

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marketing: Dialog, debate and directions, Robert F. Lusch and Stephen L. Vargo, eds. New York: M. E. Sharpe, 150–165. Lewis, Richard J. and Leo G. Erickson (1969), “Marketing Functions and Marketing Systems: A Synthesis”, in Journal of Marketing, 33 (3), 10–14. Lusch, Robert F. (2007), “Marketing’s Evolving Identity: Defining Our Future”, Journal of Public Policy & Marketing, 26 (2), 261– 268. Lusch, Robert F., Stephen L. Vargo and Mohan Tanniru (2009), “Service, Value Networks and Learning”, Journal of the Academy of Marketing Science, (January), 19–31. Lusch, Robert F., Stephen L. Vargo and Matthew O’Brien (2007), “Competing through Service – Insights from Service-Dominant Logic”, Journal of Retailing, 83, 5–18. Maglio, Paul P. and James Spohrer (2008), “Fundamentals of service science”, Journal of the Academy of Marketing Science, 36 (1), 18–20. Maturana, Humberto R. and Francisco J. Varela (1975), Autopoietic systems. BLC Report 9. University of Illinois. McCammon, Bert C. (1965), “The Emergence and Growth of Contractually Integrated Channels in the American Economy”, in Economic Growth, Competition, and World Markets, Peter D. Bennett, ed. Chicago: American Marketing Association, 496–515. Mele, Cristina, Jaqueline Pels and Francesco Polese (2010), “A Brief Review of Systems Theories and Their Managerial Applications”, Service Science, 2 (1/2), 126–135. Mele, Cristina and Francesco Polese (2011), “Key dimensions of Service Systems: Interaction in social & technological networks to foster value co-creation”, in The Science of Service Systems, Haluk Demirkan, James Spohrer and Vikas Krishna, eds. Springer, 37–59. Meyer, Alan D., Anne S. Tsui and C.R. Hinings (1993), “Configurational Approaches to Organizational Analysis”, Academy of Management Journal, 36 (6), 1175–1195. Miller, John .H. and Scott E. Page (2007), Complex Adaptive Systems: An Introduction to Computational Models of Social Life. Princeton: Princeton University Press.


Ng, Irene, Roger Maull and Laura Smith (2011), “Embedding the new discipline of service science”, in The Science of Service Systems, Haluk Demirkan, James Spohrer and Vikas Krishna, eds. Springer, 13–36. Ng, Irene, Glenn Parry, Duncan MacFarlane, Peter Wild and Paul Tasker (eds) (2011), Complex Engineering Service Systems: Concepts & Research. London: Springer. Ng, Irene, Ralph Badinelli, Francesco Polese, Primiano Di Nauta, Heldge Löbler and Sue Halliday (2012), “S-D Logic Research Directions and Opportunities: The Perspective of Systems, Complexity and Engineering”, Marketing Theory. forthcoming. Parsons, Talcott (1971), The System of Modern Societies. Englewood Cliffs: Prentice-Hall. Payne, Adrian F., Kay Storbacka and Pennie Frow (2008), “Managing the Co-Creation of Value”, Journal of Academy of Marketing Science, 36 (1), 83–96. Pels, Jaqueline and Francesco Polese (2010), “Configurational fit: Understanding the Pre-requisites to Successful Value Co-creation”, Impresa, Ambiente, Management, 3, 355–374. Pels, Jaqueline, Francesco Polese and Roderick Brodie (2012), “Value Co-creation: Using a Viable Systems Approach to Draw Implications from Organizational Theories”, Mercati & Competitività, 2, 19–38. Pels, Jaqueline and Aurelia Lefaix-Durand (2009), “Introducing Managers in Marketing Practices Studies: A Configurational Approach to the Way Organizations Relate to their Markets”, 38th Annual Conference of the EMAC, Nantes. Polese, Francesco and Primiano Di Nauta (2012), “A Viable Systems Approach to Relationship Management in S-D Logic and Service Science”, Business Administration Review, forthcoming. Polese, Francesco (2009), “Reflections about Value Generation through Networking Culture and Social Relations”, Quaderno di Sinergie, “Firms’ Government – Value, Processes and Networks”, 16 (December), 193–215. Prahalad, Coimbatore Krishnarao and Venkatram Ramaswamy (2004), The Future of Competition: Co-Creating Unique Value with Customers. Boston: Harvard Business School Press.

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Qiu, Robin G. (2009), “Computational Thinking of Service Systems: Dynamics and Adaptiveness Modeling”, Service Science, 1 (1), 42–55. Ritter, Thomas, Ian F. Wilkinson and Wesley J. Johnston (2004), “Managing in complex business networks”, Industrial Marketing Management, 33, 175–183. Rullani, Enzo (1999), Sistemi ed evoluzione nel management. Milano: Etas. Saviano, Marialuisa (1999), “La strategia come scelta emergente dal dinamismo ambientale. Una rilettura del tema alla luce della visione sistemica”, Esperienze d’impresa, 1, 107–128. Saviano, Marialuisa (2001), “Il fenomeno della globalizzazione: verso un’interpretazione in chiave sistemica vitale”, Esperienze d’impresa, 1, 41–68. Saviano, Marialuisa (2003), Analisi sistemico vitale della distribuzione commerciale. Torino: Giappichelli. Saviano, Marialuisa and Massimiliano Berardi (2009), “Decision making under complexity. The case of SME”, in Managerial and Entrepreneurial Developments in the Mediterranean Area, Demetris Vrontis, Yaakov Weber, Rudi Kaufmann and Shlomo Tarba, eds. 1619–1643. Saviano, Marialuisa, Clara Bassano and Mario Calabrese (2010), “A VSA-SS Approach to Healthcare Service Systems. The Triple Target of Efficiency, Effectiveness and Sustainability”, Service Science, 2 (1/2), 41–61. Saviano, Marialuisa and Primiano Di Nauta (2011), “Project Management as a compass in complex decision making contexts. A Viable Systems Approach”, Proceedings of 12th International Conference on Product Focused Software Development and Process Improvement, New York, 112–119. Smith, Laura A. and Irene Ng (2012), “Service systems for value cocreation”, in Managing Services: Challenges and Innovation, Kathryn Haynes and Irena Grugulis, eds. Coventry: Warwick Manufacturing Group, forthcoming. Spohrer, James, Paul P. Maglio, John Bailey and Daniel Gruhl (2007), “Steps Toward a Science of Service Systems”, IEEE Computer, 40 (1), 71–77.


Spohrer, James, Laura Anderson, Norm Pass and Tryg Ager (2008), “Service Science and Service Dominant Logic”, Otago Forum 2, 4– 18. Vargo, Stephen L. and Robert F. Lusch (2004), “Evolving to a New Dominant Logic for Marketing”, Journal of Marketing, 68, 1–17. Vargo, Stephen L. and Robert F. Lusch (2008), “Service-Dominant Logic – Continuing the Evolution”, Journal of the Academy of Marketing Science, 36, 1–10. Vargo, Stephen L. and Robert F. Lusch (2011), “It’s all B2B…and beyond: toward a systems perspective of the market”, Industrial Marketing Management, 40, 181–187. Vargo, Stephen L., Paul P. Maglio and Melissa A. Akaka (2008), “On Value and Value Co-Creation – A Service Systems and Service Logic Perspective”, European Management Journal, 26 (3), 145– 152. Various Authors (2011), Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), Avellino: International Printing. von Bertalanffy, Ludwig (1968), General System Theory – Foundations, Development, Applications. New York: George Braziller. Wieland, Heiko, Francesco Polese, Stephen L. Vargo and Robert F. Lusch (2012), “Toward a Service (Eco)Systems Perspective on Value Creation”, International Journal of Service Science, Management, Engineering and Technology, 3 (3), 12–25. Websites http://en.wikipedia.org/wiki/Viable_systems_approach http://www.asvsa.org http://www.naplesforumonservice.it

Chapter II

Dynamic capabilities and T-Shaped knowledge. A Viable Systems Approach*

2.1. Introduction: the theoretical context of transition to a knowledge based view of the firm In the context of the revision of the competitive advantage basis, a turning point has been marked by the Resource Based View (RBV) (Barney, 2001; Lippman, and Rumelt, 2003) which has the fundamental merit of recognizing the role of subjectivity in the view of the firm, overcoming the common objective view implicitly stated in the traditional approach. The limits of the traditional model of competitive analysis derive, indeed, from the perspective of analysis, which, influenced by the focus on industries, disregards the fundamental internal determinants of firm-specific knowledge, implicitly assuming the mobility of knowledge resources (Siano, 2001). What starts with the RBV, is a review of the competitive model, which, however, still suffers from some basic limits which require to be faced through a deeper rethinking of the view of the firm and of its dynamics. The methodology advances sharply with the competitive analysis perspective, stating the importance of the uniqueness of firm-specific factors that allow an asymmetric allocation of non-transferable and non-replicable resources, and, therefore, the inimitability and *

By Sergio Barile and Marialuisa Saviano 39

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sustainability of the competitive advantage. Effects of path dependency are associated with conditions of causal ambiguity that avoid that potential imitator companies could identify the sources of competitive advantage. The inability to read, in a deterministic way, the relationship between resources and competitive advantage is attributed to the presence of tacit knowledge (Polanyi, 1966): practical knowledge embedded in the structural components of the firm, as a result of experience based learning processes (learning by doing). It is in tacit knowledge the foundation of the obstacle to mobility, which is instead possible in the case of codified knowledge, i.e. information, which is abstract and de-contextualized. Therefore, competitive advantage finds new sources in the processes of intra- and inter-organizational learning. This view stimulates a research stream on learning and knowledge that derives its most innovative contributions from the Eastern culture, a culture ‘of opposites’, somehow breaking with the rationality of Western culture. Creativity, chaos, contradiction, ambiguity become the main ingredients of a theory of knowledge (Nonaka, 1994; Nonaka, and Takeuchi, 1995). Thus, new ideas emerge that fuel the process of revision of the theory, which directs to a perspective change (Khun, 1962), leading to a profound rethinking of the way of conceiving the firm. Capturing this change in perspective, with the aim of building and reinforcing the methodological foundations of the economic and business discipline, a more general way to view organizations has been developed in the last decades, rooted in systems thinking (von Bertalanffy, 1967) and built upon an updated version of the Stafford Beer’s Viable System Model (Beer, 1972). This research stream has led to the development of the Viable Systems Approach (VSA) to the study and governance of economic and social organizations (Barile, 2000, 2008, 2009a; Golinelli, 2000, 2010; Various Authors, 2011; Barile, Pels, Polese, and Saviano, 2012). 2.2. The relevance of the dynamic capabilities: a VSA perspective In the light of the VSA, the theoretical context of the study of the determinants of competitive advantage finds new interpretative

Dynamic capabilities and T-shaped knowledge 41

references that overcome not the models, but only the limits of both the classical view and the RBV revision. This latter, in fact, as mentioned, still suffers from some of the same limits of the premises on which it is based (Golinelli, Gatti, and Siano, 2002). These limits are essentially due to the static approach and are related to: he purely descriptive nature of the resources that are the determinants of the competitive advantage of the company; he self-referentiality and the consequent closure of the interorganizational learning; he prevailing approach to the protection of the revenues achieved rather than to the creation of the same; he flattening on an operational view of the company, which does not adequately recognize the fundamental role of the governing body. Several attempts to revise the same RB perspective have enriched the debate on the determinants of competitive advantage, with streams of thought sometimes difficult to systematize (Siano, 2001), which alternatively emphasize: the distinctive competencies (Competence-based competition, Prahalad, and Hamel, 1990); the process of knowledge creation (Organizational knowledge creation, Nonaka, 1994); the knowledge and inter-organizational learning (Knowledge-based theory, Grant, 1996a, 1996b); the process of combining/re-combining the organizational skills (Dynamic Capabilities framework, Teece, Pisano, and Shuen, 1997). In the context of the Italian research, a line of thought has emerged that widens the horizon of the RBV, introducing additional elements of analysis, such as trust (Gatti, 1999), and developing a proposal of RB Management (Vicari, 1998).

t

t

t

t

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All the ideas that emerged from the debate are systematized in the perspective of the VSA, where the following aspects are harmoniously integrated within a unified conceptual matrix of reference for the interpretation of business phenomena (Golinelli, 2000, 2010; Barile, 2000, 2009): - the dynamic view of the firm, with the shift of focus from the content of the resource to the process of using the same for the creation of competitive advantage; - its openness to inter-organizational learning processes, with the shift of focus from the resource to its ability to provide services to be usable by the firm (Penrose, 1959); - its capacity of generating revenues and not just of defending the same (Moran, and Ghoshal, 1999); - the important role of the governing body and the differentiated contribution to the creation of value with respect to the operative structure. On the interpretative basis of this integrated view, the mechanisms of formation of competitive advantage are re-interpreted on the basis of the development of new competencies through a structured process of combining and recombining basic capabilities, embedded in the operative structure of the firm, guided by the decision maker endowed with appropriate dynamic capabilities. Therefore, when acting within fast changing contexts, organizations compete with other systemic entities building the competitive advantage not so much through the control of resources, but through the development of ever new combinations of competencies firm-specific and, consequently, inimitable. 2.3. The emerging need for “T-Shaped” professionals The view of organizations as viable systems, proposed by VSA, integrates several lines of thought within a systems thinking based framework that is essentially built upon the recognition of the systemic properties of organizations and individuals.


One interesting research stream that appears to us to be strongly related to the knowledge view of organizations and in particular to a competence-based perspective, has been recently developed within the research context of Service Science (SS), discussing about the need for the so called “T-Shaped” professionals (Spohrer, Maglio, Bailey, and Gruhl, 2007; Spohrer, and Maglio, 2010). In a nutshell, professionals are qualified as T-Shaped when they are “deep problem solvers in their home discipline but also capable of interacting with and understanding specialists from a wide range of disciplines and functional areas” (IfM, and IBM, 2008:11). According to the SS researchers, individuals and social entities (groups, organizations, communities of practice and whatever combination of them in a network of social entities) are central to the definition of knowledge. In particular, they provide motivations and are targeted at the benefits deriving from the transition to a T-Shaped knowledge (Barile, Franco, Nota, and Saviano, 2012). A T-Shaped professional is endowed with competencies necessary to develop some kinds of innovation by leveraging not only on problem solving skills but also and mainly on decision making capabilities. This endowment can represent a relevant source of competitive advantage, especially when organizations are expected to address conditions of high complexity (Barile, and Saviano, 2010). The need for T-Shaped professionals has been widely recognized in the last decade (Hansen, and von Oetinger, 2001; Spohrer, Maglio, Bailey, and Gruhl, 2007; Spohrer, Golinelli, Piciocchi, and Bassano, 2010). Indeed, the “T-Shape” idea has been adopted also from a wider management perspective, discussing about a “T-Shaped management” approach that considers the T-Shaped Manager as a new kind of executive, who breaks out of the traditional corporate hierarchy to share knowledge across the organization while remaining committed to individual business unit performance (Hansen, and von Oetinger, 2001). It appears then that the increasing need for T-Shaped professionals arises from the necessity to conjugate deep vertical and broad horizontal competencies enabling to effectively move across different disciplines and systems as suggested by the representation of TShaped professionals in Fig. 2.1. This representation is based upon a

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general notion of competencies essentially distinguishing between ‘horizontal’ ones (i.e. project management, organizational culture, communication, critical thinking, teamwork, networks, etc.) and ‘vertical’ ones (i.e. analytic thinking and problem solving in at least one discipline and system). BOUNDARY CROSSING COMPETENCIES communication, teamwork, perspective, networks, critical thinking, organizational culture,

M ANY DISCIPLINES

M ANY SYSTEMS

(understanding &

(understanding &

DEEP IN

DEEP IN

AT LEAST

AT LEAST

ONE

ONE

DISCIPLINE

SYSTEM

(analytic thinking and problem

(analytic thinking and problem

Fig. 2.1. – “T-Shaped” professionals. Adaptation from Spohrer J., (2010) and Barile S., Franco G., Nota G., Saviano M. (2012), cit., p. 163.

In the next section, a VSA interpretation of the T-Shaped concept is discussed leading to widen the perspective and to envisage a notion of T-Shaped knowledge (Barile, Franco, Nota, and Saviano, 2012). 2.4. Towards a VSA interpretation of a T-Shaped knowledge By focusing on the kind of competencies that are requested to a TShaped professional, we argue that a more general distinction between the horizontal and the vertical bars can be made by joining the concept of competencies to that of dynamic capabilities (Teece, and Pisano,


1994; Teece, Pisano, and Shuen, 1997). As clarified by the Authors, «the term “dynamic” refers to the shifting character of the environment; certain strategic responses are required when time-tomarket and timing is critical, the pace of innovation accelerating, and the nature of future competition and markets difficult to determine. The term “capabilities” emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences toward changing environment» (Teece, and Pisano, 1994: 1). As underlined in the introduction, to face new problematic situations in different contexts, the central point is to make possible ever new combinations of resources to develop the required competencies. By generalizing the notion of T-Shaped in terms of knowledge (Barile, Franco, Nota, and Saviano, 2012), a learning by interaction view (Lipparini, and Lorenzoni, 1996; Nooteboom, 2006) can emerge, built upon the idea of combining existing organizations’ knowledge (Piciocchi, Saviano, and Bassano, 2011), trying to benefit at the same time from knowledge exploration and exploitation processes (March, 1991; Barile, Franco, Nota, and Saviano, 2012). According to VSA, both individuals and social organizations can be viewed as viable systems able to survive in their context by dynamically interacting with all relevant entities offering access to resources critical for the system’s functioning. The viability of the system is linked to three fundamental systemic conditions: partial openness (ability to exchange, in a selective way, resources with the systems of the context); contextualization (viability based on interaction with privileged entities viewed as supra-systems capable of influencing the system’s survival); dynamism (capability to develop in coherence with emerging changes). As change in context is continuous and fast, the viable system’s decision-maker faces the challenging emergence of conditions of complexity, and struggles to manage the system in order to maintain and improve its effectiveness in the context. In such conditions, a key point, from our perspective, is that the system, by interacting with other entities and addressing new problematic situations, accomplishes a relevant social learning process by adjusting/adapting its knowledge

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aligning its variety to the emerging needs, so developing new competencies. With respect to this learning process, when the system shows to be capable to face new challenges by developing new competencies, it proves to be endowed with dynamic capabilities. By building on this assumption, we argue that they are the dynamic capabilities that make the system capable to move across different problematic contexts (disciplines, systems, etc.). In order to conceptually discuss our interpretative hypothesis, we hereafter illustrate the representation of viable system’s knowledge through the VSA notion of information variety (Barile, 2009). 2.4.1. Viable systems as information varieties Within the VSA framework, knowledge is a key element. Knowledge is considered both from a static and a dynamic perspective of observation (Barile, and Saviano, 2008, 2011), respectively as an endowment and as an ongoing process of the viable system (individuals as well as organizations). By assuming a knowledge management perspective, we adopt the VSA information variety framework (Barile, 2009a, 2009b) as a threedimensional representation of the viable systems’ knowledge useful to analyze its structure as well as its dynamics in any process of interaction with other viable entities (Barile, Franco, Nota, and Saviano, 2012). Both individuals and organizations can be viewed as information varieties (Barile, 2009a, 2011), made up of information units, general and specific interpretation schemes and, what is peculiar to VSA, categorical values: - The information units represent the ‘structural’ composition of knowledge that is the amount of data owned by the viable system including all that it can perceive or can further determine by processing and transforming them into information significant to the knowledge process. - The interpretation schemes represent the knowledge patterns and refer to how information is organized within the viable system’s whole variety. Without such logical interpretation schemes, every


piece of information would appear to the systems as new every time we perceive it and, consequently, the system would need to create a new interpretation model to explain and understand it every time. Through these interpretation schemes generic data are transformed into contextualized information. It is possible to distinguish between two kinds of interpretation schemes: general schemes and schemes of synthesis. While the general scheme is compressed and potentially active, the scheme of synthesis is ‘in use’ and interacts with other interpretation schemes involved in a specific cognitive process. - The categorical values represent the most relevant dimension of the information variety and qualify the viable system’s values and strong beliefs, defining the system’s identity. The categorical values are responsible for accepting/refusing rational elaborations and for determining the functioning of the interpretation schemes. They act by subjectively filtering incoming information in the interaction process. A relevant aspect is the capability of the categorical values to be shared within a social group that means, from our perspective, the existence of conditions of consonance: a relational harmony or compatibility that is relevant to effectively interact and, consequently, to effectively learn. In this respect, it is interesting what Fritjof Capra maintains (2002:87): «The social network also produces a shared body of knowledge – including information, ideas and skills – that shapes the culture’s distinctive way of life in addition to its values and beliefs. Moreover, the culture’s values and beliefs affect its body of knowledge. They are part of the lens through which we see the world. They help us to interpret our experiences and to decide what kind of knowledge is meaningful. This meaningful knowledge, continually modified by the network of communications, is passed on from generation to generation together with the culture’s values, beliefs, and rules of conduct. The system of shared values and beliefs creates an identity among the members of the social network, based on a sense of belonging. People in different cultures have different identities because they share different sets of values and beliefs». The VSA notion of information variety is central to a knowledge based management approach and differs from other approaches in that

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it takes into account the emotional side of human and social interaction considering the role of categorical values. Moreover, the categorical values, together with the interpretative schemes, the general ones in particular, represent a relevant dimension of the embedded and tacit part of the whole system’s knowledge. The categorical values are, in fact, responsible for the emotional behavior of the system when interacting with other entities, and determine the degree of openness to interaction depending on the perceived conditions of consonance that express the potential relational harmony between the interacting entities aiming at co-creating value (Polese, 2009) and knowledge (Nonaka, 1994). Thus, the general schemes are the basis for learning and determine the potential knowledge capabilities of the system. When they are activated and effectively process incoming information, a learning outcome is produced by developing a scheme of synthesis that makes the system able to effectively address a specific problematic situation. On the basis of these premises, in the next section we envisage a VSA view of a T-Shaped knowledge management approach that redirects attention from the vertical development of competencies to the horizontal development of dynamic capabilities. 2.5. A VSA T-Shaped knowledge management approach: from competencies back to dynamic capabilities The VSA information variety framework represents in itself a ‘general scheme’ to investigate the structure and the dynamics of a ‘TShaped’ knowledge (Barile, Franco, Nota, and Saviano, 2012). By shifting from a structural, static, to a systems, dynamic view, this general scheme is useful to interpret the dynamics through which knowledge can develop a ‘T-Shape’. In other words, starting from one or more existing ‘vertical’ knowledge endowments of the system, the aim is to develop horizontal knowledge capabilities. To better understand the change required to develop a T-shaped knowledge, it is useful to consider that while vertical knowledge is the result of a long pathway of in depth learning process that, being based on the traditional analytical-reductionist approach, typical of


‘specialization’, has dominated in the last decades (Barile, 2008), now a shift from the vertical to a horizontal learning pathway is required. By adopting a VSA perspective, our aim is to generalize the notion of ‘T-Shape’ in the context of knowledge management. To this aim, we first need to deepen the knowledge contents distinguishing the vertical from the horizontal bar. The common representation proposed in Fig. 2.1. considers the vertical bar as being characterized by “analytic thinking” and “problem solving” in specific disciplines/systems. With such endowment, the system shows to possess, indeed, specific competencies in one discipline and one system characterizing what is now labeled as an ‘I-Shaped’ knowledge. Such a kind of knowledge is highly contextualized in specific problematic situations and cannot be generally adopted as such to solve problems in different contexts. As regard the horizontal bar, we argue that what is relevant to develop it, is the endowment of the decision maker of the system with dynamic capabilities. Critical thinking, communications, perspective, global thinking, project management, network, etc. qualify a kind of competencies that are, indeed, at a meta-level with respect to concrete problematic situations. Moreover, they are generally relevant not much for problem solving but for decision making, which is a totally different kind of choice process (Barile, 2009a, 2011b): no data, no information, even no explicit problems do exist, but a decision has to be made, generally relevant for the survival of the organization. Like the typical choice to make when organization is at a turning point. Think about the decision to enter emerging economies: no forecasting model, no strategic advice will be useful to make the best choice. No best choice does exist at all in such a context. The final choice will be a matter of feelings, ambitions, vision, etc. that express the very human side of the system’s capabilities that acts orienting the decision process (Saviano, and Di Nauta, 2011). Thus, we return to a dimension of tacit knowledge that is intertwined with emotions, values and feelings and cannot be easily transferred, as it cannot be made explicit and codified. Therefore, we maintain that the mentioned “competencies” are indeed expressions of key dynamic capabilities that open the system to change and innovation. In other words, they endow the system with

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the capabilities required to face complexity. In fact, while problems to be solved generally qualify at most situations of complication, as it does exist a solution to the problem, although difficult to find and/or adopt, a decision to be made in situations never experienced before by the decision maker, even when any problem appears to be solved, qualifies a typical condition of complexity. It should now appear clear what we intend when we suggest to distinguish between the horizontal and vertical bars respectively in terms of dynamic capabilities and competencies as proposed in Fig. 2.2. Our further intent of generalization of the “T-Shape” idea, is to reinterpret it through the notion of information variety to try to understand what differs in a T-Shaped knowledge as compared with an I-Shaped one in terms of information variety dimensions. In effect, the ‘vertical’ knowledge pathway, going down along the “I”, leads to produce a specialized knowledge that, in our terms, is typically made up of schemes of synthesis to apply in specific problematic contexts; when we reach the level of the very analytical details of single pieces of information, we have, in our terms, information units. As long as we go down into the details of specific knowledge (schemes of synthesis and information units), we go away from a generalisable knowledge that may be useful to face different problematic situations (different disciplines and systems), as it is required when acting in ever more complex conditions due to a fast change in context that is not comprehensible to the decision maker. In this sense, going up (or back) to a more generalisable knowledge can be the key to develop ‘horizontal’ dynamic capabilities. It should be noted, here, that we are talking about a generalisable not a generalist knowledge (Macaulay, Moxham, Jones, and Miles, 2010). To possess a not deep knowledge in several disciplines or contexts or systems does not significantly help to address change. What is needed is a general level knowledge that can be usefully applied in different contexts to face the variety and variability of phenomena. This knowledge can be an expression of dynamic capabilities. As represented in Fig. 2.2., we refer to the VSA concept of general schemes that are decisional and behavioral cognitive schemes activated by the system’s dynamic capabilities making possible the


combination and re-combination of internal and external knowledge resources, so developing new competencies (Piciocchi, Saviano, and Bassano, 2011). More precisely, what makes the “I” and the “T” shapes different is the weight of the three information varieties dimensions. In particular, the “I” shape is characterized by a weakness in the general scheme dimension and a strength in the scheme of synthesis and in the information units dimensions. Conversely, the “T” shape is characterized by a high weight of the general schemes combined with a high weight of scheme of synthesis and information units relatively to specific problematic contexts. Breadth

(Dynamic capabilities)

schemes

General schemes

Schemes of synthesis


Information units

Information units

I – Shaped

T – Shaped

Depth (Competencies)

General

Fig. 2.2. – A VSA representation of I- and T-Shaped knowledge, Barile S., Saviano M. (2012). www.asvsa.org. Reprinted with the permission of ASVSA – Associazione per la ricerca sui Sistemi Vitali.

An I-Shaped knowledge, made up of specific competencies, is essentially of technical nature and generally implies the adoption of well experienced models, techniques, and tools useful for specific problematic contexts. Moving across a wide range of disciplines and functional areas as well as systems, implies the capability to develop new perspectives, interpretations, and solutions, i.e. to innovate. In our

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terms, it requires the activation of the general schemes (Barile, Franco, Nota, and Saviano, 2012). This activation implies a shift from a static to a dynamic knowledge view. In fact, to understand how to cover the knowledge gap of an I-Shaped knowledge in facing a changing scenario and how to dynamically combine and re-combine the organization’s knowledge resources, it is necessary to shift focus from the structural representation of knowledge to the interpretation of its dynamics in terms of learning processes. In VSA terms, the building of the horizontal knowledge implies, thus, the enrichment of the system’s general schemes endowment. When activated, the general schemes dynamically enable the system to move across different contexts. This dynamism of knowledge also helps avoiding falling into a ‘dominant’ schemes” trap. Moreover, when certain schemes tend to dominate, the exploration of new contexts through ‘interaction’ with different disciplines and systems, can re-activate the general schemes and the learning process, so expressing the system’s dynamic capabilities. As the general schemes make it possible to move from one discipline/system to another, this repeated ‘movement’, over time, will build a ‘bridge’ between the two or more ‘vertical bars’, so developing and reinforcing the ‘horizontal bar’, as illustrated in Fig. 2.3. (Barile, Franco, Nota, and Saviano, 2012). Summarizing, when the system is asked to face a new problematic context in which its current competencies (experienced techniques) are not useful, its dynamic capabilities, by abstracting from the contextualized current competencies (schemes of synthesis), will activate the general schemes that, combined with new knowledge resources, will incept the process of developing new schemes of synthesis (new competencies), adequate to face the new problematic context. What is relevant to consider in such processes, is that, according to the information variety model, the interaction between information varieties within a system or between two or more systems, like in a common process of knowledge transfer (Capasso, Dagnino, and Lanza, 2005), will occur and result in an alignment that reduces their distance, if there are conditions of consonance between them (Barile, and Calabrese, 2011; Saviano, and Caputo, 2012). In terms of learning


process, this alignment, depending on a requisite variety mechanism (Ashby, 1969), may result in a simple adjustment regarding the information units dimension or at least the ‘use’ of current schemes of synthesis or may produce a ‘single’ or ‘double loop’ learning outcome (Argyris, 1977): the former occurring when the whole structure of the knowledge does not change, generally regarding adaptations of the current schemes of synthesis; the latter, instead, determining a change in the current structure of knowledge that implies a devising of new schemes of synthesis. As underlined, this process is enabled by the action of the general schemes that address the finding of new pathways, solutions, etc. by abstracting from the specific context and expressing an adaptive or innovative system’s flexibility (Golinelli, 2010).

Categorical values

Categorical values

General schemes

General schemes


Informatio n units


Informatio

n units

Fig. 2.3. – From I to T-Shaped knowledge through the building of the horizontal bar. Adaptation from Barile S., Franco G., Nota G., Saviano M.

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(2012), cit., p. 167. www.asvsa.org. Reprinted with the permission of ASVSA – Associazione per la ricerca sui Sistemi Vitali.

2.6. Concluding remarks and managerial implications What emerges from our conceptual reasoning has several implications and challenges the current approach to knowledge management that still appears directed to a vertical deepening of knowledge, according to the traditional specialization scheme. Therefore, we join the SS’s call for a re-thinking and revitalizing of education as well as life-long training programs in the business management context. In this respect, our view suggests to shift focus from competencies to capabilities; in other words from techniques to method: as known, differently from the techniques, which represent a typical codified knowledge, method is intrinsically subjective and cannot be easily transferred if not by ‘living’ it through an ongoing process of experience and learning. The development and reinforcement of the system’s general schemes make this ongoing process more successful. The outcome of such processes is an endowment of knowledge deeply rooted into the system that means a tacit and firm-specific knowledge, fundamental for competitive advantage. Acknowledgments In this contribution, after being revised and updated, some of the reflections recently published in Barile S., Franco G., Nota G., Saviano M. (2012), “Structure and Dynamics of a “T-Shaped” Knowledge. From Individuals to Cooperating Communities of Practice”, Service Science, Informs, 4, 2, pp. 161–180, are proposed. Authors are grateful for the rich stimuli they received during that collaborative discussion of the concept of “T-Shaped” knowledge within the context of Communities of practice.


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Profili teorici e applicazioni, Ed. Franco Angeli, Milano, pp. 146– 194. Barile S., Saviano M. (2011), “Foundations of systems thinking: the structure-system paradigm”, in Various Authors, Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, Ed. International Printing, Avellino, pp. 1–24. Barile S., Franco G., Nota G., Saviano M. (2012), “Structure and Dynamics of a “T-Shaped” Knowledge. From Individuals to Cooperating Communities of Practice”, in Service Science Informs, 4, 2, pp. 161–180. Barile S., Pels J., Polese F., Saviano M. (2012), “An Introduction to the Viable Systems Approach and its Contribution to Marketing”, in Journal of Business Market Management, 5, 2, pp. 54–78. Barile S., Saviano M. (2012), “Oltre la partnership: un cambiamento di prospettiva”, in Esposito De Falco S., Gatti C. (a cura di), La consonanza nel governo dell’impresa. Profili teorici e applicazioni, Ed. Franco Angeli, Milano, pp. 56-78. Barney J.B. (2001), “Resource-based theories of competitive advantage: a ten-year retrospective on the resource-based view”, in Journal of Management, 27, pp. 643–650. Bertalanffy L.V. (1967), General System Theory: Foundations, Development, Applications, Ed. George Braziller Inc., New York. Capasso A., Dagnino G.A., Lanza A. (2005), Strategic capabilities and knowledge transfer within and between organizations: new perspectives from acquisitions, networks, learning and evolution, Ed. Edward Elgar Publishing, Cheltenham. Capra F. (2002), The hidden connections: integrating the biological, cognitive, and social dimensions of life into a science of sustainability, Ed. Doubleday. Gatti M. (1999), “Fiducia e generazione di conoscenza nelle relazioni tra imprese: il caso ST”, in Sinergie, 17, 50, pp. 129–161. Golinelli G.M. (2000, 2005), L’approccio sistemico al governo dell’impresa, Ed. Cedam, Padova. Golinelli G.M. (2010), Viable Systems Approach (VSA). Governing Business Dynamics, Ed. CEDAM, Kluwer, Padova.


Golinelli G.M. (2011), L’Approccio Sistemico Vitale (ASV) al governo dell’impresa, Ed. Cedam, Padova. Golinelli G.M., Gatti M., Siano A. (2002), “Approccio sistemico e teoria delle risorse: verso un momento di sintesi per l’interpretazione della dinamica dell’impresa”, in Golinelli G.M., L’approccio sistemico al governo dell’impresa. Vol. III, Valorizzazione delle capacità, rapporti intersistemici e rischio nell’azione di governo, Ed. Cedam, Padova. Grant R.M. (1996a), “Prospering in Dynamically-Competitive Environments: Organizational Capability as Knowledge Integration”, in Organization Science, 7, 4, pp. 375–387. Grant R.M. (1996b), “Winter. Toward a Knowled-ge-Based Theory of the Firm”, in Strategic Management Journal, 17, Special Issue, pp. 109–122. Hansen T., von Oetinger (2001), “Introducing “T-Shaped” Managers. Knowledge Management’s Next Generation”, in Harvard Business Review, March, 106–116. IfM, IBM (2007), Succeeding through Service Innovation: a Discussion paper, Ed. Cambridge, United Kingdom. Khun T. (1962), The Structure of Scientific Revolutions, Ed. Chicago University Press, Chicago, (traduzione italiana: La struttura delle rivoluzioni scientifiche, Ed. Einaudi, Torino, 1979). Lippman S.A., Rumelt R.P. (2003), “A bargaining perspective on resource advantage”, in Strategic Management Journal, 24, 11, pp. 1069–1086. Lipparini A., Lorenzoni G. (1996), “Le organizzazioni ad alta intensità relazionale. Riflessi sui processi di learning by interacting nell’era ad alta concentrazione di imprese”, in L’industria, 4, pp. 894–915. Macaulay L., Moxham C., Jones B., Miles I. (2010), “Innovation and skills. Future Service Science Education”, in Maglio P., Kieliszeski C.A., Spohrer J.C. (Eds), Handbook of Service Science. Service Science: Research and Innovation in the Service Economy, Springer Science + Business Media, LLC, pp. 717–736. March J.G. (1991), “Exploration and exploitation in organizational learning”, in Organizational Science, 2, 1, pp. 71–87.

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Moran P., Ghoshal S. (1999), “Markets, Firms, and the Process of Economic Development”, in Academy of Management Review, 24, 3, pp. 390–412. Nonaka I. (1994), “Dynamic Theory of Organizational Knowledge Creation”, in Organization Science, 5, 1, pp. 14–37. Nonaka I., Takeuchi H. (1995), The knowledge-creating company: how Japanese companies create the dynamics of innovation, Ed. Oxford University Press, Oxford. Penrose E.T. (1959), The Theory of the Growth of the Firm, Ed. Oxford University Press, New York. Piciocchi P., Saviano M., Bassano C. (2011), “Network Creativity to Reduce Strategic Ambiguity in Turbulent Environments – A Viable Systems Approach (VSA)”, in Various Authors, Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, Ed. International Printing, Avellino, pp. 113–134. Polanyi M. (1966), The Tacit Dimension, Ed. Doubleday & Co., New York. Polese F. (2009), “Reflections about value generation through networking culture and social relations”, in Quaderni di Sinergie, 6, 80, pp. 193–215. Prahalad C.K., Hamel G. (1990), “The Core Competence of the Corporation”, in Harvard Business Review (May-June), 68, 3, pp. 79–91. Saviano M., Di Nauta P. (2011), “Project Management as a compass in complex decision making contexts. A Viable Systems Approach”, in Proceedings 1st International Workshop on Project and Knowledge Management Trends - PKMT2011, Torre Canne (Br), 21 June 2011, pp. 112–119. Saviano M., Caputo F. (2012). “Le scelte manageriali tra sistemi, conoscenza e vitalità”, in Management senza confini. Gli studi di management: tradizione e paradigmi emergenti, XXXV Convegno annuale AIDEA, Università degli studi di Salerno (Salerno), 4-5 October. Siano A. (2001), Competenze e comunicazione del sistema d’impresa. Il vantaggio competitivo tra ambiguità e trasparenza, Ed. Giuffrè, Milano.


Spohrer J, Maglio P.P., Bailey J., Gruhl D. (2007), “Steps towards a Science of Service Systems”, in Computer, 40, 1, pp. 61–77. Spohrer J., Golinelli G.M., Piciocchi P., Bassano C. (2010), “An Integrated SS-VSA Analysis of Changing Job Roles”, in Service Science, 2, 1, pp. 1–20. Spohrer J.C., Maglio P.P. (2010), “Toward a Science of Service Systems: Value and Symbols”, in Handbook of Service Science. Service Science: Research and Innovations in the Service Economy, Part 2, Ed. Springer, New York. Teece D., Pisano P. (1994), The Dynamic Capabilities of Firms: an Introduction, Ed. IIASA, International Institute for Applied Systems Analysis. Teece D.G., Pisano P., Shuen A. (1997), “Dynamic Capabilities and Strategic Management”, in Strategic Management Journal, 18, 7, pp. 509–533. Various Authors (2011), Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, Ed. International Printing, Avellino. Vicari S. (1998), La creatività dell’impresa. Tra caso e necessità, Ed. Etas Libri, Milano.

Chapter III

A theoretical framework for measuring value creation based on Viable Systems Approach (VSA)*

3.1

Introduction

Aim of this work is to propose a new approach to the analysis and to the subsequent measurement of the concept of value, reinterpreted in a systemic perspective. Starting from a review of its definitions and of the tools that the literature has developed to determine it, the contribution wants to provide a different method and, consequently, a possible analytic perspective of the main variables that affect firms going concern. The perspective derives from adopting the Viable Systems Approach (VSA) as a methodological paradigm (Golinelli, 2005; Barile, 2008), according to which the company, intended and observed as a system, in pursuing its goals of permanence in its specific context of reference, must build consonant relations on which to base resonant interactions with all the supra-systems involved in its operative and decision-making dynamics. Since: - the concept of consonance encodes an attribution and recognition of a sort of membership, in the sense that a given “entity” is consonant with its context of reference when the other entities participating to the same context recognize it (relating with it) as a

*

By Sergio Barile, Francesco Polese, Mario Calabrese, Francesca Iandolo, Luca Carrubbo

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member of that context, and believe that the information variety that defines the “entity” is adequate to allow for a possible interaction; and - the concept of resonance expresses the condition in which the entity that belongs to and participate in shared processes that are aimed at achieving objectives of common interest to the actors within the context. Value can be interpreted as a measure - subjectively estimated by the different entities in the context - of the contribution that the entity expressed and can express with reference to the pursuit of a common goal. This implies that the entity must orient its processes and its decisions to value creation over time. In this sense, value creation can be considered as a basic principle for the firm and value becomes a central concept in economic theory, which is why, already according to the established literature, it is the “pivot around which businesses revolve, and its creation is the very reason of their existence”1. Saying that companies have as their primary objective the creation of economic value implies their ability to generate potentials that ensure their future growth, that will be based on the value that they produced in the past. The ability to create value allows companies to survive, the lack of this capability, however, affect their viability and is the primary risk to their last. It becomes, therefore, necessary to identify and define a concept of value that, on one hand, is expressed by a measure and, on the other hand, is also an expression of the wealth of the company, owned and distributed. This paper starts with the deepening of value concept (in general), and its several interpretations as the most important step in nowadays business process. After that we tried to analyze the process of value creation from the business organizations’ point of view, operating in a complex context. The work continues with the representation of the main interpretative models affecting the value measures and 1

3.

Vicari S. (1995), “Note sul concetto di valore”, in Finanza, Marketing e Produzione, n.

A theoretical framework for measuring value creation 63

comprehension, arising from the advances in the international literature about last decades, in order to understand how these models have evolved over time, and how they can now be implemented again. The critical elements related to traditional approaches to the study of value generation processes were highlighted, with the aim to better understand the historical logical steps, recently consolidated, between creation and co-creation (Guatri, 1991; Cantone, 1996; Vincenzini, 2003; Ballantyne, Varey, 2006; Payne, Storbacka, Frow, 2008; Vargo, Lusch, Akaka, 2008; Polese, 2009). Using the methodological key of the Viable Systems Approach (VSA) was stressed the attempt to contribute for the development of efficient new interpretation schemes, useful for an innovative VSA-based interpretative model. The proposed model focuses especially on categorical values, interpretation schemes, information units, productive resources, on the Consonance/Resonance logical connection and the concept of “Relevance”, connected to them, and identified as a key factor in the change sheet; the model allows a number of consideration about value, seen as a result of action made to foster any exchange. This paper represents the beginning of the work only. Up to now we tried to define the logical and theoretical basis of a possible new interpretative model in addition to existing ones (especially those referring to value networks), in the next future we will investigate its potential application “on stage”, highlighting the effects in the most significant productive sectors, in an attempt to demonstrate the specific benefits generated by its using, with the evidence of limitations, lacks, versatility, scalability. 3.2

Value in Business

Any business organization can be conceived as a system that produces order, meanings, and therefore emerging values, only if it is able to steer the different points of view of interacting parts, through communicative actions (Nahapiet, Ghoshal, 1997). A value “originated” from business goes to be “spread” between the various stakeholders and is based first of all on their relationships; part of it could be “detained” and refers to the ability of management to

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continuously renew the wealth of corporate resources, in order to maintain unchanged the “economic value” of a firm (this is the ability to feed in the future activities and processes generating value for its stakeholders) (Stampacchia, 2005). According to the main postulates of VSA, a viable system survival over time is a function of its ability to create value (Golinelli, 2000). The value creation qualifies the organization of a business designed structure and measures the level of economic benefits obtained, affecting what could be achieved by third entities. The way toward the creation of value is the goal of the Top Government of any business, in directing and decision making for the business system as a whole (value culture). The concept of value creation in a systemic point of view makes sense because of the enhancement capabilities (by the Management) embedded in the specific structure of the business system and the ability to obtain sufficient income flows over time (Demattè, 1997), due to the achievement of competitive benefits (earnings power). The attention to the value creation for companies is addressed inside at first, through policies improving the quality of products and processes, and then outside, depending on the cooperation with other entities, trying to foster the structural, operational and technical heritage, for a cognitive and relational business. The value creation is considered therefore function of consonance and competitiveness (Golinelli, 2005). With regard to the relationship between the business system and other actors involved within the value generation process, the creation and share of the value appear as complementary moments of a single process. The value of a company in fact is likely to remain merely potential and fail to materialize in practice if not reported effectively by the markettarget. To exist, the value creation must be recognized, to be recognized the value creation has to be transferred (Golinelli, 2008). According to system thinking, the process of value generation is therefore generally maintained within operating systems through the organization of the internal components and the support of many additional resources, in order to increase their competitiveness and thus to improve their chances for survival (Mella, 2005; Golinelli, 2008; Barile, 2008). These “relational” systems are open systems, operating in a context from which they can acquire external resources


needed for the achievement of their final goals (Golinelli, 2010; Barile, 2008), forcing a sort of a cognitive alignment. If a successful decision origins from knowledge and resonance (Nigro, Bassano, 2003; Barile, 2009) between the decision makers, interested in the mutual system of values, it is relevant to understand the factors affecting the management of complexity (Barile, 2009; Saviano, Berardi, 2009; Saviano, Di Nauta, 2011). Recently, the system interpretation of new value creation processes made by VSA synthesizes the capacity to develop an adequate level of “consonance” and “resonance” in its specific context, characterized by a number of supra-systems holders of productive resources, more or less critical for the valorization in the process of co-creation (Barile, Polese, 2010a). So this, it is essential the contribution from a control strategy, able to describe and monitor organizational processes, to use (as follow) mission and strategies for an optimized performance in creation and distribution of value. Fig 3.1: The Viable System internal recoursive scheme

Source: Barile S., Saviano M. (2010), "S-DL, VSA and SS: highlighting Convergence", Cooper - Link Conference - International Inter - University Research Cooperation Project "The emerging perspective of Service Science for management and marketing studies" - Reflections upon Systems Theories and Service Research - Naples University "Federico II" - June 9, 2010.

The figure shows that the process of value creation provides an opportunity to consider a fundamental shift from a value proposition respect the effective value of a downstream path of a single individual that cannot so easy can be generalized.

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Being able to give solutions for identified needs, initially not adequately covered, derives from a strong dialogue between parts where everyone are co-value creators (Grönroos, 1997; 2008; Polese, Russo, Carrubbo, 2009). 3.3

Models for the interpretation and measure of value creation

The process of value creation, which becomes of co-creation, when, as mentioned, it is based on the interactive processes among all the actors involved, is the subject of a variety of in-depth analysis that led to the formulation of different models and addressed this issue from a wide range of perspectives. Here below is a brief analysis of the main features and problems of such models, which are useful to delineate the original model proposed; this analysis, far from being exhaustive, has, however, the aim of highlighting the historical phases and significant models that have marked the evolution of this topic, to which the model developed makes reference. Value creation has become central within the business world since the 80s of the last century, as a consequence of the development of financial markets and the growth of the so-called ‘extraordinary’ operations (mergers, acquisitions, leveraged buyouts, etc.), encouraging the development of models primarily referred to the shareholders (Charreaux, Desbrieres, 2001). Until that moment, the traditional goal for the firms, in fact, was mostly the profit maximization, defined as the positive difference between total revenues and total costs. However, the gradual emergence of theories about the bounded rationality of the decision-makers, the widening of corporate objectives and the involvement of a greater number of subjects, laid the foundation for the introduction of the value theory. The objective of value creation, in fact, does not concern exclusively the interests of a subject (business owner or manager) nor it is embodied exclusively in maximizing the difference between income and expenses; it states with different prerogatives in the Anglo-Saxon world and in Italy. In the first, in fact, it concerns the maximization of the shareholder value (shareholder value approach, SVA) in the second, taking origin from the Italian corporate doctrine, it deals


especially with maximizing the economic value of capital. The two perspectives, however, did not remain isolated; developments in American theory, in fact, at first only related to the short-term performance of management, extend to the strategic decisions and arrive, as well, to permeate the entire company. In Italy, the first reflections about the economic capital (initially based solely on income and assets), are also open to financial and strategic valuations, in order to measure the ‘real’ results achieved by the company. Below, we offer a brief historical evolution of the evaluation criteria and their different modes of use in different countries, with particular regard to the differences between the Anglo-Saxon world (USA and UK) and Continental Europe. The first steps towards a process of evaluation date from the period between the late 1800 and early 1900 (Second Industrial Revolution), during which, in the event of transfer, companies were evaluated on the basis of their assets or capital; in particular, the company’s value was measured according to its net assets (this element was minimally ‘adjusted’, for example, for the presence of an already established customer base). The reason for this approach was that the number of firms was actually very limited, as the majority of the business was carried out by activity in large part based on the person, so that even difficult to transfer. Subsequently, following the evolution of firms and markets, the income method began to spread, above all on a theoretical level. This method finds its theoretical reference in Irving Fisher, who argues that the value of an investment is composed exclusively for the fruits (ie, the future income) that it is able to generate. This approach, implemented in Italy by the school of business economics, in particular by Gino Zappa2, theorizes that the value of the company depends on the income that it is capable of producing. The income method, therefore, is based on two considerations, a context and a theoretical one. The context consideration is that, from the post-war period onwards and for almost 30 years, companies operated in not 2 Cf.: Zappa G. (1927), Tendenze nuove negli studi di ragioneria, S.A. Istituto Editoriale Scientifico, Milano; Zappa G. (1937), Il reddito d’impresa: scritture doppie, conti e bilanci di aziende commerciali, Ed. Giuffrè, Milano.

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turbulent markets and in conditions of relative stability, so that, in the Strategic Studies, we have the so-called long range planning, which presupposes a capacity for the strategic planning and programming of the companies to range from 10 to 30 years. The theoretical consideration, however, provided the identification of an average configuration of income on the basis of which to proceed to the evaluation. The latter was especially useful in the event of transfer and its peculiarity laid in the fact of not considering, in economic terms, the contribution of the buyer (the philosophy that animated the evaluation process, in fact, was not that of the purchaser, but rather the transferor’s one and, in this context, it was stated the sale value: the company was worth for the income that it was able to produce in the past and that it was expected it would have produced in the future). The income was then an adjusted datum, thus obtaining a measure of average normal income: through an extrapolation of the trend of the past income, it was possible to project the configurations of the income in the future, without provision being made for a large number of correction factors. The consistency of this method was both theoretical, as it was a rational method, that is only based on reliable data coming from the past, and practical, because based on what the company did and showed to be able to do in the past. In the professional practice, the asset and income methods were integrated in the mixed method, that involved the coexistence of the elements provided by both: the asset base, which was adjusted to estimate the average income over future (or goodwill). The reasons for the spread of these methods also resided in the fact that, at the time they were developed, the financial markets were not developed as it is today, so the evaluation as an expression of accounting data (income and assets) was undoubtedly the better and more effective approximation of the value of a company. As of the end of the 70s and early 80s begins the process of international harmonization of markets, accompanied by a larger and more complex phenomenon known as globalization. The criteria set out above, which were the only popular in Italy, clashed with those from a different reality, the Anglo-Saxon, that were more focused on finance and financial markets and in which the evaluation was carried out with a largely strategic view. These valuation methods are the


financial one, based on the cash flows, which finds its leading exponent in Alfred Rappaport, and the direct methods, derived from data gathered from the market (multiples, rule of thumb, etc.). At first, these methods were only used by multinational consulting, acquiring know-how in the Anglo-Saxon countries and spreading it in Italy. In the theory, in fact, these methods have the greatest resistance, as a result of the traditional Italian setting, in which the financial dynamics have rarely been the subject of in-depth analysis that, however, have traditionally been reserved for the asset and the income. However, the spread of these methods also in Italy, due, as mentioned, to the relentless process of globalization, along with the growing development of the markets, led, since the 90s, to the distinction of the use of the assessment methods according to management objectives. To date, all of the methods set out above coexist; indeed, direct criteria were added (ex. multiples, rule of thumb), that are starting to be applied also by small and medium-sized businesses for which, although they are often family-based members and hardly subject to extraordinary transactions (and in which, in addition, capital is familiar and it is transmitted within the family itself, not on the basis of the assessment, but on tradition), to follow the rules on access to credit, credit and opening of the capital under Basel III, the problem of evaluation has become central. 3.4

Evolution in value creation interpretative model: a contribute coming from VSA

According to the above considerations, the competitive advantage (Porter, 1985; Sciarelli, 2002) of today's business comes from multiple contributions, integrating the benefits of value co-creation and relational aspects of networked systems (Hakansson, Snehota, 1995; Gummesson, 1999; Polese, 2004; Moller, 2006; Polese et al., 2009). In summary, the business competitiveness emerges as co-determined by different elements. The concepts of value, networks, system all converge toward the same effect, the company's competitiveness, represented as the result of multidimensional co-production in an integrated logic of sustainable interactive relationships (Barile, 2008;

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Barile, Polese, 2010a; 2010b; Bologna, Calabrese, Iandolo, Bilotta, 2012). Repurposing the reflections collected in terms of value creation, with regard to the business competitiveness it is possible to state that there is no transfer of a simple product to the final consumer, as is often suggested by the traditional supply chain models, and that instead the customers (as users) are directly and really involved (consciously or not) within a process set to their satisfaction. In this way, customers can help ensure that their requirements are effectively met and may indeed usefully communicate the details of their needs to be satisfied totally in a hypothetical modern supply virtuous cycle . The re-conceptualization of value chain and constellation (Normann, Ramirez 1993; 1995) within a service value network (Allee, 2000; Allee, Taug, 2006), re-interpreted as a viable system explains us how the competitive advantage can be related to the ability of the individual actors to reconfigure its structure in accordance with the competitive strategies of the business system (Barile, 2008), in a logic of co-competition or co-makership (Brandenburger, Nalebuff, 1997; Stabell, Fjeldstad, 1998; Parolini, 1999; Prahalad, Ramaswamy, 2004). From what has been said, we can clearly say that each company is inserted into a chain of value judgments (Donna, 1999) arising from the instances of customers, suppliers, employees, lenders, shareholders, who will judge whether their decision to support the firm is worth the efforts they bear (in terms of prices paid, resources invested). This leads to interesting consequences with respect to the variables that are considered useful to provide a measure of value; they, in fact, must consist of a summary, effective and complete as much as possible, that includes the expectations and rewards of all the supra-systems that work in the life of the company. In this sense, the role of the governing body will be to maximize this quantity, which must meet the requirements of full inclusion and diversity of perspective. Including and considering a variety of subjects within a measure of value, however, involves a change in both the interpretation of the concept of value and, consequently, in the techniques and models used in its evaluation. As regards the first aspect, adopting a logical parallelism with the physical world, you can


consider the value as a vector, which means that it has a way and a direction of its own. If we accept this definition, the objectivity of the concept of value -and its measurement technique- disappears, as each person will receive his own ‘value’ and will assign a different value to the same element. The model presented tries to answer these instances. Even the brief remarks above on the theories of value showed that it is very difficult to arrive at a measure that is universally recognized and accepted by all persons taking part in the life of the company and that simultaneously expresses what by the company’s comes to them. It cannot exist a unique conception and a unambiguous definition of value, it, rather, needs to be contextualized. The concept of context, defined above, calculated on the basis of the governing body’s information variety and elected to field of action, implies that the value created and spread by the firm is the result of the simultaneous fulfillment of a multiplicity of objectives. Added to this are the recent theoretical developments in the field of value co-creation, which is based on the interactive perspective of the service; this requires an analysis that is focused on the process, i.e. on the dynamics of business phenomena. In this sense, the goal of creating value is embodied in the achievement of a mean vector that is the expression of the satisfaction and reconciliation of different instances that must be traced to the average value, so that the value created and spread is durable and ensures the survival of the company. The foregoing considerations allow us to say, then, that the value is not an ‘absolute’ concept, on the contrary it is characterized by being ‘subjective’: the notion of context, “anthropomorphically determined”, that is a portion of the more general environment whose boundaries are defined by the governing body and that is elected as the territory of the specific action of a viable system (for the enterprise, for example, the area that includes and encompasses all the systemic entities affected by and that affect its activities), implies that the processes that affect the value depend on the decision-maker, but that each of the supra and sub systems with which the company interacts has, then, his perception of the same value that follows the interactive exchange with the enterprise system.

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The interaction, therefore, is the second element to be taken into great consideration, since it brings with itself a number of relevant considerations: in fact, conducting the analysis at the system level means exceeding an analytical-reductionist approach in favor of one that is, on the contrary, holistic. Implicit consequence of this perspective is that the analyzed phenomenon is seen in its dynamic, that is, in a positive evolution that brings the viable system to survive because it manages to reconcile dynamically a number of instances that, although expression of different dimensions, must be traced to a mean value. The concept of value of a company, therefore, which will inspire the action of the governing body, will include a greater variety of interests and expectations, and also degrees of satisfaction that will increase the perceived value by all parties that it will be directed to. Therefore, the future trends in science management will have to look to an ever greater inclusion of all the stakeholders involved in business activity; these guidelines, therefore, in a systemic vision, won’t consider that the survival of the company must take into account the interacting parties in the context and environment in which it operates. The contribution that the methodological approach provides, therefore, that it is explained by the model proposed below, lies in its ability to take into account the interests of a multiplicity and variety of subjects. 3.5

A VSA-based Model proposition

With reference to the historical and conceptual evolution aimed at the continuous implementation of schemes for the understanding and the organization of the new processes of value generation, the systemic approach to the government of the organizations (especially the business ones) can therefore be a valuable scientific support for setting up new interpretative models, related to a more systemic view of the processes of value co-creation, and focused on the logic of the interactions at the base of any value proposition (Ballantyne, Varey, 2006; Barile, Montella, Saviano, 2011).


In economics VSA is redefining the perspective of investigation, regarding the comprehension of firm (seen as a system) behaviour, helping us to create an innovative way to think the business (Golinelli, 2005; 2010; Barile, 2008). In short the focus of the analysis concerns the system’s decisionmaking and the consequent govern actions, as synthesis of the merged potentialities (coming from the static structure designed for the business), leading the interactive connections (affecting the dynamic system emerging from that structure), with the aim to survive and maintain its own market share in the long run (Barile, Saviano, 2008; 2011a; 2011b). The system approach it is a complex theme to deal with. At first, in order to understand the ability of nowadays companies to propose and co-create value, we need to better define the concept of viable system, intended as a system that survives, open, balanced, competitive, able to learn, to adapt, to reconfigure itself, to re-organize strategies and operations to improve the chances of success, within a specific framework context (Golinelli, 2005; Barile, Gatti, 2007; Barile, 2008; 2009; Barile, Saviano, 2010, Barile, Polese, 2011). To reach its final goal an efficient system vision is needed. Any business system has to relate with the sub-elements operating within, in order to catch the real strenghteness existing and to finalize successfully the effort produced. So in this regards a long term purpose to which the whole viable system dynamics are addressed matches with the need to connect and cooperate with the several supra-system entities identified as crucial for the business system point of view. Consequently, «striving for survival is expressed through the identification in the environment of those components which have privileged relationships, based on a “relevance” attributed to the systems of which they are an expression. The selection of the specific structure and, therefore, the identification of those supra systems that pro tempore influence, exercising expectation and pressure, the choices of the governing body of a viable system, describes the main activities carried out by the decision-maker in the search for survival paths for the system».3 This means that the viable 3

See Barile, Calabrese, Iandolo, 2013.

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system, in pursuing the systemic aim of survival, extract from the general environment its specific context, within which it identifies the relevant supra-systems with which to establish relationships of consonance and, in the future, the development of resonance, obtaining, therefore, the identification of shared and accepted decisions within the context itself. At this point, it is necessary to explain the concepts of consonance, which is specified in relation to the driver of competitiveness, and resonance (Golinelli, 2005; Barile, 2008; Barile et al., 2012a). The resulting value proposition it will be to much influenced from the different external events and from the possibility to usefully interact with other Actors involved in the co-creation process, both considering the role of an appropriate management (in terms of problem recognition, problem solving, best solution, best practice, resource sharing and coordination for decision making) and the relationships themselves between each-other (Polese 2009; Polese, Di Nauta, 2012). To do that, so many elements we have to take into account, just as the “variety” (seen as the own personal set of information), characterized by information units, categorical values and interpretation schemes. These aspects of variety cannot be studied with physical or spatial dimensions (concerning height, depth and width), but rather they can be considered as factors able to influence the evolutionary dynamics of knowledge (Rullani, 1994; 2004). Therefore, to understand what levers might be used for setting up an effective model for the interpretation of the logic of co-creation, it seems appropriate to focus primarily on the concept of systemic relevance, that is the criticality and the influence of certain elements of which the governing body of any modern business organization must take into account for an appropriate and strategic decision making process. With this in mind, it was decided to refer to some of the cornerstones of the VSA, related to the systemic dynamic, such as information units, interpretation schemes and categorical values.


3.5.1 Information units, interpretation schemes and categorical values The categorical values could be intend as the capacity to join information elementary units connected with each other. This is the main dimension for a “system of values” and responsible for denying or accepting justifiable behaviours, in a rational way. They include some features, as follow: x a personal “filter” in opposition to the collective possible analysis detectable inside the same context; x strictly linked to the emotional levels of the govern board; x qualifying the unconsciousness steps of each individual about how something can be good or bad; x characterizing the context ethics; x defining the principles for the interpretation of the external events; x a bridge for the evolution process starting from the creativity and going towards the intuition made by the decision-maker. The information variety, seen as informative resource availability, a resource heritage linked to factors connected to human connections, in accordance with Asbhy’s law of Requisite Variety4, stating that the possibility of interaction with management organization lead to a variety reduction to some “essential” canons, sharable among various system and over-systems. This allows to a new paradigmatically understood of conceptual facts that are indispensable to the representation of nowadays management dynamics. The most important elements in this sense can be: x the existence of an independent variable corresponding to the informative resource of a natural viable system, that could be moved, shared and used by the enterprises; x the possibility of coding the personal resources availability; x the definition and the possible use of qualitative and quantitative measurements, useful to the description of entrepreneurial dynamics; 4

Asbhy W.R. (1956), An introduction to cybernetics, Chapman & Hall, London.

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The information units can be seen as the simple indivisible part of information, “the smallest brick”, upon with everything in economics could be stated. The parallel among natural viable systems and management (or business) viable systems can be reach by the analysis of theories based on knowledge resource view, meaning that for the interpretation of new value co-creation process we have to deepen only some particular type of resources, real affecting the productive processes in different ways. As is, the informative resources capacity to generate knowledge is linked to the structural consonance that these resources usually show with inside the processes adopted by the decision-maker. In the same way it is reasonable to suppose that the capacity of a productive resource to co-determine a positive processes for the business performance is linked to how this resource is coming from the internal side and operating with mechanisms strictly inherent to business processes. 3.5.2 The productive resource own availability. Having, as noticed, the equivalence between the informative resource for the natural viable system and the productive resource for viable business systems, it is necessary to obtain a correspondence with the variety endowment and the informative resources. It is not so easy to identify in the context some representative variables for the business processes evaluation. If we point out on the distinctive characters about informative variety it is possible to state that: a) the capacity of variation mustn’t be linearly linked to the quantitative level increase of received resources; b) the possibility to exploit the resources that are essential for the optimization of operating systems performances, concerns the more attention to those resources which come from relevant supra-systems; c) the tendency/predisposition to modify the transformation process of resources is related to the progressive quail-quantitative increasing in acquired resource.


The point “a” leads to exclude the invested capital because its adoption would establish an indistinct inclusion about the productive resources acquired by the enterprise in the dated period. In accordance to the last point “c”, among the nominated variables, we have to consider: current assets, net current assets, investment capital, EBIT (Earnings Before Interest and Taxes), net worth. For many reasons most of the other accounting variables are not appropriate to interpret point “a” and “c”, but all points seem to find right correspondence first of all on the net capital, that expresses the consistency of the ownership; it is formed by the following terms: x the social capital, represents the capital granted by the members at the time of business start up. It can have some variations during the firm life-cycle. The increasing variations are connected to the contribution, even reiterated, of resources from the site of several members (oriented towards choices in policies and strategies management); instead the decreasing variations are connected to unexpected processes changes respect to what was planned. x The surplus originated from the specific strategic business wants. It depends from the correct resources management (selffinancing) adopted by the same firm. x The profits to assign to that are attained in the last exercise. They are referred to the relative efficacy about productive resources used. Indeed, the comprehension how a productive resource, gained from the company and engaged in the operative processes, can contribute to bigger or smaller profits generation, as we can see later, is referred to the conditions of Consonance and Resonance between the “relevant” supra-system that can influence the distribution of productive resource and the behavior for business systems that use it. The variables used in the Model are as follow: Tab. 3.1. – Summary of the variables of the model Variable

Description

Equity

The consolidated set of the disposability of an

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Productive resources

Consonance

Resonance

Supra system

Influence

Criticality

∁

organization, a reflection of the strength and sustainability of an offer through times, subject to specific assessment in the analysis of the potential. Fundamental elements for the organization of a value proposition, more or less critical and more or less important (influential) for the optimization of a process. Intended as a course of action for the governing body of the company, it relates to the implementation and / or maintenance of the conditions of harmony, correspondence, alignment and dialogue with the context of reference: it expresses the need to meet the values, cultures and needs of the surrounding society and to find recognition and consideration towards the various entities that populate it. The way in which an information variety is dynamically transformed in the context in which it expresses its viability, it represents the level of sensitivity it shows towards the supra-systems with which it interacts through the perception of new information. It describes the evolution of consonance in time and it it can be positive, when the variation of consonance increases, or negative, in the moment in which the consonance suffers a reduction. Hierarchically higher-order entity, which can affect the performance of an organization as its subjective and direct reference. It qualifies the influent subject with which the company must be able to interface effectively to ensure that an offer is considered valuable and maintains this condition over time. Regards the entity itself (or supra system) with which the system establishes a relationship; it depends on the level of constraints and rules and by the ability to control, give a feedback and intervene and it is more related to temporal variability and to the specificity of the context. The weight of the interest or of the relationship; it regards the relationship established with another entity (supra-system) and it is a function of the characteristics of the resource to be exchanged and of the net relational benefits that will derive from this exchange.


Relevance

Value

Summary of criticality and influence, it promotes the legitimacy of the reference supra-systems, it is linked to the urgency and to the being crucial to the achievement of the objectives of a business organization. Subjective element, it is the result of an interaction, of an exchange, of the multi-actor contribution in the process of co-creation, made effective with the use of the underlying product, and only potential at the time this product is offered on the market. The survival of an enterprise over time is a function of its ability to create value. Value creation is qualified as a yardstick by which each party interested in the results of a company measures the relation between the economic benefits obtained and the sacrifices made, in particular with reference to what was achieved by the competitors.

3.5.3 The productive resources as factors of change. The correspondences between the unrelated variables (informative resources vs productive resources) and dependent variables (informative resources vs net capital), allows to redefine for the Viable system management the concept of Consonance; we need to specify that the contribution given by a productive resource, in terms of contribution to the operative systems efficiency (in terms of dynamics of the viable system emerging from the specific structure; Barile et al., 2012b; 2012c), is established from the measure in which the given resource results being adequate to the conditions of structural and systemic coherence with the complex context, organized by the pre-existent components and relations. Even a simple social capital increase could underline limited effects on the variation related to net capital; instead a resource, restricted in terms of monetary quantification, but optimized in terms of the ongoing performance impacts (as for instance an innovation of productive process), can have an important result on the net capital, especially if we consider the synergic capacity that a productive resource has got (given by such system) to contribute to the consonant processes optimization of the detailed structure.

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In formula, Consonance may be: ∁ ≡

(

− −

)

where stands for the firm net capital in connection with a quantity of productive resources (resources given by the supra-system). It expresses the capacity that such a resource, left by a specific supra-system, has to contribute on the change of net capital. It is interesting to observe that the contribution of members appears as an unconditioned contribution, able to constitute in a direct way an increase of capital; this qualifies itself as a resource provided by a predetermined consonance, proportioned by the relation that the social capital has with the net capital as a whole. Even the concept of resonance, according to the given information, has a very important meaning, being an expression of consonance that grows even more quickly than the enterprise and its net capital; once we found a consonance generally, it supports to determine the relation with supra-systems that give such resources to draw on the less formalized side of the net capital. It is difficult to imagine a resonance determined only by contributions even continuous of capital, while resonance is more easily understandable in supra-systems relationships. In formula the Resonance, can be seen as: ≡

∁

−∁ −

where stands for consonance of the enterprise in relation with a quantity of productive resources (resources given by the suprasystem). 3.5.4 Value as a result of operated actions. These considerations allow to develop some reflection suitable for the construction of a model VSA-based in which a new value research


could lead to the definition of a new and more effective indicator about the performance evaluation and comparison. In general, the concept of value can be qualified as the richness generated by firm processes, in such a time period (Guatri, 1996). Under VSA framework, it is possible to find it as synthesis of the firms’ capacities to survive, to contract agreements and to become legitimate, developing a good level of “consonance” and “resonance” in its context. The model proposes, in short terms, an innovative technique of value management able to read again, according to the VSA, the complexity about the activities that constitute the operative and cooperative processes, extending it from the only property of resources, to the relationship to all the co-creators (relevant suprasystem). The suggested example can be seen as a strategic check methodology able to describe and monitor the organizational processes, with the aim to translate firms’ missions and strategies in a very complete series of the good performance, demanded to create and distribute value. According to this methodology, if we want have an global vision of the whole business system, we have to build an organize the set of measurements starting from the individuation of the value concerning the interaction of the company only with relevant supra-system. It is important to repeat that the whole of the over-systems to considerate first in a direct relation with the enterprise, then in connected composition, must be referred to the whole of the suprasystems that the government organ has considered, pro tempore, very important. In such a meaning an important evolution of some traditional tools comes out and they focus on some particular systemic relations (point of view): 1. the perspective of the economic and financial performance (results); 2. the perspective of the client (final user); 3. the perspective of the processes management (governance); 4. the prospect of future development (sustainability).

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A strong approach can be proposed, enabling an understanding the above stated relations, and others considered useful by the governing body. Seeing that the variation of net capitol corresponding to the real interpretation of the evolution of a Viable Business System, we can reasonably affirm that the value given (co-produced, Ramirez, 1999) by the resource left by any supra-system, must be proportional to the relative increase to net capital that its use (value in use, Vargo, Lusch, 2008) has produced. by the resource r1 must be considered What is co-create ≡ proportional to − . It is necessary to say that the proposed proportionality shows a relevant lack, as it does not consider the different rule that the resources have regarding the level of relevance recognized by the governing body about the supra-system that releases them. For instance, the value that derives from extraordinary work of such a supra-system, and the related payment for it, are correlated to the relevance attributed by the governing body to that supra-system. In a market where the work-force is over-dimensioned, the relevance of the work system (supra-system itself) is lower, it will refer a shorter evaluation of the generated value, as in the opposite case, will realize that less availability of work-force lead to an high significance of the same work system. Therefore, in a more complete determination we can express the direct value generated by the resource left by a supra-system can be like this: ∙ (

=

)

−

And considering that: =

∙

We have: =

∙

∙ (

−

)


Considering, moreover, that the influence corresponds to the variation of consonance in reason of the level of invested productive resources and so it defines itself as a resonance towards the considered supra-system. ≡

∁

−∁ −

≡

From which, replacing influence with resonance, we have: =

∙

∙ (

−

)

( )

The equation (1) expresses the value generated by the resources of the supra-system knth. The value is expressed in the governing body viewpoint and so it is considered on the basis of the relevance attributed to the supra-system knth. The objective factors measure and ( − ) could lead to is always the same for each supra-system suppose that the value , independently from the decision-maker, but this is not always true as a consequence of considering the factor in thinking that it is referred to a value expressed prerogative of the governing body, thus introducing the feature of subjectivity to each given value. In short, different decision-makers, looking at the same accounting results affecting the net capital, can get to completely different checks of the co-determined value, by the productive resource sharing of a specific supra-system. At this point, we need to include further methods that lead to the determination of: a) a general evaluation able to synthesize the different contribution of the supra-systems considered relevant, according the Top Government; b) a specific evaluation that can express in the maintaining of the strategic choices (validity pro-tempore of the specific structure) as the value of the enterprise independently from the acquisition of the new productive resources.

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Here some considerations can contribute to give an answer to the demand in reference to point “a”. First of all it is necessary to consider that the different suprasystems show an objective character that qualifies an inertia towards the willingness of the decision-makers to prefer, or not, the participation to the co-creation process: the relevance of the resource. It is the same to the categorical value factor we have discussed in connection with the variety seen as characteristic of informative resources. In the same way, it is possible to elaborate a synthetic formulation of the general supra-systems relevance, based on the notion of criticality; this formulation is obtained considering the weighted criticality of each relevant supra-system:

=

∙

+

∙ +

+ ⋯….+ + ⋯….+

∙

Where: = the number of relevant supra-systems identified; = net capital weighted on the relevance; = variation of net capital, induced by the productive resources given by the supra-system . = the relevance of productive resources, given by the supra system . In short, we can express this general formulation as a weighted average: =

∑

∙ ∑

Now we can calculate each member of the precedent equation, thus determining the relative value of all the supra-systems considered by the governing body. The weighted criticality of each supra-system can be expressed as:


=

+

+ ⋯….+

The product between the weighted criticality and the weighted net capital will be : ∙

=

∙

+

∙

+ ⋯….+

∙

If we calculate the derivative of the precedent equation with respect to the productive resources r, we have: ∙

=

∙

+

∙

+ ⋯….+

∙

As we defined Consonance as the variation of capital with respect to the resource ( / ), we can substitute as follows: ∙

=

∙

+

∙

+ ⋯….+

∙

If we calculate again the derivative of the precedent equation with respect to the productive resources r, we have: ∙

=

∙

+

∙

+ ⋯….+

∙

As we defined Resonance as the variation of Consonance with respect to the resource ( / ), we can substitute as follows: ∙

=

∙

+

∙

+ ⋯….+

∙

As Influence has been defined as a Resonance and Relevance is composed of Criticality and Influence, we can calculate weighted Relevance as follows:

86 Chapter III +

+ ⋯…+

Referring to equation (1), in which Val= Crit* Ris (P1-P2) we can calculate the weighted value for all the supra-systems as follows: ∙ (

=

−

)

For what concerns the need expressed at point “b”, we can calculate a specific evaluation that could explain the real value of the enterprise, independently from the acquisition of new productive resources. We can consider value equivalent to a general Relevance able to make the net capital change from a value P1 to a value P2. =

∙

From the precedent formulations, we know that: =

∙

And that: =

∁

∁

=

∙

=∁

∙

∁

We can substitute Relevance in the equation as follows: =

∙

=

∙

∙

From which, we can express Resonance with respect to Consonance as follows: =

∙

∙

=

∙∁

∙

∁

∙


Reducing the factors Consonance, we have:

and calculating the integral with respect to

∁

=

∙∁

∙ ∁

=

∙∁

−

∙∁

∁

If we indicate the capacity to co-create value = the precedent integral, we have:

and solving

Thus, we can calculate the weighted value generally considered as the variation of the capacity of creating value, as follows:

This result is particularly useful to solve problems where the value co-created is known and is interesting to calculate the consonance connected to a given net capital. 3.6

Not conclusive reflections

Value creation processes are therefore strongly influenced by numerous aspects, regarding the set productive activities, oriented, focused, deeply rooted in the new system view, consciously or not. In order to properly favor and coordinate a system balance, the decision makers of any organization must take in a count opportunities and available limited resources, and find for them the right satisfaction of use. Today, the value is this too. The necessary process of continuous learning in facilitating adaptation and sustainable development fosters continuous connections with interactive elements, as internal (intrasystem relationships), as third interested organizations (inter-system

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relationships) as influential and “relevant” external (supra-system relationships), through appropriate knowledge-intensive techniques and procedures, in order to promote solutions in co-design, coproduction, co-decision, co-creation, all aimed at a survival in the long run. From this point of view it does not matter to qualification of operators involved, and then the distinction between supplier, customer or user loses its significance. Il counts instead the role of relationships and common interests that promote collaboration and the achievement of a higher level of satisfaction. From the above reflections, it is possible to highlight the contribution of the presented model for the interpretation and measurement of value in business organizations. Although this model is, at moment, only a theoretical proposal, since it deepen the concept of value in a subjective perspective, which concerns both the stakeholders in their co-creative actions (typically firms) and the individuals to whom they are referred (all system entities included in a specific context). We want to find some empirical evidence, to complete and implement our research work. The centrality of the subjective perspective extends the adoption of the system approach to the life, here proposed in a theoretical evolution of the investigation methodology, in order to better understand the questions arising from practice management. The ability to systematize the converging considerations could be able to quantify the possible conceptual and theoretical integration forward what today is called as frontier research. It is hoped that the foregoing reflections may thus help to quickly obtain an useful methodology for a future survey jobs, including variables such as levels of consonance, resonance and relevance for the value definition; we are at the beginning, now we want to go on! References Allee V., Taug J. (2006), “Collaboration, innovation, and value creation in a global telecom”, in The Learning Organization: An International Journal, ingentaconnect.com


Allee V. (2000), “Reconfiguring the Value Network”, Journal of Business Strategy, n.4, pp.36–41. Asbhy W.R. (1956), An introduction to cybernetics, Chapman & Hall, London. Ballantyne D., Varey R.J. (2006), “Creating value-in-use through marketing interaction: the exchange logic of relating, communicating and knowing”, in Marketing Theory, vol.6, n.3, pp.335-348. Brandenburger, A.M., Nalebuff, B.J. (1997), Co-opetition, Doubleday, New York. Barile S. (2009), Management sistemico vitale, Giappichelli, Torino. Barile S. (eds) (2008), L’impresa come sistema. Contributi sull’approccio sistemico vitale, II ed., Giappichelli, Torino. Barile S., Calabrese M., Iandolo F. (2013), “Sostenibilità e paradigmi service-based: possibilità e criticità per l’economia d’impresa”, Sviluppo & Organizzazione, n. 252, Gennaio/Febbrario. Barile S., Gatti M. (2007), “Corporate governance e creazione di valore nella prospettiva sistemico-vitale”, in Sinergie, n.73-74, pp.151-168. Barile, S., Polese, F. (2010a), “Linking the viable system and manyto-many network approaches to service-dominant logic and service science”, in International Journal of Quality and Service Science, Vol.2 No.1, pp.23-42. Barile S., Polese F. (2010b), “Smart service systems and viable service systems”, in Service Science, vol.2, n.1/2, pp.21-40. Barile S., Polese F. (2011), “The viable systems approach and its potential contribution to marketing theory”, in S. Barile, C. Bassano, M. Calabrese, M. G. Confetto, P. Di Nauta, P. Piciocchi, F. Polese, M. Saviano, A. Siano, M. Siglioccolo, A. Vollero (eds.), Contributions to Theoretical and Practical Advances in Management—A Viable Systems Approach (VSA) (pp. 139-173). Avellino: International Printing. Barile S., Saviano M. (2008), “Le basi del pensiero sistemico: la dicotomia struttura-sistema”, in S. Barile (eds.), L’impresa come sistema. Torino: Giappichelli.

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Barile S., Saviano M. (2010), “A new perspective of systems complexity in service science”, in Impresa, Ambiente, Management, vol.3, n.3, pp.375-414. Barile S., Saviano M. (2011a), “Foundations of systems thinking: The structure-system paradigm”, in S. Barile, C. Bassano, M. Calabrese, M. G. Confetto, P. Di Nauta, P. Piciocchi, F. Polese, M. Saviano, A. Siano, M. Siglioccolo, A. Vollero (eds.), Contributions to Theoretical and Practical Advances in Management—A Viable Systems Approach (VSA) (pp.1-25). Avellino: International Printing. Barile S., Saviano M. (2011b), “Qualifying the concept of systems complexity”, in S. Barile, C. Bassano, M. Calabrese, M. G. Confetto, P. Di Nauta, P. Piciocchi, F. Polese, M. Saviano, A. Siano, M. Siglioccolo, A. Vollero (eds.), Contributions to Theoretical and Practical Advances in Management—A Viable Systems Approach (VSA) (pp.27-63). Avellino: International Printing. Barile S., Montella M., Saviano M. (2011), “Enhancement, value and viability of cultural heritage: Towards a service-based systems approach”, in E. Gummesson, C. Mele, F. Polese (eds.), ServiceDominant Logic, Network & Systems Theory and Service Science (pp.2-23). Napoli: Giannini. Barile S., Pels J., Polese F., Saviano, M. (2012a), “An introduction to the viable systems approach and its contribution to marketing”, in Journal of Business Market Management, vol.5, n.2, pp.54-78. Barile S., Franco G., Nota G., Saviano M. (2012b), “Structure and dynamics of a “T-Shaped” knowledge: From individuals to cooperating communities of practice”, in Service Science, vol.4m n.2, pp.451-465. Barile S., Saviano M., Polese F., Di Nauta P. (2012c), “Reflections on service systems boundaries: A viable systems perspective: The case of the London Borough of Sutton”, in European Journal of Management, vol.30, pp.451-465. Bologna L., Calabrese M., Iandolo F., Bilotta A. (2012), ‘Sostenibilità e valore nei rapporti impresa-territorio’, in ‘XXIV Convegno annuale di Sinergie “Il territorio come giacimento di vitalità per l’impresa”, 18-19 ottobre 2012.


Cantone L. (1996), “Creazione di valore per i clienti nelle imprese di servizi”, in Sinergie, n.40, pp.175-207. Charreaux G., Desbrieres P. (2001), “Corporate governance: Stakeholder versus shareholder value”, in Journal of Management and Governance, vol.5, pp.107-128. Demattè C. (1997), “Teoria del valore: serve davvero per guidare meglio le imprese?”, in Economia & Management, n.2. Donna G., La creazione di valore nella gestione d'impresa, ed. Carocci, 1999. Golinelli G.M. (2000), L’approccio sistemico al governo dell’impresa. L’impresa sistema vitale, I ed., CEDAM, Padova. Golinelli G.M. (2005), L’approccio sistemico al governo dell’impresa. L’impresa sistema vitale, CEDAM, Padova. Golinelli G.M. (2008), L'approccio sistemico al governo di impresa Verso la scientificazione dell'azione di governo, Cedam, Padova. Golinelli G.M. (2010), Viable Systems Approach (VSA). Governing Business Dynamics, Kluwer (Cedam), Padova. Golinelli, G.M., Barile, S., Spohrer, J., Bassano, C. (2010), “The evolving dynamics of service co-creation in a viable systems perspective”, in proceedings of The 13th Toulon – Verona Conference in Coimbra - Portugal, September 2-4. Grönroos C. (1997), “Value-driven relational marketing: From products to resources and competencies”, in Journal of Marketing Management, vol.13, n.5, pp. 407-419. Grönroos C. (2008), Adopting a service business logic in relational business-to-business marketing: value creation, interaction and joint value co-creation, Otago Forum 2, pp.269-287. Guatri L. (1991), La teoria di creazione del valore. Una via europea, EGEA, Milano. Guatri L. (1996), “La teoria del valore tra economia e finanza”, in Sinergie, n.39, gennaio/aprile, pp.52-57. Gummesson E. (1999), Total Relationship Marketing, Butterworth Heinemann, Oxford. Hakansson H., Snehota I. (1995), Developing relationship in business network, Routledge, London. Mella P. (2005), Dai sistemi al pensiero sistemico. Per capire i sistemi e pensare con i sistemi, FrancoAngeli, Milano.

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Möller K. (2006), “Role of competences in creating customer value: a value creation logic approach”, in Industrial Marketing Management, vol.35, pp.913-924. Nahapiet J., Ghoshal S. (1997), “Social capital, intellectual capital and the creation of value in firms”, in Academy of Management Review, vol.23, n.2, pp.242-266. Nigro C., Bassano C. (2003), “Dalla valutazione della rilevanza intersistemica alla progettazione della consonanza e della risonanza”, in Esperienze d'Impresa, vol.S/1, pp.121-144, Boccia Editori, Salerno. Normann R., Ramírez R. (1993), “From Value Chain to Value Constellation: Designing Interactive Strategy”, in Harvard Business Review, July/August, Vol. 71, Issue 4. Normann R., Ramirez R. (1995), Le strategie interattive d’impresa, Etas Libri, Milano. Parolini C. (1999), The Value Net: A Tool for Competitive Strategy, John Wiley, Chichester. Payne, A., Storbacka, K, Frow, P. (2008), “Managing the co-creation of value”, in Journal of the Academy of Marketing Science, vol.36, pp.83-96. Polese F., Di Nauta P. (2012), “A Viable Systems Approach to Relationship Management in S-D Logic and Service Science”, Journal of Business Administration Review, Schäffer-Poeschel, vol.73, n.2, pp.113-129. Polese F. (2004). L’integrazione sistemica degli aggregati reticolari di impresa. Padova: CEDAM. Polese F. (2009), “Reflections about value generation through networking culture and social relations”, in Quaderni di Sinergie, “Firms' Government: Value, Processes and Networks”, n.16, supplemento al n. 80 Settembre-Dicembre, pp.193-215. Polese F., Russo G., Carrubbo L. (2009), “Service Logic, value cocreation and networks: three dimensions fostering interorganisational relationships: competitiveness in the boating industry”, in Atti della "12th QMOD and Toulon-Verona Conference", Verona, 27–29 Ago. Polese, F., Moretta Tartaglione, A., Sarno, S., Carrubbo, L. (2009). An efficient value chain, or a service value network? Best practices


deriving from Zara. In D. Vrontis, Y. Weber, R. Kaufmann, & S. Tarba (Eds.), Managerial and Entrepreneurial Developments in the Mediterranean Area. Cipro: EuroMed Press. Porter M.E. (1985), Competitive Advantage, The Free Press, New York. Prahalad C.K., Ramaswamy V. (2004), The future of competition: Cocreating unique value with customers, Harvard University Press. Cambridge, MA. Ramirez R. (1999), “Value Co-Production: Intellectual Origins and Implications for Practice and Research”, in Strategic Management Journal¸ n.20, pp.49-65. Rappaport A. (1989), La strategia del valore, Franco Angeli, Milano. Rullani E. (1994), “Il valore della conoscenza”, in Economia e Politica Industriale, vol.82, pp.48-73. Rullani E. (2004), La fabbrica dell’immateriale. Produrre valore con la conoscenza, Carocci, Roma. Saviano, M., Berardi, M. (2009), “Decision making under complexity: The case of SME”, in D. Vrontis, Y. Weber, R. Kaufmann, S. Tarba (eds.), Managerial and Entrepreneurial Developments in the Mediterranean Area (pp.1619-1643). Cipro: EuroMed Press. Saviano, M., Di Nauta, P. (2011), “Project management as a compass in complex decision making contexts: A viable systems approach”, in D. Vrontis, Y. Weber, R. Kaufmann, S. Tarba (eds.), 12th International Conference on Product Focused Software Development and Process Improvement (pp.112-119). New York: ACM Association for Computing Machinery. Sciarelli S. (2002), “La produzione del valore allargato quale obiettivo dell’etica nell’impresa”, in Finanza, Marketing e Produzione, n.4. Stabell C.B., Fjeldstad O.D. (1998), “Configuring Value for Competitive Advantage: On Chains, Shops, and Networks”, Strategic Management Journal, vol.19, n.5, pp.413–437. Stampacchia P. (2005), “Generazione di “valore” e relazioni impresa – stakeholder: un’ottica integrata”, in Sinergie, n.67, maggio/agosto, pp.69-71 Vargo S.L., Lusch R.F. (2008), “Service-Dominant Logic: Continuing the Evolution”, in Journal of the Academy of Marketing Science, vol.36, n.1, pp.1-10.

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Vargo S.L., Maglio P.P., Akaka M.A. (2008), “On value and value cocreation: a service systems and service logic perspective”, European Management Journal, vol.26, n.3, pp.145-152. Vicari S. (1995), “Note sul concetto di valore”, in Finanza, Marketing e Produzione, n. 3. Vincenzini M. (2003), “Relazione, organizzazione e creazione di valore”, in Sinergie, n.60, gennaio/aprile, pp.337-348. Zappa G. (1927), Tendenze nuove negli studi di ragioneria, S.A. Istituto Editoriale Scientifico, Milano. Zappa G. (1937), Il reddito d’impresa: scritture doppie, conti e bilanci di aziende commerciali, Ed. Giuffrè, Milano.

Chapter IV

Decisions and Business Communication within a Psychological Ericksonian Perspective*

4.1. Introduction The following contribution highlights how the conceptual origin of the available literature on communication, mainly focused on the contents of “strategic communication”, can conveniently change concepts arising from a seemingly distant context such as that of “Ericksonian communication”. The idea comes from considerations based on assumptions (not opposable to one another) from which substantially derives the theoretical structure of business communication. The communication process in its broad and consolidated meaning, regardless of the necessary taxonomic distinctions determinable by perspective dimensions, such as: internal/external, aware/unaware or function/process or government/management, thus leads to the well-known "communication theory" model5. This paradigm, today copiously found in the “science of communication” literature and which covers not only business communication, is full of deep and articulated reflections, all included in the original concept synthesized in (Fig. 4.1). It is a compendium of issues and solutions which, according to the authors, is limited to the

*

By Sergio Barile and Alberto Bilotta Shannon C. E., Weaver W. (1971), La teoria matematica delle comunicazioni, EtasKompass, Milan, pag. 3. 5

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very nature of the "shannonian" model, or rather, the implicit reference to an epistemological, reductionist, and determinist origin6.

Fig. 4.1. This conclusion, which at first may appear too strong, derives from the conceptual assumptions that Weaver places at the base of communication studies in (Tab. 1). In describing the content of the study developed with Claude Shannon the author maintains that the scientific results produced in their work mainly deal with the level A of the (Tab. 1); yet, in all honesty he specifies that this level is crucial and propaedeutic for the understanding of the dynamics related to the subsequent levels B and C. With this as a premise, it is easy to deduce that the assumption— now reduced to a cliché used in different scientific fields that reflect 6

The hypothesis of passing of the highlighted boundary, developed especially in the context of the sociologicalapproach to the communication, end up even more to maintain what is already said.Indeed, where are prospected new models of interaction of context , however it is supposed to be able to formalize the relational dynamics. Cfr. Eco U. (1979), Lector in fabula, Bompiani, Milan. In the essay the Author proposesthat the asymmetry between sender and receiver is solved from the teoriadellacooperazioneinterpretativa, understood as a possibility of encounter between semiotic universes of sender and receiver. Even before: Newcomb T.M. (1953), "An approach to the study of communication acts", in Psychological Review, LX.

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upon the ways and conditions to optimize the effects of a message and which basically maintains "that an effective communication requires the creation of conditions of ‘harmony’ between sender and receiver", if confined to the first level of (tab.1)—is eventually applied to an interpretative dimension essentially "technical"; hence,undeniably "mechanistic", where conditions leading to analyses and the development of reflections on proper communication appear to be elements such as: 1. revealing the initial conditions; 2. the typological qualification of the actors engaged in the process; 3. identifying the methods, tools, and techniques appropriate to the communication.

Tab. 4.1, Source: Shannon C.E., Weaver W. (1971), Mathematical theory on communication, Etas Kompass, Milano, p.3 It is an approach which has atits core the very formulation, in a socalled causal-reductionist origin, a perspective which can be summarized by considering the fact that there must exist only onebest-way able to tackle different problems, where theory is inevitably linked to the development of ever-changingtechnicalitiesbetter

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equipped to address the elements related to the previous three points 7. It is important to point out, though, that business economy and, prior to that, economic studies as a whole, are based on a "school of thought" which assumes "the universality of the law of causation" as supposition for any possible rigorous theorization8. For this reason, consequently and inevitably,leading manuals in business communicationis likely to appear as a compendium of operating modes, a toolbox to be used because of problems related to an established taxonomy, barely but also uselessly amendable.Modeling efforts, as the one represented in (Fig. 4.2),tend to proposeinterpretative solutions of a deterministic kind, based on the observation of linear relations that, although unquestionably valid with respect to a specific context and under certain conditions, most certainly cannot be as validly generalized, leading people to imagine that similar models can effectively address decisions in any operating environment in similar contexts.

Fig. 4.2 7 Riverso E., in Premessa to the volumeof Polany M. (1990), La conoscenza personale.Verso una filosofia post-critica, Rusconi, Milan, pag. 24. 8 Mill J.S. (1988), "Prove in favore della legge di causazione universale", in Systemof Deductive and InductiveLogic, Cap.XXI, pagg. 761 e ss., Utet, Turin. The significant influence of the principle “causal-reductionist ” is of extreme evidence considering , beyond the Nobel assigned in 1974 a Gunnar Myrdal, the recent assignment of the Award to the economists Peter Diamond, Dale Mortensen and of British –Cypriot Christopher Pissarides for a work of research strictly focused on the principle of causality.


As for this approach, a perspective that could easily be defined"structural,"there is the possibility of redirecting or at least broadening the field of study bypassing acommunicative modality understood in a strictly formal view, shifting to a kind of communication knownas cognitive interaction resulting from a process of coercion, or rather, by reaching a ‘systemic’ modality9. With this as a premise, the basic hypothesis of this workrelies on the assumptionthat a message, though it can be attributed to a simple transfer of data from one subject to another, should primarily be considered as a perceptual opportunity aimed at highlighting, confirming, and strengthening informative contents (value, behavioral, and motivational) already present and active in the communicants as well as the receivers10. In other words, what is crucial is how to conceive the company which, as an established organization of goods and individuals, becomes an inexplicable social organism, articulated but versatile, having its own identity;hence, with plenty of experience, culture, and reputation. It is basically an anthropomorphic organism or, better yet, it belongs to the more inclusive category of "viable systems." This explains the growing interest that companieshave in different cultural approaches. When thought rises a notch, not in terms of speculative intensity, but rather, in the perspective of observation, or rather, when the interest passes from the observed phenomenon to the phenomenal category to which is related, it is legitimate to extend the debate to those who typically are committed to observe the different types of phenomena which are included in the same category. Hence, if the reflection concerns the ontology of the company as mentioned above, viewed as social organism, then the interventions of sociologists, general economists, anthropologists, and psychologists, as well as scientistsof business economics, perhaps find intellectual relief in applying, not only in metaphorical or analogical terms, 9 Cfr. Barile S., Saviano M. (2011), "Foundations of systems thinking: the structure system paradigm", in VV. AA., Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, International Printing, Avellino. 10 Cfr. Atlan H. (1989), A torto e a ragione, Intercritica tra scienza e mito, HopefulMonster, Florence.

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established models of other disciplines. Given the above, it becomes reasonable to attribute to such method of study and reflection a full legitimacy in terms ofglobalmission - opening the issue of business communication to formulations apparently not related and to conceptualizations normally considered secondary to the topic, in terms of pragmatic intent - thus bringing the established knowledge to a unitary paradigm encompassing the different tools and techniques developed over the time by the users, including the theoretical addresses provided by scientists (not only those employed by the company) thus becoming an adequate and usable representation of the diversified problems of communication. The reasons for theseexplanations intend to solve ex ante issues linked to the need or the unique opportunity of using representations, diagrams, and/or models derived from formal implementationof other disciplines. However, as for this perspective, and aiming at the reflection on the approach of a proper communication, especially at level C in (tab. 1), it becomes relevant not only to redefine operationally and in finalized terms the concept of social organization, but also to identify the conditions of preliminary context where both the sender and the receiver operate separately and independently, and then delve into the interactive context understood as a unitary synthesis of the finalized scope n which they act in the communication process. To this purpose the VSA (Viable System Approach) whose founding conceptualizations are briefly mentioned in the following paragraph, in my opinion is the conceptual origin suitable to establish the conditions in which different actors (whether they are individuals or organizations) engaged in the communication process, sender, receiver, or vehicle which, in their turn, are to be interpreted as the result of an harmonious process designed to develop a unified and inseparable context in which they operate and they relate to one another. A context which qualifies itself as synthetic overlapping of a plurality of subjects, cultures, instances, and expectations. In this perspective, studies focused on the communication processes of business organizations areeventually able to profitably recover results that, for many years now, are part of the economic and social sciences. It can be very useful, for example, for intra-


organizational and inter - organizational communications, changing what can be changed, understanding how patient and therapist come into agreement, and harmony, sharing their definition of the problem and/or of the solution; or how the therapist uses, with therapeutic purposes, yet with the intention of encouraging a successful communication, the language of patient; or even how strategies are developed which the therapist uses in order to help the patient. In the conclusions a research method is proposed aimed at redefining,within limits, concepts, techniques, and tools of therapeutic Eriksonian psychology within the paradigmatic area of business communication. 4.2. Elements of the Viable System Representation of the Firm The need to transfer studies and reflections of therapeutic strategies to entities such as business organizations requires, preliminarily, that a "bridge", an analogy, or even a strict isomorphism between the behavior and the Eidos of the human being and the dynamics of the being and of the behavior organizations be established11. The possibility of a similar representation is offered by the VSA which essentially assumes a configuration of the reality in terms of social contextin which vital systemic entities interact12. A viable system does 11 Eidos, from greekεϊδομαι: seem, have the features, recognize. The ancient greekconnectsstrictly the visibilityand knowledge. Plato recognizes in the term :eidos the model or the visible scheme of which, for example, avails the artisan in his work , but also the idea, as intelligible form of the real, that can be seen with the "eyes"of mind. Next to this concept, in the context of the studies of communication, is the concept of "personality". With such term is indicated the effective identity of a business. La personality summarizes the whole of the behavioural and intellectual aspects of the organization which refer to the elements of the corporate cultures, know how to do(distinctive competences) and of organizational performances. Cfr. Siano A.,Confetto M.G., Vollero A. (2008), "GovernanceStruttura-Sistema: Un Modello diManagement della Comunicazione per il Marketing territoriale", VII International Congress"Marketing Trends, Università "Ca’ Foscari", Venice, 17-19 january 2008. 12 "The Viable Systems Approach (VSA): It’s a system theory in which the observedentities and their environment are interpreted through a systemic viewpoint, startingwith the analysis of fundamental elements and finally considering more complex relatedsystems (von Bertalanffy, 1968). The assumption is that each entity/system is related toother systems, placed at higher level of observation, called supra-systems, whose traitscan be detected in their own subsystems (principle of system hierarchy). As such, thefundamental

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not exist in an objective way in reality.It is the result of a cognitive operation that an observer (involved in the system and who is not a third party in this equation) makes, distinguishing the behavior of a particular entity from an indistinct background, and attributing to that entity a particular meaning in terms of inter-related components that it uses (structure), of knowledge which he disposes (capacity), and the objectives that it wants to achieve (purpose)13. To this perspective, all living beings able to finalize an act of volition of their own choice belong to the class of vital systems; this includes single individuals but also social organizations, and organizations of organizations14. In this way vitality is the existential modality able of characterizing significantly the nature of social "organisms" that characterizes the following definition:"[…][a] viable system is a system which survivesand remains united and integral; it is homeostatically balanced both internally and externally and has also mechanisms and opportunities to grow and learn, to evolve and adapt; in other words, to become more effective in its environment15." unit of analysis is a system made up of many parts or structures (Parsons,1971). In this sense, every entity (a firm, or simply an individual, a consumer, or acommunity) as a system can be considered a micro-environment, made up of a group ofinterlinked sub-components which aim towards a common goal (this is the condition,for the aggregate, to be qualified as a system). The Viable System Model was firstproposed by Beer and then developed by Christopher. In general terms, a viable systemis finalized toward its vitality throughout viable behavior based upon consonant andresonant relationships". http://en.wikipedia.org/wiki/Viable_systems_approach. Cfr.Barile S. (2000), Contributi sul pensiero sistemico in economia d’impresa,Arnia;Golinelli G.M. (2002), L’approccio sistemico al governo dell’impresa. La dinamica evolutiva del sistema impresa tra economia e finanza, Vol. II, Cedam, Padua.Golinelli G.M. (2005, 20001), L’approccio sistemico al governo dell’impresa.L’impresa sistema vitale, Vol. I, Cedam, Padua; BARILE S. (2009), Managementsistemico vitale, Decidere in contesti complessi, Giappichelli, Turin; Golinelli G.M.(2010), Viable Systems Approach. Governing Business Dynamics, Cedam, Kluwer; Golinelli G.M. (2011), L’Approccio Sistemico Vitale (ASV) al governo dell’impresa.Verso la scientificazione dell’azione di governo, Cedam, Padua. 13 Cfr. Maturana H., Varela F. (1985), Autopoiesi e cognizione. La realizzazione delvivente, Venice, Marsilio, pag. 32. 14 It remains fundamental,on the point, the researches of Goffmann. Cfr. Goffmann E.(1972), Asylums. Le istituzioni totali, Turin, Einaudi; Goffmann E. (1969), La vita quotidiana come rappresentazione, Bologna, Il Mulino. Interesting considerations have carried out on theensembleof these issues also Crozier M., Friedberg E. (1978), Attoresociale e sistema, Milan, Etas Libri. 15 Cfr. Beer S. (1991), Diagnosi e progettazione organizzativa. Principicibernetici, Isedi, Milan, (Titolooriginale: Diagnosing the system for organization, John Wiley, Chichester,


The concept of vital system is not new at all. Recently introduced by Stafford Beer, from the beginning it was full of explicative potentialities16. The model is particularly fit to represent business organizations and is coherent with the epistemological approach; thus stating the validity of a defined and distinct perspective (hence subjective) as an indispensable assumption for an analysis of the perceived reality17. This category is therefore attributable to any organizations, as well as to the single individual who through changes in his/her own logical-physical structures, strives to survive in the context in which he/she lives. The prerogative of the intrinsic vitality is manifested when, on the basis of relations among internal components, and between some of these with selected external components, the organization interacts with its environment to learn, adapt, grow, and create value; thus creating over time the effectiveness of its performance as compared to the purpose of survival18. Theability of a system to survive in its own environment is a necessary condition; yet, it is not sufficient to the purpose of being qualified as viable.The condition of vitality, indeed, requires that the observed system is able to achieve its goals, managing to satisfy, in an appropriate manner, or combining efficiency and effectiveness, the 1985), pag. 63. The term vitalderives from the Englishviable: able to maintaina separate existence (Oxford English Dictionary, Oxford University Press). Moreover:«[…] of organism , that has capacity to live, on the level of the organic functionality» (Devoto, Oli, Vocabolariodella lingua italiana, Le Monnier). 16 Stafford Beer (London, 1926; Toronto 2002) has been one of the principal maker of the application of cybernetics and and of the operative research in the field of management and of the social systems. Graduate in philosophy and psychology,has been: officer in the Royal British artillery in India, commander of a company Gurkha, military psychologist, director of a centre of formation for English officials, teacher at the Business School of the University of Manchester and the Business School of the University of Northumbria, professor at the John Moores University di Liverpool, the University of Suderland, the Universityof Stockholm, president of the worldwide organization "Systems and Cybernetics", member of several international organizations on the operative research, counselor of several international organizations, of dozens of governments as well as of several British and Canadians multinationals, great promulgator oh his models in dozens of countries. 17

Cfr. Polany M. (1990), La conoscenza personale. Verso una filosofia postcritica,Rusconi, Milan, pag. 28. 18 See, inregards to, Maggioni V. (2000), "Apprendere dalle strategie relazionalidelle imprese: modelli ed esperienze per le meta-organizzazioni", Sinergie, n. 52.

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expectations projected by the super-systems perceived as relevant by its governing body19. The process of satisfaction of the expectations of the super-systems enables the viable system to create value. It is a value addressed to the super-system in response to the resource of the latter being released; thus allowing the possession and/or recovery a necessary consensus for the dynamic maintenance of its existential purpose in the context of reference.Therefore, the concept of value loses the"objective" character of general validity, only to assume a subjective connotation. What is of great value for some super-systems, may not be for others. As I shall demonstrate later, such redefined position agrees well with the therapeutic modalities within a psychological context.20 A significant aspect of the viable conceptual systemic origin, relevant to my arguments, is in the crucial step of the system emerging from the structure. In other words, any structure remains static and meaningless; hence, useless for any "social purposes", until the identification of a purpose which activates it intervenes. For example, a human being understood asa structure, identified by his/her anatomical parts (components) and his/her physiological features (functions), becomes a system when he/she pursues an objective and attributes to himself/herself a role in this and in all the functional components. More specifically, the human body, latent as a structure in a dormant state, can become a system to feed itself (going to lunch), a system for keeping fit (doing gymnastics, or playing tennis) a system for learning (reading a book or watching a movie or attending a seminar), and so on. It is interesting to observe that the same structural component, for example a hand, plays different roles in the different systems: it is used to bring food to the mouth in the first case, to grab a dumbbell or a racket in the second one, to write, using a pen or a 19

The effectiveness and the efficiency will concern the processes and the activities related to those that, according to the postulate of the isotropy , are defined the area of deciding and the area of acting:for businesses, the processes of government,and those to be put in the operating structure . Cfr. Piciocchi P. (2003), business crisis and e monitoring of vitality, Giappichelli, Turin, pagg. 134-135. The importance we mean the” capacity of the external system has to influence the perspectives of survival of the vital system”. Cfr. Golinelli G.M. (2000), L’approccio sistemico al governo dell’impresa, Vol. I, op.cit. 20 Andreas S. (2008), La costruzione del significato, Casa Editrice Astrolabio, pag.234 e ss.


keyboard, or to stand problematically the chin in the third. What is interesting is that in each system the hand retains its functionality (prehensile ability, directional articulation, gradient of applied force, etc.). It is normal to think that the previous exemplifications, that explain well make the viable system of the "individual", are difficult to relate to the vital system "business organization" since the latter would involve a close coherence between structure and possible systemic purpose. In substance, contrary to the wide variety that can emerge from the structure of an "individual" it would seem reasonable that the structure of a business could not but generate only a business system, eliminating the need of understanding the interpretation often used in this process21. This is not the case. While respecting the specific functionality congenial to its philosophy, a company can actually finalize the process of transformation of its resources because of different objectives (Fig 4.3). 9 9 9 9 9

Company growth; Increase of services; Patrimonial boost; Increase of value for shareholders; And the like.

It is evident that the interlocution with a given business characterized by a particular "culture", a specific "reputation", and particular human resources "skills and competences", will significantly be different if, for example this business pursues objectives of dimensional growth, rather than objectives of value increase for shareholders, or expansion of markets. Moreover, in view of the systemic perspective, it is difficult to imagine that different communicators, though part of the same business organization, can implement a coherent and cohesive architecture. 21

An interestingdepth-analysisof the concept of business dynamicslinked to the flow input-transformation-output iscontained in Serpelloni G., SimeoniE., Principi sull’organizzazione dell’azienda socio-sanitaria pubblica, Dipartimentodelle Dipendenze Azienda ULSS 20 Verona, paper on line.

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Fig. 4.3 In many studies and researches on business organizations, the attention, because of subjective government guidelines, is focused on the structure, hence, on the components and on related features. In this approach, even though more general characteristics of the institution are observed, many peculiar aspects emerging from the vital system, engaged in the exercise (finalized) of the functions from which the structure is provided are eventually neglected. In the specific case the prodomes of a necessary systemic representation other than a structural representation have long been identified: "with the direct communication between boss and coworkers theopportunity toappreciate the worker as a person, pay attention to his/her emotional, psychological, and social needs grows22. Nevertheless, in the qualification of an appropriate path to reach effectively various "audiences" the paradigm of the established reference of the business communication generally focuses its attention on the structural resources of the business organization: 22

Invernizzi E. (2000), La comunicazione organizzativa: teorie, modelli e metodi, Giuffrè, Milan, pag. 87. It is important to specify that in a more extended canal of the organizational studies the attention to the dimension of the individual grounds its roots in the fifties of the twentieth century, from the reflections of Elton Mayo and others.


nature, size, type, and techniques of interlocution. Hence, it does not emphasize those aspects emerging from its system. In short, the emergence of this structure is expressed fundamentally in the following way23: 1. Identifying the decision maker and, from the point of view of the decision maker, through the implementation of a set of objectives, and then in the activation of an appropriate structure to pursue them24. 2. Attributing different structural components of a role so that itis coherent with the achievement of the objective. 3. Creating interactionsamong the structural components and between the structure, seen in its unity, and the structure of the other system with which the focused system interacts. The structural components used are identified and extracted from the configured context to be recovered in a configured context by a decision-maker. From the context so defined, the governing body also identifies the role to assign to the components. It is important to highlightthe fact that the evolutionary dynamics of the vital system is accompanied by a continuous activity of reframing, aimed at ensuring the business a durable competitive advantage for years to come25. Since a rational process of structural definition/redefinition also depends upon the proper use of informative flows (communication) by

23

L’ASV identifies in the determined action del “decision-maker” the prioritary force di address in the achievement of determined goals disposing of specific resources. In substance , respect to an established area of concern, on the basis of an objective endowment of resources, the resolutive answer is necessarily affected by the subjective perspective that the decision-maker privileges. 24 The pursuit of the goal is conditioned by the effectiveness and the efficiency of the interactions among the components, in a succession of relations and in the respect of bonds, rules dictated by the laws of functionality of the system. 25 The decision-maker, or Governing Body, of the vital system interprets and embodies the decision-making capacityof the system in the whole.

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the process of contextualization, then the absorptive capacity of the informative flows from the business becomes essential26. In order to measure the subjective capacity of absorption of the informative flows of a viable system, the VSA has introduced the concept of "consonance" seen as capacity to measure the variation of the informative variety in consequence of communicative interaction among viable systems27. Since informative variety means knowledge possessed by a viable system at a given time, a viable system is identifiable as an entity with its own capacity of understanding and a specific number of informative resources (dynamically varying) and able to interact with other viable systems when it has to find solutions to difficult situations. It is a definitionthat highlights the stringent existing isomorphism between the behavioral dynamic inherent in every individual and that can be attributable to a viable system. In other words, the approach embodies conditions in which the communicative interaction among viable systems must provide mutual contextualized interpretation of the function performed by the interlocutor. Hence, it is not enoughto know that a certain business has productive capacities, specific technical competences, and a defined and shared reputation, to be able to imagine that it can communicate in a complete satisfying way its own needs to a general supply market. 26

It is important to highlight that, oppositely to the hypothesis of NiklasLuhmann according to him, moving from the premise that the primary and unique elements of any social system are the effects of the communication, that is to say communication that produce other communication, it is thought that the human being is to be considered apathetic to the purposes of the evolutional system, in the ASV the individual assume full centrality in the subjective determination of the processes activated. 27 The consonance is a logic category that, together with the resonance, finds qualification in the dicotomy structure-system. The concept of consonance is above all structural, as well as linked to the linked to the capacity of connection among internal components and among internal and external components; subsequently, in becoming systemic, qualifiesthe character of the relations over the time. The notion of resonance is instead exclusivelysystemic and concerns the possible development of the consonance: frequency of activation and quality of the relations indicate the strain towards the resonance. The clarification on consonance and resonance provided is coherent with the preparation that is found in Barile S. (2005), “Introduction to the variety of a vital system”, in Synergies. Relations of research, n. 21, pagg. 18-21, where the consonance is understood as closeness and / or similarity of the endowment of cognitive variety just of two or more vital systems and his increase due from the contraction of the distance and / or of the distance e/o difference di such endowments. The resonance, instead, expresses the speed of the increase of consonance, that is to say the rapidityof the process of approach of the endowment of the variety.


To be effective "communication" must per force be calibrated to the levels of "consonance"; hence the convergence over time within the objectives pursued among the business and eventual suppliers respectively. "Convergence" of objectives must not be understood as synonym of "coincidence". Convergence must be interpreted keeping in mind the abovementioned concept of consonance. There is convergence when the objectives of each of all allow the support of the individual "system of beliefs". In such conditions consonance is strengthened and conditions for an effective interaction emerge. In this context, they have meaning, if not different, certainly larger; though originally borrowed by references strictly structural references some concepts ended up losing the semantic charge of some significant aspects. Among the latter there is the concept of elasticity, initially intended as isomorphic with the elasticity of the materials; hence, it is structural and focused on the physical limit (characterial for the individuals) of performance capability, completely extraneous to a motivational potential linked to emotional factors. It is a concept that is in consonance expands itself and becomes best identifiable with the meaning of "resilience"28. Elasticity understood as resilience highlights the aspect of volition, therefore subjective, of the reaction 28 Resilience [dal lat. resiliens, “jump back, bounce”] is a term, which can have different meanings according to the context: - in engineering, the resilience is the capacity of a material to resist to impulsive forces (or, the capacity to withstand to sudden shocks without breaking);- in informatics, the resilience is the capacity of a system to adapt itself to the conditions of use and to resist to the wearing in order toensure the availability of the services provided. The contexts of reference are those related to the business continuity and to disaster recovery. Synonyms of resilience are: elasticity, mobility. It is definable also as a sum of abilities, capacity of active adaptation and necessary flexibility to adopt new behaviours once that is verified that the formers do not work; - in ecology and biology the resilience is the capacity of an eco-system, included those humans as cities, or of a body of repairing after a damage;- in psychology, the resilienceis seen as the capacity of the man to face and overcome the adversities of life, to overcome and to get out of reinforced e even transformed positively; - inprostetic dentistry, the phenomenon of resilience is so explained: the soft tissues can’t be compressed in a uniform manner. If on a point of the mobile prothesis is exercised a force that distributes itself on the underlying tissues, circulating moods –blood and lymph –move towards the adjacent areas. If this situation is not redressed on the forces (teeth) which exercise such pressure, the mobile prothesisloses its grip since the mucosal tissues are modified creating significant stability problems with pain.Source: http://it.wikipedia.org/wiki/Resilience.

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towards the difficulty and desire to overcome it. Assuming the need of an extraordinary production and having to resort to productive elasticity, of a specific subsystem (obviously made of machines and human resources), it is clear that the required performance is derived not only by the completeness of the calculation of possible performance under stress by the single inanimate components, but mainly by the desire of individuals in succeeding, hence,resisting to tiredness to the limit. Although in daily business life it is a known and accepted fact that an outstanding performance is tied to the desire of succeeding (resilience), usually in business economics courses the concept of mechanic elasticity, merely quantitative, prevails. The simple change in the abovementioned perspective which, at a glance might look like a very significant terminological question, has a conceptual charge rich of consequences. The abandonment of the objective perspective tied to a predefined and incontrovertible calculation, allows the individuals involved in organizations to regain the sense of involvement in the action, and it gives them the certainty of being able to make adifference, through their behavior, in the dynamics of the processes. Moreover, it produces a considerable recovery of the sense of protagonistic belonging, hence, of the conditions of active participation in the changing process. Even the concept of "flexibility" in a vital systemic key assumes different shades nearing the different meanings of psychological theory. Flexibility sometimes regarded as a synonym of elasticity, actually relates to the capacity of a vital system to change its own strategy, redefining, as said earlier, the processes of activation of a selected structure in the context of reference. It is not a coincide, then, that whenever human resources are asked to imagine a career path characterized by occupations also different over time requiring, in a sense, that the individual decline his/her skills in competences pro temporeutility useful the term "labor flexibility" is used. To fully understand the viable system meaning of the concepts of elasticity and flexibility it is necessary to briefly recall the meaning of environment and context. Context, as stated above, qualifies as the extraction from the environment of an interrelated subset of components that the decision-maker identifies as useful for the


achievement of specific goals (Fig. 4.4). Therefore, structure emerges from the context and not that the environment. It becomes clear then that the concept of elasticity refers to the possibility of change with which the components included in the context manifest their resilience when it comes to express the desire to reach their goals; where as flexibility is brought to a higher level, thus meaningthat the possibility of change consistent in varying the context is extracted from the environment29.

Fig. 4.4 What is relevant is that the concept of flexibility qualifies itself as the capacity to allow the overcoming of those boundaries of invariance contained in the concept of elasticity, through the recourse to the generation (yet, within) of conditions for a meta change. In more general terms, it is possible to interpret flexibility as an 29 To the psychological scientists appears immediately evident the conceptual analogy with the theory of change , and with the qualification of changes of type 1 and changes of type 2 illustrated by Watzlawick. Cfr. Watzlawick P., Weakland J., Fisch R. (1974), Change: la formazione e la soluzione dei problemi (Psiche e coscienza), Casa Editrice Astrolabio, pagg. 19-28. About the capacity of a decision-maker to privilege some and only some of the components of an environment compared to his purposes, and then to the extraction of a context ,we sent back to an enlightening experiment reported in Andreas S. (2008), La costruzione del significato, Casa EditriceAstrolabio, pag. 15.

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opportunity to transcend the context of recovering the solution to a problem by overcoming the "here" and "now". It is clear that compared to the concreteness of elasticity, flexibility as such invades the uncertain context of the supposition. This means that while flexibility involves a risk compared to the extra-performance related to established and known activities, flexibility is connatural with therisk of the possibility; hence, it is perhaps less concrete, but much more engaging because it is linked to an emotional motion of desire and "hope". A communication that can facilitate the recovery of consonance through solicitation and the activation of potentials of flexibility found in the interlocutor, is far more effective of a communication focused on hypotheses of standard dialog which are qualified a priori as "good" and "appropriate" at all times and everywhere. 4.3 The Possible Contribution of Ericksonian Therapeutic Strategies The idea of being able to derive from the studies and from the materials produced by Milton Erickson and his successors considerations useful to the disciplinary debate concerning the government and management of the communication business, does not appear insignificant, and it is not certainly easy to undertake. Nevertheless, on the basis of the arguments outlined so far, not a few possible connections emerge. A first reference derives from the modality of understanding operated by the therapist to achieve a better understanding of the interlocutor. Achieving an optimal level of consonance, as mentioned earlier, an element of fundamental importance aimed at obtaining an effective communication for force needs a specific desire to recover the systemic charge of the interaction, as well appropriate techniques to achieve the objective.The affirmation of the Ericksonian principle inverts the protagonistic priority in the dialog, maintaining that in the evaluation of the effectiveness of the process of interaction, the important subject is not the sender but the receiver; who is in line with the vital systemic suppositions, and who is coherent with the


necessary requirements needed to reach the conditions of consonance30. Indeed, to this regard, the "tracing" technique which, as it is commonly known, does not link the "rapport" to the content (cause) of the state expressed by the interlocutor, but rather, it ties it to the explicit manifestation of this state. In other words, it is linked to the effects of the systemic action, thus reporting it in a clear and direct manner to such conditions. Not surprisingly then, as expressly acknowledged by many business consultants, but also as it results from the specifics of the "manuals of quality certification" within the context of organizations, the empathic sharing of emotional states is recognized as being a specific element capable of facilitating professional performance. The introduction of elements related to the theory of "tracing" in the field of communicative techniques is achieved through an expansion of the methodology of informative recognition usually employed. Expanding the analysis of the "facts" to the analysis of "why such facts behave this way" allows the interlocutor to "become" part of the experience of the other, thus being able to perceive the emotional charge involved. A further aspect, perhaps conceptually even more important, is linked to the semantic distinction between the terms "reduction" and "fragmentation". The reductionist approach, prevailing in the managerial economic disciplines, involves, as established method of knowledge, the decomposition of a body (structure) into its parts. The resulting "pieces" are normally recognizable, in their turn provided with structure, and having their own functionality. Therefore, the decomposition of a data processing system normally generates a printer, a video, a rack enclose with mass memory, a cpu, etc. Again, by disassembling a video electronic boards, cables, screws, and so on are obtained. Taking into account that a single "piece", for example a bolt with its nut, this appears having a specific function, and it is very unlikely that it can be labeled as a bolt that had belonged to a given 30 It is therefore to be exasperated and overcome also the concept of co-action between sender and receiver. The primary role goes to the receiver. Cfr. Erickson M.H. (1982-1984), "L’uso dei sintomi come parte integrante dell’ipnoterapia", in Opere, vol. IV, p.251.

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computer. In other words, each same size bolt can function in that same capacity as requested by the assemblage of the computer. Giving different values to a bolt would thus compromise any reference to the computer. A different thing is the concept of fragmentation. The fragments refer to a systemic result. For example, there are fragments of a pot and a book; but there also fragments of a speech, and so on. The fragment is not equipped withits own significant structure, and almost always it does not have its own specific functionality.The fragment belongs always to the body and to the process which generated it, and contains in itself the history of the systemic genesis which determined it. The "strategy of Ericksonian fragmentation" introduces new elements of innovation and opportunities in the debate inherent to business communication. Once again, attention shifts away "from what one uses" in his/her processes to the "why one uses it", and, more especially "how one uses it". When one talks about business, the importance assigned to data (objective) deducible from the financial prospect must give priority to the subjective reasons of the choices that have generated the data itself. Once these have been understood, they have to know how to set up the communication in "consonance" with these reasons. The identity of a business, therefore, cannot be summarized in the explicit data, and explained in the statements of mission and vision. On the other hand, it derives and must be recovered in the personalityof the actors and in the single and collective throbs which inspired the action31. As for the fragmentation process, it is necessary to stress a focal point of Ericksonian reflection: the concept of scheme32. 31

Cfr. Maslow A.H. (1973), Motivazione e personalità, Armando Editore, Rom. The hypothesis to realize the transformation of data into information and make it through the application of a conceptual filter definable“scheme”, may be carried back in time: «if we go to the field of the processes of recall of the stored information, researches such as those out in the thirties by Bartlett have highlighted the need of describing them through the concept of “scheme”, understood as the organizing structure of present and past experience». Pessa E., Penna M.P. (1994), La rappresentazione della conoscenza, Armando Editore, pag. 14, with reference to Bartlett F.C. (1932), Remembering, Cambridge U.K., Cambridge University Press. 32


Schemes determine the transformation of non specific data in information related to a determined context. «In the presence of new information sent from the environment, schemes unfold in order to provide a prediction or an indication of behavior or both of them»33. The erroneous can help generate pathological conditions, and the adoption of a new scheme can determine the identification of a solution to the problem. Reflections on the opportune taxonomy for dealing with "schemes" has involved scientists from different disciplines and with different objectives.34 However, a shared characteristic in the meaning of scheme is that it can be compared to eyeglasses with which different subjects can observe reality. Each viable system evolved disposes of a consistent variety of "eyeglasses" and wears them, at its own discretion, to decode its perceptions. It should be noted that the inadequacy of a scheme in not necessarily linked to insufficiency of the same performance, but it can also result from an excess of capacity. This means that if one has good eyesight, he/she does not see well whether he/she is wearing eyeglasses for near sighted or for farsighted. The removal and replacement of an inadequate scheme, therefore the adoption of a change of perceptive perspective, often required in business communication plans, cannot result from the suppression of a progressive replacement of the effects (symptoms). On the other hand, and in order to be effective and everlasting, they must result 33 Gell-Mann M. (1992), Complexity and Complex Adaptive system, J.A. Hawkinsand M. Gell-Mann, The Evolution of Human Languages. SFI Studies in the Sciences ofComplexity. Proceedings, Vol. XI, (Reading, MA: Addison-Wesley) pagg. 3-18. Our translation pag. 10. 34 There are several attemptsof definition, proposed by scientists of different disciplines, designed to represent the equivalent of how it can be represented a symbolic structure at the interior of the mind: -the SCHEMATA: memorization of a past situation to whichbring back new situations; - le RULES OF PRODUCTION: provide: of “Facts” and of “Rules” separated from each context, carrying on contextualizing according to a specific problem; - the SEMANTIC NETWORK: every node of a semantic network represents a “part” of the information that owns about a certain concept. Recover a “version” of the analyzed concept depends on how we proceed to “surf” the web; - the FRAME: it describes the prototype of a class of objects, which from time to time, according to the context, it willbe specifiedin a particular object; - the SCRIPT: it involves a memory structure that represents stereotyped knowledge related to a sequences of actions.

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from the progressive substitution of the scheme through a change of the perspective of observation of the facts. In this view, it makes little sense to say, for example, that a business which has used child labor has stopped doing it and that now it is involved in humanitarian efforts. What is relevant, as for the effectiveness of the communication, is to highlight why the company has considered appropriate doing it. In other words, one has to explain not the effect but the changed scheme (if it really exists!) that has brought the business to have a different perspective of the action. The reorientation of the scheme based on many variants of the Ericksonian therapeutic approach, represents one of the principal components of the informative variety, in a vital systemic view, and it is of fundamental importance in the process of amplification of the consonance among interlocutors. As for communication problems it must be considered that most of the shared heritage of the schemes owned by a community is contained in the lexicon, in the syntax, and in the semantics of its own language35. History of mankind teaches that peoples of many different ethnic groups have progressively codified in their language customs and knowledge (schemes). A significant answer to what has hitherto been maintained, derives from the words of the historian A. Bailly, who in his biography of Julius Caesar claims: «Caesar[…]mainlystroveto replaceLatinwithCeltic as the official language; and this perhaps was, among his decisions, one of the richest consequences: with the language the Roman mentality gradually imposed itself to the Gallic intelligence»36. The intuition of Julius Caesarhas had recent confirmations by a group of biologists at the University of Reading, according to what maintains one of its researchers: «the language not only is a means of

35

For language has to be intended not only the ensemble ofphonemes, the lexicon, the syntax and the semantics, but also a especially the capacity of represent concepts, also complex, in synthetic way. 36 Bailly A. (1933), Giulio Cesare, Bemporad& F., Florence, pag. IX.


communication, but it is also an instrument to promote cohesion amongsocial groups»37. Moreover, schemes qualify the system of values of reference owned by a viable system; in fact, they structure the action of the "strong beliefs" that a vital system owns; therefore, they are responsible for the rejection or the acceptance of elaborations reasonably justifiable. They are strictly linked to the emotional level of the decision-maker; they represent the subjective "filter" that individualizes the criteria of the use of knowledge; they qualify states of unconsciousness focused on how much of "good" and how much of "bad" is perceived in the analyzed facts; they characterize the ethics of context as compared to generic morals38; they inspire and allow to activate criteria through which it is possible to express an opinion on events and facts. As for the need of researching the consonance, hence, compared to the hypothesis that each viable system in fact does not communicate, but rather, it essentially participates to the communication39, it must be said that another element conceptually significant, and attributable to the schemes, derives from the capacity to be normally shared by individuals who belong to a particular social group. «The social network produces then a body of shared knowledge - which includes information, ideas, and technical abilities - that together with values and beliefs help to shape the way of life specific to that culture. Furthermore, values and beliefs of their own culture exercise an influence on the body of knowledge produced by it; they thus belong to those lenses through which we see the world, and help us interpret our experiences and decide what kind of knowledge is relevant and significant. This significant knowledge, continuously modified by the communication network, is then passed down from generation to generation along with values, the beliefs, and the rules of conduct that 37 Le Scienze, march 2008, pag. 38. Among them who support the hypothesis that the brain realizes some “mental models” with which summarize the informative entropy see Johnson-Laird P.N. (1994), Deduzione, induzione, creatività, Il Mulino. 38 Barile S. (2006), "Etica dell’impresa ed etica dell’impresa", in Barile S., L’impresacome sistema. Contributi sull’Approccio Sistemico Vitale, Giappichelli, 1a Edizione,Turin, pag. 196. 39 Cfr. Watzlawick P., Beavin J. H., Jackson D. D. (1997), Pragmatica dellacomunicazione umana, Astrolabio Editore, Rome, pag. 27.

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characterize that specific culture. Systems of shared values and beliefs create an identity among the members of the social network, an identity that is based on a sense of belonging. People who belong to different cultures have different identities because they share differentsets of values and beliefs»40. Finally an important confirmation of the fact that mental schemes are to be considered determinant in the choices related to problems concerning the area of decision and communication, derives from the findings of a research made by Bertram Gawronskyat the University of Western Ontario and by Silvia Galdi and Luciano Arcuriat the University of Padova published on "Science".The results obtained, show that «sometimes people have already decided, even if they do not know it yet, because they already have values andprejudices (schemes) which guide theirbehavior»41. 4.4 Conclusions The possibility of transferring the strategic therapeutic approach to interpersonal, broader contexts when compared to normal operating areas of the individual, couple, and family opens up opportunities of analyses which involve the social organizations as a whole.The underlying condition for the abstraction to beshared by everyonederives from the possibility of understanding each organization, including the individual, as a viable system. Based on these premises possible lines of approach to the dynamics of communication can thus be expanded. In addition to the established generalized techniques of problematic identification and of communicative praxis, modalities apt to recover the focus on orientations and purposes intervene. The innovation is not to report the success of communication to shared values and beliefs (schemes), as mentioned in the context of the organizational culture and of communication, but in the contextualized use (here and now) of the actors involved in the 40

Capra F. (2002), La scienza della vita, Rizzoli, pag. 139. Cfr. Le Scienze, october 2008, pag. 44.

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process of communication. The idea that organizations, as individuals, can base their choices, therefore their interpretation of reality, not on absolute objectives, but on perceptive transformations, and on the consequent cognitive activities which determine from time to time their experiences, implies that the chosen modality of interaction is not the best one, but rather, it is the most appropriate at the right moment. Thus, categories, schemes, information and, therefore, languages constitute fundamental elements to achieve effective results. References Andreas S. (2008), La costruzione del significato, Casa Editrice Astrolabio. Atlan H. (1989), A torto e a ragione, Intercritica tra scienza e mito, Hopeful Monster, Firenze. Bailly A. (1933), Giulio Cesare, Bemporad& F., Firenze. Barile S. (2000), Contributi sul pensiero sistemico in economia d’impresa, Arnia. Barile S. (2005), "Introduzione alla varietà di un sistema vitale", in Sinergie. Rapporti di ricerca, n. 21 Barile S. (2006), "Etica dell’impresa ed etica dell’impresa", in Barile S., L’impresa come sistema. Contributi sull’Approccio Sistemico Vitale, I Ed., Giappichelli, Torino. Barile S. (2008), L’impresa come sistema. Contributi sull’Approccio sistemico Vitale (ASV), II Ed., Giappichelli, Torino. Barile S. (2009), Management sistemico vitale, Decidere in contesti complessi, Giappichelli, Torino. Barile S., Saviano M. (2008), "Le basi del pensiero sistemico: la dicotomia strutturasistema", in Barile S. (a cura di), L’impresa come sistema, Contributi sull’Approccio Sistemico Vitale (ASV), Giappichelli, Torino. Barile S., Saviano M. (2011), "Foundations of systems thinking: the structure-system paradigm", in VV.AA., Contributions to theoretical and practical advances in management. A Viable

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Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, International Printing, Avellino. Bartlett F.C. (1932), Remembering, Cambridge U.K.,Cambridge University Press. Beer S. (1991), Diagnosi e progettazione organizzativa. Principicibernetici, Isedi, Milano, (Titolooriginale: Diagnosing the system for organization, John Wiley, Chichester,1985). Capra F. (2002), La scienza della vita, Rizzoli. Casula C. (2011), La forza della vulnerabilità. Utilizzare la resilienza per superare le avversità, Franco Angeli, Milano. Crozier M., Friedberg E. (1978), Attore sociale e sistema, Milano, Etas Libri. Eco U. (1979), Lector in fabula, Bompiani, Milano. Erickson M.H. (1982-1984), "L’uso dei sintomi come parte integrante dell’ipnoterapia", in Opere vol. IV. Gardner H. (2006), Cinque chiavi per ilfuturo, Feltrinelli. Gell- Mann M. (1992), Complexity and Complex Adaptive system, J.A. Hawkins and M. Gell-Mann, The Evolution of Human Languages. SFI Studies in the Sciences of Complexity. Proceedings, Vol. XI, (Reading, MA: Addison-Wesley). Goffmann E. (1969), La vita quotidiana come rappresentazione, Bologna, Il Mulino. Goffmann. Cfr. Goffmann E. (1972), Asylums. Le istituzioni totali, Torino, Einaudi. Golinelli G.M. (2000), L’approccio sistemico al governo dell’impresa, Vol. I, Cedam, Padova. Golinelli G.M. (2002), L’approccio sistemico al governo dell’impresa. La dinamica evolutiva del sistema impresa tra economia e finanza, Vol. II, Cedam, Padova. Golinelli G.M. (2005, 20001), L’approccio sistemico al governo dell’impresa. L’impresa sistema vitale, Vol. I, Cedam, Padova. Golinelli G.M. (2010), Viable Systems Approach. Governing Business dynamics, Cedam, Kluwer. Golinelli G.M. (2011), L’Approccio Sistemico Vitale (ASV) al governo dell’impresa. Verso la scientificazione dell’azione di governo, Cedam, Padova.


http://it.wikipedia.org/wiki/Resilienza. Il Devoto, Oli, Vocabolario della lingua italiana, Le Monnier. Invernizzi E. (2000), La comunicazione organizzativa: teorie, modelli e metodi, Giuffrè, Milano. Johnson-Laird P.N. (1994), Deduzione, induzione, creatività, Il Mulino, Bologna. Le Scienze, marzo 2008, Le Scienze, ottobre 2008. Maggioni V. (2000), "Apprendere dalle strategie relazionali delle imprese: modelli ed esperienze per le meta-organizzazioni", Sinergie, n. 52. Maslow A.H. (1973), Motivazione e personalità, Armando Editore – Roma. Maturana H., Varela F. (1985), Autopoiesi e cognizione. La realizzazione del vivente, Venezia, Marsilio. Mill J.S. (1988), "Prove in favore della legge di causazione universale", in Sistema di Logica Deduttiva e Induttiva, Cap. XXI, Utet, Torino. Newcomb T.M. (1953), "An approach to the study of communication acts", in Psychological Review, LX. Oxford English Dictionary, Oxford University Press. Pessa E., Penna M.P. (1994), La rappresentazione della conoscenza, Armando Editore. Piciocchi P. (2003), Crisi d’impresa e monitoraggio di vitalità, Giappichelli, Torino Polany M. (1990), La conoscenza personale. Verso una filosofia postcritica, Rusconi, Milano. Riverso E., in Premessa al volume di Polany M. (1990), La conoscenza personale. Verso una filosofia post-critica, Rusconi, Milano. Serpelloni G., Simeoni E., Principi sull’organizzazione dell’azienda socio-sanitaria pubblica, Dipartimento delle Dipendenze - Azienda ULSS 20 Verona, paper on line. Shannon C. E., Weaver W. (1971), La teoria matematica delle comunicazioni, EtasKompass, Milano. Short D., Casula C. (2010), Speranza e resilienza, Cinque strategie psicoterapeutiche di Milton H. Erickson, Franco Angeli.

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Siano A., Confetto M.G., Vollero A. (2008), "Governance-StrutturaSistema: Un Modello di Management della Comunicazione per il Marketing territoriale", VII International Congress"Marketing Trends, Università "Ca’ Foscari", Venezia, 17-19 gennaio 2008. VV. AA. (2011), Contributions to theoretical and practical advances in management. A Viable Systems Approach (VSA), ASVSA, Associazione per la ricerca sui Sistemi Vitali, International Printing, Avellino. Watzlawick P., Weakland J., Fisch R. (1974), Change: la formazione e la soluzione dei problemi (Psiche e coscienza), Casa Editrice Astrolabio. Watzlawick P., Beavin J. H., Jackson D. D. (1997), Pragmatica della comunicazione umana, Astrolabio Editore, Roma.

Chapter V

Time factor in managerial decisions*

5.1 Introduction Organizations aim to survive in the context they live in. This aim can be probably described as the fundamental impulse that all the viable systems42 have in common; it represents the initial thrust that is constantly present and from which, according to the type of context and to the understanding of those who are appointed to decide, the strategic choices derive and, consequently, also the long and short terms goals. It is evident, therefore, that there is a close relationship among the will to survive, the ability to dynamically understand the context and the need to choose the appropriate strategy to be adopted. Management can be defined as the discipline that deals with this essential cycle. Government decisions43, understood as choices that *

By Vincenzo Maggioni, Sergio Barile, Mario Calabrese, Francesca Iandolo. For the definition of viable system as here meant, see: Golinelli G.M. (2005), L’approccio sistemico al governo dell’impresa, Cedam, Padova, Vol. I; Golinelli G. M., Vagnani G. (2002), “La Governance nell’impresa sistema vitale: tra rapporti intra ed inter sistemici”, Symphonya. Emerging Issues in Management, n. 2; Golinelli G. M., Gatti C. (2007), “Il pensiero di Roberto Fazzi e l’approccio sistemico al governo dell’impresa: spunti di riflessione tra debito culturale, avanzamento dottrinale e spirito del tempo”, Sinergie n. 72/07; Barile S. (2006), Management Sistemico Vitale, Giappichelli, Torino; Calabrese M., Iandolo F., Bilotta A. (2011), “From Requisite Variety to Informative Variety through the Information theory: the management of viable systems” in The 2011 Naples Forum on Service: Service Science, S-D Logic and network theory. Giannini, Napoli. 43 On the distinction between government and management decisions, see: Fazzi R. (1968), Formazione storica e prospettive degli studi sui comportamenti imprenditoriali, Bobadoma; Fazzi R. (1982), Il governo d’impresa, Giuffrè, Milano, pag. 93; G.M. Golinelli, L. Proietti, G. Vagnani (2011), in Golinelli, L’approccio sistemico al governo dell’impresa, Vol. II. CEDAM. 42

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normally require the organizations to adopt innovative procedures, or, at least, procedures not immediately attributable to problematic situations already resolved earlier, are the real frontier of management knowledge, especially with reference to those periods in history when socio-economic conditions are more complex. Uncertainty, combined with anxiety and lack of perspective (events normally, albeit implicitly, summarized in the abused concept of complexity44), established a system of distrust in the future, characterized by a continuous emergence of conditions in which tactical approaches prevail, addressed to the solution of the contingent, to the detriment of the adoption of a “long thinking”, capable of leading to new system configurations, able to make stable and functional what is now perceived as unstable and unusable. By taking into account these factors, the desire to combine the considerations and knowledge acquired from the managerial literature and from the studies on complexity, through the identification both of the variables involved and of the way they interact -in order to identify a possible representation of the decision-making dynamics under uncertainty- is the aim of this contribution. Reflections produced by scholars of physics, computer science and neurobiology, concerning the possibility that events “can be conditioned” through “conscious volitional acts” suggest closer examinations within management sciences. It would appear that some human beings, not only businessmen, but also inventors, scholars and artists, have the power to imagine (see?) future scenarios, from which they draw inspiration for their initiatives and also action strategies. In reconsidering the idea of a “supercausality” in a strictly managerial view, i.e. the capacity for leadership, involvement and power deriving from deep awareness and volition in pursuit of a purpose, the paper proposes a hypothesis where, among possible future alternatives, the ability to direct towards the desired one results from a particular “managerial quality”. So, beyond the hypothesis (which, however, still remains one of the possible) according to which 44

Barile S. (2009), “Verso la qualificazione del concetto di complessità sistemica”, Sinergie, n°79.

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every human being has abilities of precognition, the one of a reversecausality, together with a volitional process summarized -as shown in what follows- into an extended concept of enlightened management action (addressed to make real what is desire or even dream), that is able to stimulate the emergence of a sort of “collective consciousness”, can provide an acceptable interpretative basis to the phenomenology of decision described above, without fear of being considered science-fiction. 5.2 Managerial decisions under uncertainty For our purposes, as shown in the following section, the technical elements of the very interesting debate about whether and how the mind can affect the determination of the actual reality does not appear to be relevant. What matters, in a managerial perspective, is not that the future exists as pre-definable, but the fact that the decision maker involved in decision-making process, can, in conditions of high uncertainty, assume (dream) a future scenario and invest (want strongly) on its implementation, involving his leadership skills with the entire organizational structure. The supercausality, that is, as mentioned, the fact that an event can be influenced not only by the succession of events that preceded it but also by future events, encounters resistance by scholars of natural sciences, history, psychology etc, but also and especially by the common man. However, where such a procedure can be considered practical and acceptable, given that this modus operandi is generally practiced, we have to agree that this activity involves the assumption that any action subsequent to a future, strategically envisioned scenario, is found to be strongly influenced by the expected event. In this sense, the position of Gaetano M. Golinelli is completely sharable: “The government action wants to make possible, within a time frame, what is currently impossible or unrealized. It moves, therefore, between the practice of real and the research of the possible, the latter understood as the strain to “creating worlds”, to outline new perspectives and unusual conditions, in accordance with a

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delicate balance between common sense -aimed at capturing achievable results- and the aspiration to expand the horizon of the possible”45. And yet, with Claudio Baccarani: “the ability to dream, the ability to construct perspective representations even though very distant from the reality of a certain moment, is the main support to entrepreneurship”46. It becomes important to point out that, in order to identify the relevant factors in the decision-making processes, it is not of significant interest that the foreshadowing of a scenario will lead to its effective implementation. From a managerial perspective, on the contrary, choices whose consequences lead to the effective achievement of the goals assume very different value, rather than decisions that would result in an obvious failure of the imagined intentions. Not surprisingly, through the study of the relevant factors useful to provide elements that distinguish between positive and negative paths, managerial knowledge finds reason for being, reaffirming its central role in the framework of cognitive and decision-making activities that involve significant implications with respect to the success of a strategy. It is well known, and made even more evident in a vSa optic, that reading the relevant environmental factors, characterizing the operational structure, interacting with the stakeholders and searching for consonance in accordance with the expectations expressed by the different entities that populate the context, become fundamental activities for the formulation of the primary choice, that is the strategic one with its related aims. The managerial emphasis is not expressed in the implementation phase of the strategy, as argued in many manuals, but it is the culmination of the commitment in identifying its goals. It is, then, given confirmation to support that governing organizations should not be considered as an ‘applied science’, but as a practice with a strong “artistic” prerogative, that is an activity full of feelings and emotions, fundamentally unpredictable, not easily replicable or intelligible in its 45

Golinelli G.M. (2011), L’approccio sistemico al governo dell’impresa. Verso la scientificazione dell’azione di governo, II Edizione, Cedam, Padova, pp. XXXIV – 6 46 Baccarani C., Golinelli G.M. (2004), “Fermate il mondo…voglio scendere! Il vantaggio competitivo della riflessione”, in Sinergie, n. 63, pagg. 8-9.


outcomes and in its pace47. An activity in which the subjectivity of the decision-maker is central so that, in addition to the traditional set of rational elements, the allocation of values, the experiences, the established relationships and the emotional sensitivity that characterize him become fundamental. With that said, we affirm that managerial action has to be distinguished into two phases: a) an identification of the purpose (the dream) postponed into the future, according to which building a project focused on the recovery of consonance with those entities that will be engaged (decision making); b) the program effective implementation (problem solving). The literature about management science is rich especially in activities regarding b). It is, however, in the so-called strategic management that reflections addressed to understand the conditions for success (identified as “meta” compared to strategy itself) can be identified. Among the models that concern government, the viable systems approach clarifies that this activity is substantiated, fundamentally, in the adoption of decisions and actions that enable the system to achieve its purpose which is that of survival. The Viable Systems Approach (vSa) assumes that the governing activity is activated and guided by two fundamental drivers (in physics we could say forces), which are complementary to each other and co-essential: competitiveness and consonance. They have a different nature and can be referred to what above we defined classical causality and back-causality. The first one qualifies the effort of the enterprise to continuously improve its performance in the temporal and spatial context in which it develops its strategies; the second one emphasizes the aspiration for a harmonious relationship with sub and supra systems not attributable to the specific structure –which is constant pro-tempore-, but is

47 Maggioni V., Del Giudice M. (2006), “Relazioni sistemiche tra imprenditorialità interna e gemmazione d’impresa: una ricerca empirica sulla natura cognitiva delle nuove imprese” , Sinergie, n. 71.

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addressed to achieve a collective potential, an ideal belonging to the pursuit of the intended purpose. The view expressed in this paper, however, is inclined to believe that the fundamental element, able to magnify the governing action, is to be found in the possible synergistic action of the two categories of forces. Therefore, the essential ability of the governing body is to create the conditions for the two different types of forces can interact “virtuously” each other, thus developing the conditions that we call “resonance” and which are necessary and sufficient for fulfilling a purpose, that is to build a successful strategy. Well, the element that causes the difference is the “resonance”, not something physical, but certainly something “active” that can magnify the efforts of the individual and enhance synergistic effects. In human phenomena, the resonance unleashes a potential energy that involves the whole context in which the event develops; this potential, in a sort of “collective consciousness”, directs all participants towards one common goal. We could say, perhaps boldly, that it creates the conditions in order that the strategic plans may arise uniquely from the several potential possibilities coming from the future. Here then, in a managerial perspective, it is of particular importance the capacity of perception/reading of the ongoing and future trends and dynamics both regarding supra and sub-systems, but also the ability to assess their current and prospective consonance, which is considered a necessary condition for the emergence of resonant processes. Summarizing the above considerations, we can say that the essential condition for a scenario foreshadowed by a governing body - that has to act in a complex context- can then actually occur, is mainly linked to the emergence of resonance, and hence to those conditions of consonance achieved among the actors that participate to the becoming of a specific and shared hypothesis. 5.3 Conclusions Managerial disciplines feel the need for a different perspective that could explain the dynamics that found governing bodies’ decision-


making processes. Italian doctrine on business management has long been engaged in developing a paradigm that may include aspects which, although evident in the evidence coming from the reality, have often been neglected, perhaps because of the limitations of the assumptions of their theoretical approaches. The Viable Systems Approach (vSa), represents the ideal cultural frame work to enable the development of new conceptualizations that can incorporate the gradually emerging interdisciplinary solicitations, recovering the most significant assumptions of the previous settings, but expanding the horizons of reference. If this work exposes the “dream” of a new managerial approach able to take care of those neglected factors, we only need to find conditions of consonance in the context of the scholars and the future can come true. References Baccarani C., Golinelli G.M. (2004), “Fermate il mondo…voglio scendere! Il vantaggio competitivo della riflessione”, in Sinergie, n. 63. Barile S. (2008), L’impresa come Sistema. Contributi sull’Approccio Sistemico Vitale (aSv), seconda edizione, G. Giappichelli Editore – Torino. Barile S. (2009), Management Sistemico Vitale, Giappichelli, Torino. Barile S. (2009), “Verso la qualificazione del concetto di complessità sistemica”, Rivista Sinergie, n°79. Bohr N. (1934), Atomic theory and the description of nature, Cambridge University Press. Calabrese M., Iandolo F., Bilotta A. (2011), “From Requisite Variety to Informative Variety through the Information theory: the management of viable systems” in The 2011 Naples Forum on Service: Ser-vice Science, S-D Logic and network theory. Giannini, Napoli Di Corpo U., Vannini A. (2011), La legge della sintropia, e-book, Kindle. Fazzi R. (1968), Formazione storica e prospettive degli studi sui comportamenti imprenditoriali, Bobadoma.

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Fazzi R. (1982), Il governo d’impresa, Giuffrè, Milano. G.M. Golinelli, L. Proietti, G. Vagnani (2011), in Golinelli, L’approccio sistemico al governo dell’impresa, Vol. II. CEDAM. Gell-Mann M. (1998), Il Quark e il Giaguaro, Bollati Boringhieri. Golinelli G. M., Gatti C. (2007), “Il pensiero di Roberto Fazzi e l’approccio sistemico al governo dell’impresa: spunti di riflessione tra debito culturale, avanzamento dottrinale e spirito del tempo”, Sinergie n. 72. Golinelli G. M., Vagnani G. (2002), “La Governance nell’impresa sistema vitale: tra rapporti intra ed inter sistemici”, Symphonya. Emerging Issues in Management www.unimib.it/symphonya, n. 2. Golinelli G.M. (2010), A viable Systems Approach (VSA), Governing Business Dynamics, Kluwer, Cedam. Golinelli G.M. (2005), L’approccio sistemico al governo dell’impresa, Cedam, Padova, Vol. I. Golinelli G.M. (2011), L’approccio sistemico al governo dell’impresa. Verso la scientificazione dell’azione di governo, II Edizione, Cedam, Padova. Grant R. M. (2006), L’analisi strategica per le decisioni aziendali, terza edizione, il Mulino, Bologna. Simon H.A. (1984), La ragione nelle vicende umane, il Mulino, Bologna. Hameroff S., Penrose R. (2003) “Conscious events as orchestrated space-time selections”, NeuroQuantology, Vol. 1(1): 10-35. Hartmann N. (1971), Il problema dell’essere spirituale, La Nuova Italia, Firenze. Heisenberg W. (1958), “The representation of Nature in contemporary physics”, Deadalus, pp. 95-108. Kahneman D., Knetsch J.L., Thaler R. (1990), “Experimental tests of the endowment effect in the Coase theorem”, in Journal of Political Economy, n° 98. King C.C. (2003), “Chaos, Quantum-transactions and Consciousness”, NeuroQuantology, Vol. (1). Klein O., Gordon W., Zphys Lorenz K. (1984), Il declino dell’uomo, Arnoldo mondadori Editore, Milano, 1984


Maggioni V. (1983), Il sistema informativo aziendale, Cedam, Padova, . Maggioni V., Del Giudice M. (2006), “Relazioni sistemiche tra imprenditorialità interna e gemmazione d’impresa: una ricerca empirica sulla natura cognitiva delle nuove imprese”, Sinergie, n. 71. Massaroni E., Ricotta F. (2009), “Dal sistema impresa ai sistemi di imprese. Suggestioni e limiti delle reti d’impresa”, Sinergie, n. 80. Mender D. (2007), “Decentering the subject of physics”, NeuroQuantology, Vol. 5(1), 175-181. Penrose R. (2005), Il grande, il piccolo e la mente umana, Cortina Editore, Milano. Penrose R. (2005), La strada che porta alla realtà: le leggi fondamentali dell’universo, Rizzoli, Milano 2005 Penrose R. (1994), Ombre della mente, Rizzoli, Milano. Price H. (1996), Times arrow and Archimedes point, Oxford University Press. Scaruffi P., La Nuova Fisica: L’asimmetria Onnipresente (disponibile On Line) Schumpeter J. (1971), La teoria dello sviluppo economico, Sansoni, Milano. Vannini A., Di Corpo U. (2011), Entropy and Syntropy. Causality and retrocausality in physics and life sciences. The Vital Needs Model, Lambert, Germany. Weinberg S. (1993), Dreams of a final theory, Pantheon. Wigner E. (1967), Symmetries and Reflections, Indiana Univ. Press. Wheeler J. A. (1993), Gravità e spazio-tempo, Zanichelli.

Chapter VI

Governing business dynamics in complex contexts*

6.1 Introduction The business world is more and more interested in research evolution concerning complexity, as a result of the assumption that to deal with new situations, and to survive in today’s dynamic context, previous interpretation schemes, based on predefined and standardized solutions, are often inadequate. In fact, management, always focused on the adoption of models, techniques and tools, has finally considered between finding an optimal solution to a model and finding an optimal solution to a real problem. So, it has researched the development of technical tools found within interpretation schemes, used in different situations (Aguiari, 2002; Barile, 2009a). Management tends to adopt structured or semi-structured models to facilitate decision making, due to the growing dynamism within contexts, and the consequent continuous increase of variety. However, it has ended up dealing with situations of governance problemsolving, fundamental for the survival of a company, and actually related to the realm of decision making. In this direction, researchers observed this kind of evolution, recognizing the importance of broadening the horizon when approaching governance. In fact, if on the one hand, they identified a no longer stable and predictable environment, on the other hand, they witnessed a rush towards a rational decision making approach to business. In the business world, *

By Roberto Aguiari and Primiano Di Nauta.

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decision makers are often overly stressed with the responsibility to govern evolutionary dynamics of business systems, and the mission to define relevant choices to guarantee survival. In fact, the technical and evermore quantitative approach to problem solving is not suitable to catch the subtle qualitative aspects identified within a decision making context, where it is not essential to solve problems, but rather to make choices, often without any supporting information (Barile, 2009a). In such a scenario, phenomena are often generated proving incapability or embarassment when possible solutions are identified. As a consequence, such solutions are identified, as complex. However, is it correct to consider the phenomenon in itself as complex? And how can we explain the way that the same phenomenon can be perceived as complex by several subjects? What are the characteristics that allow one to apply the attribute “complex”? Such questions have led recent reflections of systemic thought applied to business and social economics that, starting from the assumptions on the interpretation of a business as a viable system, have proposed a systemic approach methodology, as a perspective from which to extract new interpretation schemes for governance in complex contexts, the Viable Systems Approach (vSa) (Golinelli, 2000, 2002, 2005, 2008, 2010, 2011; Barile, 2008, 2009a). Then, decision making assumes new challenges for governing bodies, businessmen or managers in conditions of increasing complexity (Simon, 1945, 1969, 1997; Saviano and Di Nauta, 2011; Saviano and Berardi, 2009). But when these assumptions occur, the capabilities of decision models (synthetic schemes) will be exclusively adequate to deal with complications, but not with complexity. Usually, the attribute ‘complex’ is related to an object, or to a well defined situation, while it should be identified as complex not the object or the situation in itself, but the context in which the object or the situation is perceived. So, the fact that the perceived complexity can be attributed to a material object, such as, for example, the Rubik’s cube, can be considered naive. The Rubik’s cube is never complex in itself, but complex can be the solving process. So, the cube is complicated, in the sense that it can be solved with engagement. Theoretically, there are several potential connections among the more prominent approaches to services research – Service Science

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(SSME), Many to Many and Systems theories. The present study analyses the approach to management of relations and decision making in the mentioned approaches, trying to synthetise and provide common methodological frameworks for the government of business dynamics. In particular, the intrinsically relational nature of both S-D logic (Lusch et al., 2007; Vergo and Lusch, 2008, Vargo et al., 2006) and SSME (Sphorer et al., 2007, 2008a, 2008b; Maglio et al., 2006, 2008a, 2008b, 2010; Katzan, 2008) provides common ground for such synthesis, and the vSa provides some very interesting (and potentially useful) insights into the management of relations. The paper proposes an interpretation of complexity from a viable systemic point of view, that underlines the relevant emerging aspects in light of the perspective change that occurs by adopting a systemic approach, and attempting to link it with the service paradigm and the many-to-many logic (Gummesson, 2004, 2006, 2008a, 2009). Therefore, the paper develops a conceptual analysis based on recent developments in the study of relations management, to propose a theoretical methodology where disciplines can converge. With this aim, the paper respectively covers some relevant aspects of emerging theories on service and systems, an explanation of the nature and basic principles of vSa focusing on government of relations and decision making, and a summary of the most important findings. 6.2 Government and management of relations in emerging Service theories S-D logic is a theoretical proposal. It was originally focused on marketing, then generalized to explain markets, general management, economics and society in general. It highlights the shift from a goodsdominant (G-D) logic to a service-dominant (S-D) logic. It is founded on the co-creation of value and service and resource integration based on interaction and networked relations (Vargo and Lusch, 2006; 2008). For marketing, Vargo and Lusch offer a new perspective by introducing the dominance of service over products and goods, thus adapting to today’s competitive context of a service economy (Levitt, 1981; Grönroos, 2000, 2008; Normann, 1997; Rust, 2004). S-D logic

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is based on ten foundational premises that explain that service should be understood as an application of skills through activities, processes and performances designed to produce benefits for suppliers and customers and for all third parties that are directly or indirectly involved in a network of relations (Vargo and Lusch, 2008). According to Vargo and Lusch goods are no longer the only transaction objects, but they appear as an appliance for service provision. Services are seen as the real protagonists of interactions and transactions. Further, service no longer represents a part of an asset or the intangible side of goods; it is the service to be really exchanged (Vargo and Lusch, 2006). SSME, an IBM initiative, today, involves researchers of several higher education institutions worldwide, in the attempt to promote service science as a new discipline, and to elevate the study of service systems, so as to become a research and education priority. It is a multidisciplinary study, an open source project, based on the pillars of computer science, industrial engineering, all management disciplines of business strategy, marketing, organization and so on, as well as social sciences and humanities, cognitive studies and legal sciences. SSME analyzes the existence of service systems, what they are, and how they evolve, the roles of people, knowledge, shared information and technology, and definitely, the role of customers on the demand side, and production processes on the supply side. In terms of management, it investigates the improvement of efficiency and its evaluation, relation sustainability, and systems relations. In terms of engineering, it develops new technologies and adequate approaches to improve information processing, measurement, and the diffusion of information. Service science is emerging as a unique field aiming at discovering the underlying logic of complex service systems (Sphorer et al., 2007, 2008a, 2008b; Ng et al., 2011, 2012). 6.3 Government and management of relations in emerging network and systems theories Literature offers a wide perspective of several disciplines dealing with network and systems thinking, and their application to interpret


both everyday life and business realities. This is true in social, natural, and computer sciences. In general, network and systems theory have, in their founding concepts, the knowledge of complexity, and they try to introduce adequate approaches to survive in such contexts. It is an umbrella methodology that can be applied on many levels of research (Polese and Di Nauta, 2012; Mele, Polese, Pels, 2010; Polese, Russo, Carrubbo, 2009). Networks and relations were emphasised in the 1970s, when studies of economy in general, business-to-business and marketing specifically recorded an increase of connections among firms as a result of information exchange, continuity in relations, and greater importance of commitment, trust, and collaboration (Richardson, 1972; Håkansson and Östberg, 1975; Williamson, 1996). Various terms have been used to describe these voluntary ties among firms and other economic actors, including “hierarchy” (Hedlund, 1986) and “polycentric structure” (Forsgren et al., 1991; Ostrom, 2009). The concept of network has, now, become generally accepted to describe and analyse the nature of emerging economic entities (Bartlett and Ghoshal, 1990). Studies of the genesis of networks have identified two basic mechanisms: (i) enterprises, involved in a common production process, decide to combine their competencies and other resources; (ii) a leader enterprise attracts other businesses to join its activities. On this point, several authors have taken a particular interest in the socalled “strategic network approach”, primarily in the creation and management of intentionally-formed network organizations featuring a specific set of actors (Normann and Ramirez, 1994). Several approaches have intensified the structure and function of networks. Some have analysed networks in terms of organisational forms, including nodes, connections, and aggregating forces and netbased organizational formats (Richardson, 1972; Hedlund, 1986; Bartlet and Goshal, 1990). Others have focused on the management of networks, closely analysing issues such as autonomous nodes, central control, dynamic equilibrium, and structural variability management (Burt, 1992). Still others have examined network strategies, such as resource sharing and common goal achievement (Jarrillo, 1988) in the

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attempt to evaluate networking and social relationships for competitiveness reinforcement (Polese, 2009). The past decades have proved that marketing relations, CRM and one-to-one marketing have often failed in practice. The major reason for failure is the narrow focus on the dyadic relation between a single supplier and a single customer (Gummesson, 2004). Many-to-many marketing means a transition from the two-party relation approach to a multi-party network approach. No one is isolated, whether an individual or a business (Håkansson and Snehota, 1995). We all live in an interconnected world, in which actors cannot elude network connections and strategies that capture the power and usefulness of these relations (Castells, 1996; Capra, 1997, 2002). The three key variables of marketing remain relations, networks and interaction (Gummesson, 2004). The many-to-many approach has extended the notion of value creation to include interactions between networks of providers and communities of customers (Gummesson, 2008a). Perhaps, the next, more radical step is to exchange the CEO with a NEO, network executive officer (Gummesson, 2004b). 6.4 Viable Systems Approach and its roots in systems thinking vSa is based on a general systems theory, more specifically, on social analysis which interprets business behaviour within a dense pattern of interactions. The firm is conceived as a viable system, a part of a context of other viable systems and single components (Polese and Di Nauta, 2012). As a systemic theory, vSa proposes a methodology for interpreting the contemporary business arena, also with regards markets and marketing, and the approach to government and management. Actually, vSa proposals for a new behavioural approach to business and relational interactions in complex contexts, show its usefulness in the everyday decision-making processes, both for organizations and individuals (Polese and Di Nauta, 2012). The concept of the firm as a system is not new to economics as a discipline. The most relevant literature is from 1950s, with the von Bertalanffy school, which rejected the idea that a certain phenomenon


could be understood exclusively through an analytical, reductionistic approach. vSa, more specifically, has considered a relational approach for corporate management (Golinelli, 2000, 2005, 2009; Barile, 2006, 2008a, 2009; Piciocchi and Bassano, 2009; Piciocchi et al., 2009), confirming the theories of von Bertalanffy (1956) about the enterprise as an open system. This means that the main subjects for the analysis are the relations among entities identifying the context, and the way they behave in the market. Other references on which vSa founds its theory are in Parsons (1951; 1965), Ashby (1971), Luhmann (1990) and Beer (1991). 6.5 (VSA) contribution to the government of business dynamics and to relational aspects of Many-to-Many, S-D logic and SSME One of the most interesting contributions vSa can give to the debate on relations/interactions dynamics concerns the attention decision makers should pay to marketing, identifying, interpreting and classifying actors in the contexts, especially those (individuals or organizations) that own important resources for the observer. This is an unavoidable process in a context for each actor, in order to rescue fundamental resources for survival or improvement. Then, each actor makes a decision focusing on the integration of resources identified in the context as belonging or owned by other actors. For example, a customer that identifies products belonging to some firms, which can be already suppliers or just potential suppliers for the customer. These intricate relations created by decision makers transcend the boundaries of the entity acting as a resource integrator (Di Nauta, 2010). In this direction vSa introduces the two concepts of consonance and resonance to describe the achievement of a harmonic and sustainable (viable) behavior in the context (Polese and Di Nauta, 2012): x Consonance is the compatibility among the actors of a system, and represents potential harmonic relations (static vision);

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x Resonance is the actual and executed harmonic interaction (dynamic vision). Interpreting the profound meaning of consonance and resonance, vSa infers interesting contributions to emerging service theories, by virtue of the structure/system dichotomy, in the attempt to be holistic and simultaneously reductionistic. Then, structure refers to the static, a reductionistic view of the observed reality of components and relations, and on how the observed phenomena are constituted. System refers to the dynamics of evolution, a holistic view of observed behaviour of the observed phenomena to enable interpretation of interactions (Polese and Di Nauta, 2012). Figure 6.1: System conceptual matrix according to vSa


Source: Barile, 2011; www.asvsa.org In relation to the business system, describing the path that from the business idea (B.I.) leads to the evolution of a Viable System (S.V.), it is useful to consider the following steps (Barile and Di Nauta, 2011): x the Business Idea (B.I.), definition of considerations on the basic guidelines that should characterize the future of a firm. This phase is the less formalized, but, at the same time, the most important for the emergence of a Viable System; x the General Organization Scheme (S.O.M.): understood as a project design, which identifies the components and the relations with the context; x the Logical Structure (S.L.): or a representation of axiomatic, algorithmic, grammar type can adequately represent the Business Idea; x the Physical Structure (S.F.): is the materialization of the logical structure through the identification of components able to effectively and efficiently carry out processes and business; x the Extended Structure (S.A.): the extended definition of the structure allows for the achievement of comprehension and knowledge, through unbiased and adequate information of the potential structural coupling with the components of external entities;

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x the Defined Organization Scheme (S.O.D.): represents a configuration of possible relations and interactions between the internal and external components; x the Specific Structure (S.S.): extracted from the extended scheme, can be defined as the location identified by the decision makers (ex. government body) in order to achieve the business system goals; x the Viable System (S.V.): the activation of a specific structure allows for the emergence of the business system considered as a viable cell of the whole economic system. Another interesting contribution to the government and management of relations in business according to vSa is connected to the system development scheme, as illustrated in Figure 6.2: Figure 6.2: The evolution of the system

Source: Barile, 2009b; www.asvsa.org The external context has been considered as an indistinct set of entities that, from government’s perspective, are systems that receive resources as input and generate goods and services as outputs. From a government perspective, the issue of analysing context is the identification of possibly relevant systems, that influence the evolutionary dynamics of the organization as a viable system. In this


sense, government has to use a fulfilment degree of systems in order to distinguish among the aspects that characterize the different entities (Golinelli, 2010). Viable systems outside the organization can consist in: embryonal systems, evolving systems and accomplished systems. Figure 2 essentially shows how an evolving system has various abilities and capacities, which are then gradually enhanced by participation in a higher-order system, or network. As they progress through this development process, systems are considered as accomplished – that is, demonstrating viable traits for sustained competitiveness – only when they have developed effective positive interactions (classifiable as ‘consonant’ and ‘resonant’ relations). From an embryonal system, at the lowest fulfilment degree, the entity can evolve to the evolving system, where viable systems are provided with a quite remarkable fulfilment degree (for example, system area, districts, industrial centres, enterprise networks, and so on), tin to an accomplished system, which possess all the vSa characteristics at his highest fulfilment degree, entirely respecting the vSa postulates (Golinelli, 2010). As an example we can consider a market (embryonal system) from which, through an evolutional process, an accomplished (viable) system (an entity with a governing body and all the other defined characteristics for the viability) can emerge. Applying such vSa insights to marketing and to management of relations in business, the primary player to consider is, of course, the customer (Normann and Ramirez, 1994; Ravald and Grönroos, 1996; Grönroos, 1997). However, although customers are the most important external entities in value creation, they are not the only ones. On this point, Gummesson (2008b) has introduced the concept of balanced centricity in an attempt to reduce what he perceived to be an over-emphasis on customer orientation. In order to ensure appropriate recognition of the role of other entities and interested parties in value creation, Gummesson (2008) also posited a many-to-many approach, which extends the notion of value creation to include interactions among networks of providers and communities of customers. According to this view, value is created by value propositions and value actualisation within: (i) business-to-business relations; (ii) customer-to-customer relations;

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and (iii) interactions between businesses and customers (Gummesson, 2008a; Gummesson and Polese, 2009; Gummeson, Mele, Polese, 2009). 6.6 The vSa theoretical contribution to the service paradigm The service paradigm debate finds useful reflection in vSa, as the vSa theoretical proposals are based on the governance and management of relations. Actually, the interesting contributions by vSa are connected to the ability of a system that fosters marketing and management of relations through enterprise dynamic satisfactory evolutions (Polese and Di Nauta, 2012). Clearly, in line with the concept of value co-creation introduced by S-D logic (Lusch et al., 2007; Vargo et. al., 2008b), it is a process in which all the actors need to be satisfied in a win-win interaction. However, value co-creation takes place within dynamic interactions among many actors, and represents a challenging status to be accomplished by decision makers in today business arena. Despite the acknowledged importance of relations, and their governance, neither S-D logic nor SSME examined closely how to manage these relations for every actors’ benefit and success (consonance), or how to dynamically carry out such studies considering the ever changing conditions of service exchange (Polese and Di Nauta, 2012; Golinelli et al., 2010). In this dynamic interaction, vSa provides a methodology to the design and management of positive interactions (dynamic relations) among entities. Each decision maker (business, individuals, governing bodies, and so on), driven by the will to be appreciated for the result of the decision made, needs to consider dynamic models. Such models are based on multi-criteria decision support systems that aim at reaching satisfactory conditions for the involved decision makers, in search of a continuous feedback from marketing to production processes, in order to align their traits to actors’ need (entities in the context). Isn’t this co-design, co-production, co-creation? This is what vSa suggests to introduce in business behaviour in search of consonant and resonant interactions among systemic actors (Polese and Di Nauta, 2012).


vSa proposes an approach for the governance and management of relations among actors, and can contribute to the service paradigm approach by introducing a methodology useful to select and hierarchically order all possible resource owners (for example, potential suppliers), actors of S-D logic value co-creation processes. In fact, according to vSa, organizations apply competences and integrate the applied competences with other resources determining benefits (value co-creation), thus highlighting the importance of these interactions for all involved entities. For this reason, it defines a conceptual scheme (Figure 3) focused on classifying the external supra-systems and establishing a qualitative method to measure the system capability for a satisfactory behaviour (Barile and Polese, 2009). In other words, the relation between service providers and service clients may be integrated by a methodology that aims at contributing to the qualification (identification) of these relations, both from a design point of view (designing service systems requires the preventive qualification of relations among public and private bodies, organizations, individuals) and from a government and management point of view (in order to reach a broad satisfactory behaviour, capable of promoting network value co-creation). As above mentioned, the enterprise, as a viable system, needs to identify and classify relevant entities within its context, in order to establish positive and harmonic interactions promoting sustainable behaviour. The identification and classification of such observed entities affects the viability of every system, since relevance constitutes the primary differentiating characteristic for the entities that are part of the viable system’s context. The relevance of external/other entities can be determined through two attributes: the influence exercised by the entity on the system, and the relation criticality. Thus, we have an initial distinction between “high relevance” systems and “low relevance” systems. The former, subsequently recognised as supra-systems, are influential and, at the same time, bearers of a crucial resource. The latter, though capable of stressing pressure on established relations, are not exclusive bearers of a crucial resource. Further specifications mark the entities as high relevance

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and low relevance, taking into consideration the constraints or the rules suitable to the systems over which they exert influence, and the type of relations and interactions that can occur among systems which come into contact (Golinelli, 2000, 2002, 2005, 2008, 2010, 2011). According to this approach, the viable system focuses on a fundamental distinguishing feature for the analysis of systems of the context: relevance can then be interpreted as the ability of an outside system to condition the survival prospects of a viable system. If relevance is understood as a distinguishing feature of the entities, it can refer to two separate attributes (Figure 6.3): x the relationship criticality: the nature of the resource constitutes a basic attribute to establish the degree of attention in government must pay to assess the importance of interactions and, therefore, to establish whether specific relations should be maintained or implemented, thus shifting from a state of consonance to a state of resonance; x the influence of the system on methods of use, acquisition and re-appropriation of resources, regardless of the relation criticality within, or conferred by, the system. Government is also responsible for assessing and measuring the degree of influence the system can exert in placing limits or indicating rules and regulations for marketing in the enterprise. Figure 6.3: A possible relevance analysis model Relevance

Relationship criticality

Criticity of the resource

Relational net benefits

Source: Golinelli, 2010

Influence

Constraints and rules level

Capacity of control, feedback and action


The resource criticality and influence attributes can be illustrated by means of two ordinal scales which indicate values of high and low relations criticality and high and low influence. The combination of such attributes results in the construction of a conceptual scheme, whose elements provide interesting insights regarding actions government might well undertake in order to guarantee the survival of the enterprise in its specific context. To analyse the relevance of the various system entities in the context, individual resources must be identified and detailed. We can then outline a rough pattern based on the description of the relation existing between the various resources. This way, the business resources details can be mapped, and the different systems from which they originate can be identified. On the basis of this knowledge, we can analyse the specific characteristics that define the attributes we have called resource criticality and influence exerted, or which may be exerted, by the various systems. 6.7 A proposal for decision making in complex contexts: the vSa ConsulCube A complete orientation to strategic or operation problem-solving can be provided through a methodological procedure. In the last decades research has moved towards a standardization of elaborated procedures, and the improvement and deepening of technical knowhow. In a certain sense it has hardly paid attention to some significant know-how skills that a governing body, or a decision maker in general, should own: how to define the context of reference; how to identify relevant supra-systems; how to achieve a successful solution in a consonant context. Such skills are relevant because, in complex situations, solutions which apparently seem to be excellent, risk of being unachievable due to a lack of consonance (Barile, 2009a, 2009b). In this direction, vSa proposes a regeneration of the decision making approach should take into consideration:

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x the possibility to measure and evaluate the points of view and the opinions of all participants in the decision making process; x the specific characteristics of context; x the adaptation to different requirements and cultural contexts; x the knowledge achievement concerning any specific area, trying to get more accurate value of client satisfaction (consonance); x the understanding of the relevance of interactions with components identified in the context, participating in the emergence of the system. A synthesis model has been proposed by Barile (2009b) with the vSa ConsulCube, which allows one to dynamically draw the context of reference, identifying relevant supra-systems and the decision able to satisfy their expectations on the basis of the context consonance criteria. It is an effective model in analysis, used to qualify and measure various connections, relations and interactions existing in a single viable system and in the dynamics between several systems, based on recursion. The modeling of decisions can be represented through a threedimensional space (Figure 6.4), which emphasizes the ‘big picture’ of information variety dimensions and the relevance of the action, making measurable: the relevant variables, determining the paths of consonance; the different perspectives of observation that potential solutions must match; the contributions of different actors to the achievement of the objectives; a value estimate that can be created by the different project ideas, in which the expectations of supra-systems and their degree of satisfaction are considered in relation to different proposed solutions. Figure 4 highlights the dimensions embodying varied forms of information, representation, and credibility, thus: • there are several possibilities which create the conceptual space within which context, business projects, and strategic plans are formulated; there are variables (components, connection, relations, interactions) that come into play during consonance;


x the viable system levels, the different points of view that the possible solutions have to consider, and the contributions that the various actors are obliged to add in order to pursue goals; x an estimation of a possible project-value, which considers relevant supra-systems, their expectations, and satisfaction in reference to problems solved. Figure 6.4. The vSa ConsulCube

Source: Barile, 2009b; www.asvsa.org. vSa ConsulCube allows, along these lines, to identify: the internal consonance of both the context and the analyzed viable system; the factors that affect the emergent resonance; the constraints, assumptions and the probability of reaching goals. A classical approach to evaluation of the hypothesis of a generic real problem for a firm would require a calculation of the risk-convenience degree (for example, using balance sheets, market and financial indicators, and so on). In terms of computation, combining the available indicators, possibly by using multivariate statistical analysis, it could be useful to try to estimate the confidence degree of the different supra-systems when considering a proposal, but in substance, and unquestionably, from the calculation derives that just one is the most appropriate proposal.

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On the contrary, vSa ConsulCube does not provide the best solution related to the level of consonance among proposals, and the average level of consonance between a decision and its context. So, there is not a better solution if compared with the other possible ones. The prevalence of one solution instead of another is then strictly connected with the consonance level between the proposal and the average consonance value existing between the firm and its context. Figure 6.5. Possible evaluation patters

Source: Barile, 2009b; www.asvsa.org. Figure 6.5 shows possible evaluation ways that the vSa ConsulCube suggests for a calculation of consonance (for example, through questionnaires and information collected from the indicators). Figure 6 presents cases which identify the essential characteristics connected to certain pathologies: A. enabling the evaluation of consonance deriving from acquired information in all the adjustment phase of a broad strategic plan; B. enabling the calculation of correspondence and consonance, between specific business patterns (tacit knowledge) and the hypothesis of organizational adjustment; C. enabling the possibility to act on a more extensive structure, redesigning main function processes which need a close verification of consonance, and perception of the operational structure in regards to the hypothesized transformation;


D. enabling a significant variety that influences every possible act of reorganization. The figure shows some examples of possible interpretations of the dimensions composing the vSa ConsulCube. Decomposing every possible hypothesis and reorganizing some components related to action paths, rather than levels of systemic structural representation and information components, allows for a more complete representation. The use of vSa ConsulCube allows for the understanding that not one proposal is to be considered better than any other, but the prevalence of a proposal is mostly due to the level of consonance and average value of consonance between the firm and its context. Specifically, the use of vSa ConsulCube allows: 1. to assess the impact of consonance changes deriving from the acquisition of information during the adaptation phase, compared to the overall strategic project; 2. to assess the correspondence, in terms of consonance, between the specific patterns (tacit knowledge) of the system, and assumptions of organizational compliance; 3. to redesign the processes related to the main functions (extended structure); 4. to appropriately revisit the strategy after changes, especially at categorical values and general interpretation schemes levels of the information variety. In conclusion, vSa ConsulCube allows decision makers to analyse the degree of initial consonance, and to assess the emerging resonance following the application of each of the possible actions so as to identify the most appropriate (Saviano and Di Nauta, 2011).

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Figure 66.. Cases which spot essential characteristics connected to certain pathologies.

Source: Barile 2009b; www.asvsa.org. 6.8 Conclusions Governance and management of relations is a fundamental concept both for service paradigm sciences as well as for network and systems theories, therefore, also vSa, for the improvement of marketing performances. In this regard, the present study proposes some important contributions: x Service paradigm sciences could benefit from methodological approach that improves the connection between S-D logic, as a philosophical/cultural perspective of service on its natural research ground, and with the platform on which to apply it (SSME); x Network and systems theories could benefit from a sort of systematization of concepts and approaches deriving from several research tracks on systems thinking, by an approach that, in the words of Isaac Newton, rests ‘on the shoulders of giants’; x The conceptual scheme of the relevance of relations introduced by vSa could enable the translation of SSME proposals into practice, by perceiving, identifying, interpreting and then ordering all actors/viable systems in the contexts to achieve a win-win co-creation exchange. The passage seems necessary in every design and


management within SSME, since performing service systems are based on a balanced consonance involving all actors. The study concludes that there are several methodological concepts described by vSa that could be useful to synthesise service paradigm sciences. This paper focuses on just a few of these concepts, in particular, on the potential vSa contribution to decision makers who strive to achieve survival in complex contexts.

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Mele, C., Pels, J., Polese, F. (2010). “A brief review of systems theories and their managerial applications”. Service Science, Vol.2 No.1/2, pp. 126-135, ISSN 978-1-4276-2090-5. Ng I.C.L., Maull R., Smith L. (2011). “Embedding the Discipline of Service Science”. In: Demirkan, Spohrer, Krishna eds.. The Science of Service Systems. Springer Book Series. Forthcoming. Ng I.C.L., Badinelli R., Polese F., Löbler H., Halliday S. (2012). “S-D Logic Research Directions and Opportunities: The Perspective of Systems, Complexity and Engineering”, Marketing Theory, vol. 12, p. 213-217, ISSN 1470-5931, doi: 10.1177/1470593111429519 Normann, R. (1997). “Services in the neo-industrial economy”. Sinergie. n. 42, pp. 23-27. Normann R., Ramirez R. (1994). Designing Interactive Strategy: From Value Chain to Value Constellation. Chichester: John Wiley & Sons. Ostrom, E. (2009). “Beyond Markets and States: Polycentric Governance of Complex Economic Systems”. Prize Lecture, December 8, Workshop in Political Theory and Policy Analysis. Indiana University, Bloomington, IN 47408, and Center for the Study of Institutional Diversity, Arizona State University, Tempe, AZ, U.S.A. Parsons, T. (1951). The Social System. Glencoe, IL: Free Press. Piciocchi, P., Bassano, C., Paudano, E., Papasolomou, I. (2009). The Virtuous circle of Syntropy (VCS). “An interpretative chaos vs cosmos model for managing complexity”. In: The 2th Annual Euromed Conference, proceedings of the International Conference at the University of Salerno. Fisciano, Italy, October, 26-28th, DOI: 10.3292. Piciocchi, P., Bassano, C. (2009). “Governance and viability of franchising networks from a Viable Systems Approach (VSA)”. In: The 2009 Naples Forum on Service. Service Dominant Logic, Service Science and Network Theory. Proceedings of the International Conference in Capri, June 16-19, Giannini Editore, Napoli, 2009, ISBN13: 978-88-7431-452-2. Polese, F. (2009). “The Influence of Networking Culture and Social Relationships on Value Creation”. Sinergie. n. 16, pp. 193-215.

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Polese F., Di Nauta P. (2013). “A Viable Systems Approach to Relationship Management in S-D Logic and Service Science”. Die Betriebswirtschaft, Schäffer-Poeschel Verlag für Wirtschaft·Steuern·Recht GmbH, vol. 73, n. 2, p. 113-129, ISSN 0342-7064. Polese, F., Russo, G., Carrubbo, L. (2009). “Service Logic, value cocreation and networks: three dimensions fostering interorganisational relationships: competitiveness in the boating industry”. Atti della 12th QMOD and Toulon-Verona Conference, Verona, 27–29 Ago., ISBN13: 978-88-9043-270-5. Richardson, G.B. (1972). “The organization of industry”. The Economic Journal, vol. 82. Rullani, E. (1997). “Il ruolo dei servizi nella realtà dell’impresa moderna”. Sinergie. n. 42, pp. 45-59. Rust, R.K. (2004). “A call for a wider range of services research”. Journal of Service Research. vol. 6 n. 3, pp. 2-11. Saviano, M., Berardi, M., (2009). “Decision making under complexity. The case of SME”. Vrontis, V., Weber, Y., Kaufmann R. and Tarba S. (Eds). Managerial and Entrepreneurial Developments in the Mediterranean Area. 2nd Annual Euromed Conference Readings Book Proceedings. EuroMedPress pp. 14391463 ISBN 978-9963-634-76-7. Saviano M., Di Nauta P. (2011). “Project Management as a compass in complex decision making contexts. A Viable Systems Approach”. In: Caivano D., Baldassarre M.T., Garcia F.O., Genero M., Mendes E., Runeson P., Sillitti A., Travassos G.H., Visaggio G., PROFES 2011, 12th International Conference on Product Focused Software Development and Process Improvement, ICPS Published by ACM, p. 112-119, ACM ISBN 978-1-4503-0783-3 Simon, H. A. (1945/1997). Administrative Behavior: A study of decision-making processes in administrative organizations. Free Press, New York, NY. Simon H.A. (1969). The Architecture of Complexity, in The Sciences of the Artificial. Cambridge: MIT Press. Spohrer, J., Maglio P.P., Bailey J., Gruhl D. (2007). “Steps Toward a Science of Service Systems”. IEEE Computer. vol. 40, n. 1, January, pp. 71-77.


Spohrer, J., Anderson, L., Pass, N., Ager, T. (2008a). “Service Science and Service Dominant Logic”. Otago Forum 2, pp. 4-18. Spohrer, J., Vargo, S.L., Maglio, P.P, Caswell, N. (2008b). “The service system is the basic abstraction of service science”. HICSS Conference. Vargo, S.L., Lusch, R.F., Malter, A.J. (2006). “Marketing as ServiceExchange: Taking a Leadership Role in Global Marketing Management”. Organizational Dynamics. vol. 35, n. 3, pp. 264277. Vargo, S.L., Lusch, R.F. (2008). “Why ‘service’?”. Journal of the Academy of Marketing Science. Vol. 36 No 1, pp. 25-38. Von Bertalanffy, L. (1956). “General System Theory”. In: Emery, F.E. eds.. General System, Yearbook of the Society for the Advancement of General System Theory. Von Bertalanffy, L. (1968). General System theory: Foundations, Development, Applications. New York: George Braziller. Williamson, O. (1996). The mechanisms of governance. Oxford University Press, Oxford.

Chapter VII

The complexity of corporate diversification: organizational design, entropy and operating riskx

7.1. Diversification strategies: historical perspective Since the Twentieth century, many great enterprises adopted strategies for growth aimed at internationally expanding their business (geographic expansion). Those strategies were also aimed at providing productive diversification48. In particular, over the golden age of capitalism (1945-1975), diversification was the favorite strategic maneuver to improve corporate development, mainly in the 19601970 decade, due to the rise of conglomerate giants49. If attention is driven towards the reasons that boosted the implementation of diversification strategies, those are to be found more in the pursuit of the growth target as such than in the maximization of profit. The socio-economic scenario over the Fifties and the Sixties was so positive that it was not difficult to achieve a capital profit higher than the capital itself, so the stakeholders were far less vigilant. In such an historical context, many CEOs chose to transform their businesses in economic empires, by choosing x

By Luciano Bologna, Antonio Renzi and Cristina Simone. The content of this chapter is the result of a common forethought, however the credit for paragraphs 1 and 2 must be given to Cristina Simone, for paragraphs 3 and 4 to Luciano Bologna and for paragraphs 5 and 6 to Antonio Renzi. 48 Cf. Chandler A.D. (1962) Strategy and Structure: Chapthers in the History of the Industrial Enterprise, The MIT Press, Cambridge, Massachussets, p. 83. 49 Cf. Grant R.M. (2009) Analisi strategica per le decisioni aziendali, il Mulino, Bologna, p. 444-445, (Contemporary Strategy Analysis: Concepts, Techniques, Applications. Blackwell, Oxford, 1992).

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diversification (both internal development and acquisition) as the favorite strategic maneuver. In order to support the construction of such empires, over the Fifties and the Sixties, both in North America and Europe, the spread of project and organizational know-how linked to the M-form took place, as well as that of new and sophisticated conceptual and technologic management tools. They regarded the financial control, decisions on investments, and the decision-making process in general. The development of this managerial and organizational know-how convinced managers that the essence of their activity did not reside just in the mere sectorial knowledge. They understood that it could be generalized and liberally applied to any sector, market or geographical area. However, since the Eighties, a strong reversal of the trend was registered. The model shifted from non-interconnected business models to models that were the more and more connected50. This deep change was firstly caused by the increase in the manager’s awareness of the importance of creating value for the stakeholders, instead of the growth itself. The economic crisis of the Seventies and the Eighties showed the unsatisfactory profitability of many great conglomerate companies. Furthermore, the increase in the environmental turbulences made it more difficult to operate in heterogeneous competitive arenas. Finally, the trust in the possibility to follow the same managerial principles lowered as for their use in “far” – both from the technological point of view and that of demand – sectors. On the other hand, the interest towards the role played by the specific resources and competences in the conquer/defense and development of the competitive advantage increased. This interest in the core resources and competences forced the companies to depart from the conglomerate diversification models and to follow interconnected diversification paths instead: those allow the creation of synergic actions thanks to the possibility to exploit the same set of specific resources and know-how in interdependent business areas.

50

Ibidem, p. 446.

The complexity of corporate diversification 163

7.2. Diversified companies and organizational planning: main Mform features The diversification strategies, both those focusing on production and those focusing on the geographical area, required an organizational structure able to support them: the M-form, or multidivision structure. This paragraph outlines some of the most complex planning issues of the organizational architecture of an M-form. The most important thing is that the level of diversification (interconnected vs. non-interconnected) must be kept in mind while thinking about the organizational architecture. In its simplest configuration, the multi-division structure is formed by a “head quarter” or “corporate level”, that embodies the high-level members of a company (stakeholders’ assembly, CEO, etc.), as well as the general direction and a number of authorities fulfilling various support tasks. The M-form also has a second directory level embodying General Managers who are heads of each division and below whom there are other managers depending on the activities of each division. The divisions are the macro-component of this organizational level; they can be organized on the basis of geographical and production criteria, on the fact that they create different products, on the basis of market criteria, if other clients are needed. In any case, the divisions are planned to produce outputs that are directly valorized on the market. Such characteristic makes them particularly able to support strategic growth and development plans based on geographical and/or productive diversification. Moreover, the relative independence of the divisions allows to formulate ad hoc responses based on the various features of the many geographical areas or of the sectors of interest for the company. As for the planning issues, typical of this kind of structure, one of the most complex problems that the management must face is linked to the problematic of the level of independence to be given to the divisions. One of the firsts dimensions chosen was the so called selfsufficiency of the divisions/consociate. It is expressed by the number of activities/resources that the management chooses to allocate for the peripheral branches. The self-sufficiency is complete if each division or consociate can directly run all the activities functional for its

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output, whereas it decreases if the management of the company chooses that some functions – common for all or some divisions – must be taken over by the direction itself, that is at corporate level. In the first case, the management renounces to the economies (scale, specialization) that could be attainable if the functions whose centralization could affect the divisions’ managers were not under their control anymore. Instead, in the other case, the control over decisional and operative areas (that in the M-form structure should be controlled by the divisions) is delegated, thus improving the management’s efficiency of those areas, for the sake of the whole company. The negative effects that can be achieved in this second case derive from an overload in the head quarter’s structure, in which new bodies are created in order to cope with the increase in its own functions. Furthermore, due to this increase, the M-form loses its nature and the macrostructure tends to become a hybrid form between the multi-function and the multi-division form. A second dimension focuses on autonomy (or decisional power), that is the nature of the decisions that the corporate chooses to leave to the divisions/consociates. The M-form shows a wide range of situations, that can be summarized in two main ones: a) strategic and operative divisions neatly divided: the firsts are assigned to the corporate, the seconds to the various divisions; b) involvement of the divisions/consociates in the outlining of their various businesses’ strategies. By and large, this second situation prevails in big companies, highly diversified, both at geographical and business level. This happens because the more the business model of the company moves towards a conglomerate, the more difficult it is for its managers to gather and deal with all the information necessary for the strategic and operative decisions about the various product-market combinations of the company, mostly when those increase in number and level of diversification. The divisional management can access a bunch of local information coming from the stakeholders, who are directly connected to the operative activities. As such, they can better understand the problems of their own business and are able to deal with them in a rapid and effective way. The delegation of powers to the divisional managers can have positive and negative effects: if on the one hand, it gives them the


possibility to operate on a wide variety of competitive arenas (both at geographical and product level), on the other hand, such delegation implies the risk of moral hazard, against the interests of the company as a whole. Therefore the corporate management must indeed grant to the divisions a proper decisional and operative autonomy that allows them to successfully deal with the dynamics of competition in the various areas, but it also protect the cohesion of the company. The challenge is to strike the balance between the margin for action to be given to the divisions in order to achieve strategic goals in the different sectors and the central power to be exerted in order to avoid moral hazard and to exploit the various economies and synergies in competition that a more integrated control of the diverse businesses can grant. 7.2.1. The corporate’s strategic functions The management of an M-form has the fundamental role to preserve the unity of the company. This role his highly complex and it comprehends a set of activities of boundary management, that serve as a multi-level pivotal role for the environment, the company and the divisions51. In this highly strategic set of functions are to be mentioned the power to decide for the entrance or the permanence of new businesses or geographical areas in the structure, as well as their exit and the relative weight they have in the strategic portfolio. As for business strategies, the corporate’s intervention can be more or less “invasive”, depending on the decisional autonomy and on the level of self-sufficiency of the divisions. More in general, the higher the level of diversification (and therefore of diversification of business and geographical areas) is, the higher is the managers discretion about long-term decisions. However, even when the highest level of discretion is given to the peripheral offices, the corporate must always exert strategic control on the development lines of each division/consociate. The financial function is also typically fulfilled by the corporate. This one too has the common features of a boundary function, if it 51

Cf. Morgan G. (2008). Images, FrancoAngeli, Milano.

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supervises the relations between the company and the capital market on the one side (at external or inter-organizational level) and if it grants the adequate capital flow at inter-divisional level, that is running the circulation of such flows among the divisions (at internal or inter-divisional level). Basically, the financial operations of an Mform can be gathered in two main categories: a) external operations: extraordinary funding (i.e. capital increase and obligation loans) and ordinary operations, through which the company can gather various assets by interacting with financial operators; b) inter-divisional (or inter-group): transfer of capital flows among divisions/consociates and treasury operations. The first kind of operations (the so called “external finance”) can be fulfilled both by the head quarter and the consociates. If the corporate centralization is chosen, the advantages come from the increase in negotiation power towards the financial operators, as well as from the economies of scale and specializations that can be achieved by concentrating the power in a single point of the organizational structure, the alternative being the decentralization of the financial function to the single divisions, thus increasing the structural costs. Despite all these organizational advantages, it is not always possible to centralize the external finance operations. For example, if the consociates operate in foreign countries, it can be strategically preferable for each consociate to develop a network of relations based on trust with the local financial institutions, in order to rapidly support the business at local level. When the consociates have the autonomy to deal with financial operations, the corporate level can deal with the counseling activity, for example by drafting guidelines and parameters for the evaluation of possible alternatives. A task that is always a corporate’s one is the fulfillment of the internal financial operations. Those are about the transfer of capital flows from the more wealthy divisions to those who need money to achieve their development goals. The corporate centralization of this function aims at avoid that the needing divisions be forced to ask for short-term loans at very heavy conditions, while other, wealthier divisions must use their exceeding capital externally and a low-rates, thus affecting the systemic wealth of the company. The financial management’s centralization allows therefore an optimal capital


allocation in the company’s system: it grants a minimization of the indebtedness cost, and reduces the overall need for liquidity of the group as a whole. A third strategic function of the corporate level regards the selection of divisional managers. This is not a direct boundary function, nonetheless it has very strong repercussions on the whole boundary management regarding the relations between the division and its task environment. The choice of the division manager is in fact a key decision about a fundamental managerial figure that will run the business unit and the planning of the inter-organizational relations. 7.2.2. The directive functions The directive functions are those managerial activities aimed at operationally guide the divisions. They are fulfilled with the objective to protect the internal structure of the group and are a coordination and control tool. They are fulfilled through the formulation of a set of corporate policies and directional control systems. Regarding the latters, one important tool is the control based on economic and financial parameters in order to evaluate every division/business area’s performance. Those organizational macro-units can use costand-revenue leverages and are therefore profit centers, in which the economic periodical result, in its many configurations, is a very important goal to be set for the division managers; it is also useful to measure their behavior over time. The problems, in this kind of control method, already arise in the choice of the configuration of the economic result of the division: such result can, depending on the number of cost-and-revenue entries used in order to express both the managerial ability of the division managers (managerial output) and the validity of the businesses un by the division managers themselves (economic output). In fact, there is hardly ever a perfect match between the division manager’s responsibility and the economic result of the division, because not all the cost-revenue entries to be taken into account are under the responsibility of the division manager. For example, the costs of some resources used by the divisions are almost completely influenced by the decisional bodies (corporate or other divisions); in such cases, if the aim is to measure the manager’s

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ability, only the costs and revenues under his/her direct control must be taken into account. If, instead, the required information regards the validity of the business, it is advisable to add all the entries regarding resources used and generated by the division. 7.2.2.2. Transfer prices Another directive function, strictly linked to the control of the economic output of a division and that of the managerial output is the determination of the transfer price, that is the fictitious prices that regulate the exchanges among organizational units in the company. Transfer prices impinge upon the detection of division managers’ responsibilities. They also are a tool for the corporate to exploit synergies and inter-relations at group level. The political role of the corporate is to define the choice of sources in the internal – external market relations (if the case) and, if an internal source is chosen, the modalities to fix the transfer prices. The corporate can decide not to intervene: the divisions are therefore free to choose internal exchange or the market, depending on the relative advantage of one compared to the other, or it can play a more invasive role, exerting various forms of control of the transactions, that can leverage traditional organizational mechanisms such as the hierarchical authority, or leverage socialization and trust-building mechanisms. The solution that allows the divisions free to decide about the source is the one that recognizes the highest level of autonomy to the peripheral offices, by giving them more responsibilities and thus making the managerial results more significant. For example, the situation in which the division is more free to take decisions is generally the one in which the internal transaction is about a highly standardized good or service, for which there is an external market of reference. In this case the corporate can decide not to intervene, leaving to the purchaser divisions the choice the source basing on its own convenience. In such a case, the M-form works almost like a real market: the supplier division competes with the external market and its prices will have to take into consideration those of the market, entering therefore a virtuous circle aimed at making it more efficient. In other cases, the intervention of the corporate can be far more invasive. This happens when the corporate,


with its intervention, wants to limit the decisional power of the divisions, with the aim of protecting the global interests of the whole group (i.e. from a fiscal or monetary point of view). The corporate’s intervention can prove itself to be equally strong when the transaction is about goods or services which are not possible to be standardized and for which there are only a few alternatives on the market. In this case, when lacking of valid alternatives, the only choice is the internal source, and the exchange is regulated by a price that is calculated according to a method outlined by the corporate and cost’s valuesoriented (ex. Full cost or plus cost) that can be agreed or not with the divisions involved (a sort of bureaucratized market)52. If the object to be exchanged is complex, and if there are not external alternatives and the purchaser is in a condition of monopsony, the only alternative is the internal transaction. The corporate can assure an efficient management of those transactions and beside using the hierarchy leverage, it promotes cooperation among the divisions, which implies the agreed and common definition of the price among the divisions. In this case the M-form is almost a market clan. 7.3. Conglomerate diversification vs. correlated diversification The diversification strategy is one of the so-called strategic alternatives for the company53; for this reason it is a corporate level strategy aimed at entering different and new sectors. It presupposes an estimation of the activity of the new sector/s in which the company will operate, an evaluation of the possible competitive advantage achievable, and an estimation of the highest value that could derive from the interrelations that will be created among the new market segments and the sector to which the company belongs.

52 Cf. Milgrom P., Roberts J. (1992). Economia, organizzazione e management, il Mulino, Bologna, pp. 131-132; (Milgrom P., Roberts J. Economics, Organization and Management, Prentice Hall, Upper Saddle River, NJ,1994). 53 Cf. Hax A. C., Majluf N. S. (1991), La gestione strategica dell’impresa, ESI, Napoli. p. 144. (The Strategy Concept and Process: a pragmatic approach, New York, Prentice Hall). 1990).

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The instrument used to represent the diversification processes is the product-market matrix elaborated by Ansoff; it classifies the strategic alternatives in terms of new/old product/markets, providing an immediate representation. By adopting a market penetration strategy, the company tends to increase its own market quota in the sector in which it already operates (using, for example, the price or promotion leverages); on the contrary, with the product development strategy new products are developed (at technological level, for example) in the original market of the company; the third strategic alternative, then, is that of market development: it launches the original product to other markets (generally geographically different from the first one). Diversification is the last of the strategic alternatives represented in the Ansoff matrix. It changes the traditional schemes, because it consists in selling new products in new markets and it basically moves far from the markets in which the company originally worked: «The intensity of such move away depends on the level of newness of the products which enter the portfolio: a) If the products are new for the company but already exist on the market (in the variance) the diversification is imitative. In this case, the entrepreneur will have to deal with direct competition on the market of destination, taking into account the characteristics and the service offered by the company’s product compared to a similar product that fulfills the same needs in a similar way; b) If the products entering the portfolio are absolutely new, both for the company and for the market (that is their kind or variance) this is called innovative diversification. In this case, the entrepreneur launches a new product on the market that does not face any direct competition, and he finds himself in a situation similar to that of a monopolist, even if in most cases, that is when the product is successful, this position is relatively brief54».

54 Cf. Panati G., Golinelli G. (1989). Tecnica economica industriale e commerciale, La Nuova Italia Scientifica, Roma, p. 429.


Fig. 7.1. – Ansoff’s matrix

Source: Ansoff I.H. (1957). “Strategies for Diversification”, in Harvard Business Review, vol. 35, Issue 5, Sep-Oct, pp. 113–124; Ansoff I.H. (1958), “A model for Diversification”, in Management Science, vol. 4, n. 4, July, pp. 392–414. Therefore, this strategy can consist in the company’s entrance in new sectors, evidently or nor linked to the sector of primary importance and can be put in practice following a multitude of alternatives, such as an increase in internal growth, merger and acquisition operations or through strategic alliances. The presence or the lack of technological or productive links with the primary sector in which the company operates qualifies, respectively, a lateral or conglomerate diversification. Therefore, the conglomerate diversification strategy allow the access to sectors far from the core business, where, instead, the conglomerate diversification implies a higher strategic proximity to the core business itself; there is a variety of shades between the two alternatives, among which there are weakly correlated and the strongly correlated one; some authors also include vertical diversification55. The choice of a diversification strategy supported by various empirical evidences showing how it can have a better performance by attributing the financial risk to various sectors; in particular, lateral diversification, taking advantage of the distinctive capacities of the company56 and benefiting from the results of the economies of 55 56

On this issue, cf. Sciarelli (2002): vertical integration similar to diversification. The “distinctive” or “core capacities” of a business can be defined as the group of

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scope57, manages to grant the companies better results than conglomerate diversification. Correlated diversification, as already said, is based on the exploitation of the interactions deriving from the use of the distinctive competences of the company, and the achievement of positive results lays on the capacity to detect the highest competitive potential deriving from the use of a distinctive competence in new sectors, somewhat connected with the primary one. In addition, many companies often tend to take more into account their capacity to transfer distinctive competences to new sectors, rather than use the value that they already have for the core business and activities strictly linked to it. The boost towards the adoption of such strategy is also justified by the evolution of the company’s paradigms58, together with all those critical factors that, while evolving, determined its success. Up to the end of the Seventies, the sudden growth of markets and strategic opportunities favored a higher use of conglomerate diversification. Indeed, the possibility to operate in new sectors and increase the possibility to make profit encouraged the companies to seek activities and processes that the company is expert in. They are the results of the possession of specific resources and determine the achievement of positions of competitive advantage. The application of one distinctive capacity in a specific context (or process) generates a distinctive competence, to be intended as something that cannot be found on the market or, more in general, outside the company, as it is obtained through the coordinated organization of the resources already in possession of the company or thanks to cooperation agreements among various enterprises. Cf. among others Andrews K. R. (1971), The Concept of Corporate Strategy, Ed. Richard D. Irwin, Homewood, IL; Prahalad C.K., Hamel G. (1990), “The Core Competence of the Corporation”, in Harvard Business Review, Vol. 68 (May-June), pp. 79– 91. 57 The economies of scale and scope (ESS) are connected to the definition of horizontal borders of the company. In particular, economies of scale work on the possibility to achieve competitive advantage by operating on volumes and smooth quantities (ex. By increasing the produced quantities, the incidence of the unitary cost of the product; the economies of scope are linked, instead, to the possibility to obtain a reduction of the average production cost by increasing the quantities produced, even of various kinds of products. Those are said “diversification economies”, because, generally, saving are connected to the integrated and virtuous use of tangible resources (ex. Work, row materials, suppliers, distribution, etc.) ore intangible, in order to have more products (ex. Know-how, technological specialization, etc.). 58 On this matter, cf. Morgan, Images, cit.; Di Bernardo, B., Rullani, E. (2004). Il management e le macchine, il Mulino, Bologna,; Rullani, E. (2004). L’economia della conoscenza. Creatività e valore nel capitalismo delle reti, Carocci Editore, Bari.


opportunities in new sectors, even if totally disconnected from those of primary interest. Since the early Eighties, an inversion of trend was registered, which led to a focus on the core business; over the following years, the development of the theories about distinctive capacities and competences and their application on the company’s operations led to the application of a strongly correlated diversification. Those trends still remain in the modern competitive contexts, in which the company’s activity is focused on the best possible use of immaterial and intangible factors59, that determine its success: the company tends therefore to diversify its activities, choosing businesses which synergies with already existing activities can take advantage from. The motivations at the basis of a correlated diversification strategy therefore are to be found in the higher importance of the value of the activities run by the company, compared to the will to enlarge the company’s dimension60, in the necessity to put the key competences at the center of the company’s activity, in the increase in the necessary investments to compete at high level, in the increasing business specificity and last but not least, in the increasing organization complexity. The general reasons at the basis of the choice of the diversification strategy are both internal and external. Among the internal reasons can be included the higher market opportunities that can arise for the company in sectors similar to that in which it already has a relevant competitive advantage in the eventuality of a decrease in demand within the company’s primary business, in the presence of elevated transaction costs between different sectors that can justify the choice of a direct presence of the company itself. Instead, among the internal factors there are the need and/or the opportunity to create economies of scale and/or economies of scope, the availability of financial resources to be destined to new businesses, the possibility to scatter risk in various sectors, the presence of growth managerial targets, the 59

Cf. Sancetta G. (2007). Gli intangibles e le performance d’impresa. Verso nuovi modelli di valutazione e comunicazione nella prospettiva sistemica, Ed. Cedam, Padova. 60 Theories on the dimensional growth. Among others: cf. Sciarelli (2002) and Golinelli (2000).

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possibility to realize synergies between tangible and intangible of diverse businesses. More in detail, at the basis of the decision to diversify there is the will to enlarge the company’s dimension61, the profitability deriving from the access to more attractive sectors, the market power and the reduction of risk. In particular, investing in different sectors that have different risk ratio determines a reduction in the overall company risk; even if the earnings from the stocks remains unchanged, therefore, their variability is reduced that is, as said, linked to the risk62. The diversification strategy, however, acts to reduce the only nonsystematic risk connected to the variance in cash flows, whereas it does not manage to act to reduce the systematic risk, that is that part of uncertainty linked to the economic fluctuations of the sector (generally indicated by the β coefficient). 7.4. Entropy as proxy of corporate diversification From what stated above, it is clear that diversification is a strategic alternative in various forms, together with the change in the conditions and the competitive contexts in which the companies operate. The modern competitive contexts are characterized by growing entropy, as well as by a widespread uncertainty. They do not allow the company to define long-term strategies that generate a multitude of factors that keep on changing and that are the more and more possible to run by the companies themselves.

61 (In the past, growth - which here must be considered in terms of turnover – led many managers to choose this path, also because their income is linked to dimensions and not to profitability. This provides advantages for both managers and employees in terms of power and status, as well as advantages for those businesses operating in declining sectors, such as tobacco or oil. Cf. R. Marris’ economic theory of managerial capitalism. 62 The management of a diversified set of activities allows to keep the level of cash-flow smooth, despite the cyclical and seasonal factors of the various sectors. An investor can reduce risk by diversificating his/her bonds, a holding company must pay huge sums of money to put in practice the takeover. A positive impact on cash-flows can be registered when a badly run business is taken over (because its price is below its real potential) and then sold after restructuring.


The idea of entropy can be compared to the second principle of thermodynamics, that highlights the universal trend towards disorder (that is: entropy) 63. Under such conditions, the living systems64 try to avoid the “thermodynamic balance” situation, that implies the destruction of diversity, to follow self-organizational processes instead65 thanks to the matter and energy flows that they get from outside, in particular from systems having temperature and energy levels different from theirs. Therefore, in this sense, an increase in entropy can be observed, that is related to the development of not controllable on the one hand, and a reduction of entropy due to organizational processes on the other. Coming back to the entrepreneurial context, entropy is, for sure, a characteristic of the competitive contexts in which they operate and, therefore, it has repercussions on the definition of the strategic choices of the companies. With reference to what said above, and along with the concept of complexity as an increase in the non-linear relations that involve a high number of variables that are approached to with a resolute and systematic approach, it is possible to make a distinction between internal and external entropy of the company. In particular, reference is made to Barile (2009), who notes that