Developing Business Competence: A model based on Viable Systems

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Seminar on “Organisational Restructuring of SEBs” D.V. Ramana Identify the System The requirement for applying VSM is the proper identification of the main system. This can be done by understanding the business activity undertaken by the organisation. At present, Cesco is a licensee engaged in the purchase and sale of power in the central districts of the State of Orissa. The business operation is divided into around fifteen accounting units. Each unit is responsible for undertaking the business and maintaining the necessary books of account. Each division is headed by an executive engineer , who is also in charge of the day-to-day operations. The divisional managers often look forward to the corporate office for directions on various managerial and operational decisions. The present organisation structure of Cesco is shown by figure –I: Circle-I D1 D2 D3 D4 Cesco Circle- II D5 D6 D7 D8 D9 Circle-III D10 D11 D12 D13 D14 Cesco is divided into: � 3 circles � 15 divisions � Each division is divided into 3-4 subdivisions Some of the limitations of the conventional structure are as follows: � The present structure is not stressing on the main activities. The focus is on the flow of authority i.e. topdown. Under this conventional structure, the budgets simply being imposed by central authority � Failure to delegate authority for resource deployment (decentralisation in form but centralisation spirit) � In-congruency in the corporate and divisional goals The problem of centralisation vs. decentralisation is dealt with in VSM by allowing to the subsystems as much autonomy as is consistent with systemic cohesiveness. The meta-system i.e. the top management will intervene only to prevent one of the parts acting in such a way that it could threaten what the whole system is trying to achieve ((Jackson & Flood 1991). Under VSM a division will be treated as the System-1. So Cesco will be described as a combination of 15 systems-1s. If Cesco has to be viable, it is necessary to ensure that all system- 1s are viable. The main purpose of system-I (division) can be defined as follows: � To ensure power is supplied to the consumers; � To ensure all consumers are customers; � To utilise all resources optimally; and � To ensure financial viability. It is important to note that these systems are affected by the local environment and corporate environment. In order to maintain stability in the organisation and address the environmental issues Cesco has to develop the System-2. System-2 refers to individual rules and behaviour for coordinating operations in terms of current needs. This system makes the teamwork possible by ensuring proper coordination among the several System-1s (divisions). This can be achieved by frequent management reviews with various levels of participation. An effective System-2 will: � Enable various System-1s (Divisions) to solve their own problems � Solve conflicts between System-1s (Divisions) 8
Seminar on “Organisational Restructuring of SEBs” D.V. Ramana The channels of orders with in Cesco can be called the System-3. It can collect any information from any of the System-1 and feed the top management or collect information from the top management and feed the System-1s. It helps in interpreting the policy decisions of the higher management and also carries out audit. The strong internal audit function of the organisation can be treated as the System-3. Most of the distribution companies (including Cesco) meticulously undertake the statutory audits and but fail to do justice to the internal audit. In the process, the very purpose of the internal audit is lost. So it is necessary to bring the audit function under the System-3. An effective System-2 and 3 will ensure internal stability and take care of most of the operating and day-to-day problems. However, to keep the Cesco viable and effective in the future, it is necessary to have strong System-4. It develops capability to determine potential risks and potential benefits. A separate team from various functional areas or a separate department designated as “Brain” of company can be asked to look after the activities of System-4. This group or the department identifies needs and potential for changes and informs System-3. The selected course of action can then be implemented by System 1 and System- 2 under the supervision of System-3. For example, the System-III of Cesco can address the following managerial issues in the near future : � What will be the impact of Availability Tariff on its bottom line? � What will be the impact of multi-year tariff? � Should it buy power from Gridco or from the generators directly? � Is it necessary to undertake financial restructuring plan? To understand the above changes and make the people capable of handling them, System-4 can initiate training programmes and create awareness. System-5 completes the whole <strong>model</strong>. It is the advisory board of Cesco. This body balances the current activities against the future needs. Unlike the present system, wherein the board takes every decision, the System-5 acts as the judge whenever there is conflict and makes policies on the basis of the feedback from System-3 and System-4. Cesco as a viable system will have the following systems: • System 1: 15 divisions • System 2: Set of rules and procedures to maintain the flow of information between divisions. • System3: Coordination cell at the corporate office • System 4: The intelligence wing i.e. the Brain • System 5: The advisory board. E N V I R O N M E N T Cesco as Viable System It is important to note that VSM lays stress on the autonomy of System-1s (i.e. on divisions and sub-divisions). They are required to be viable in their own right taking into consideration their local environment. System 2 and 3 intervene to ensure overall cohesiveness. This allows the S1 S1 S1 S1 S5 S4 S3 S2 9
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Developing Business Competence: A model based on Viable Systems

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