22 / n

Different Levels in Process (2/3)

Viable System Model: Process Levels

S1 - This level is comprised of the basic activities that the organization needs to do.
A better way to understand this would be to consider it the operations department
of an organization. It assumes that all inputs have been provided as and when
required and is concerned with efficient processing of those inputs and their
conversion into the desired outputs.

S2 - This level is composed of all the supporting functions like HR, Finance, and
Marketing etc. The objective of this level is to ensure that S1 gets all the inputs like
men, money and materials as and when required. Any delays or bottlenecks at this
level have their effect on the efficiency of S1 activities. These groups of activities
are also called “Support Functions” in contemporary management jargon.

S3 - This level is concerned with oversight and control over S1 & S2 activities. Their
primary function is control over the operations of the organization. This is the most
important part of the internal organization of any firm. If the control procedures are
not efficient enough, the principal-agency problem rears its ugly head. Simply put
this means that moral issues arise and working for the best interest of the
organization may not be the best choice for an employee. Therefore control systems
are required to prevent this from happening by keeping a vigilant watch.
 23 / n

Different Levels in Process (3/3)

S4 - This is the beginning of higher order systems. The focus here is more focuses
towards the environment. The existence of any organization is contingent upon an
environment. For instance there must be a certain level of demand to consume the
output of the firm, certain level of materials and men to provide input for the firm
and so on. Any changes in the factors have consequences on the organization.
Therefore, S4 processes are meant to keep a watch on the environment and provide
information so that necessary changes and alterations can be made. This is usually
the middle management of an organization

S5 - This level looks at the internal and external situation of an organization and tries
to align both of them. These processes are usually called “strategic” in nature and
are under the direct oversight of senior management. The primary activity here is
decision making & effects are seen throughout the organization and its environment.

This is a very comprehensive level of detail covering all aspects of the structure and
arrangement of processes. Usually a simpler approach is followed which divides the
processes into three groups:

S1 and S2 form the operational group

S3 forms the control structure
S4 and S5 are called strategic in nature.
 24 / n

Operational/Transactional Processes (1/2)

Perhaps the most frequently used and the most important type of processes in any company
are the operational processes. These are processes which define the primary activities that
a company needs to perform in order to successfully execute its business.

It is very important to understand the concept of value stream and map the same before
beginning to develop operational processes. After all the process ought to be designed from
the point of view of the customer. They are the ones that are going to finance the entire
organization.

As we know that processes can be defined with the help of inputs, outputs, sequential
activity and an objective, let’s see how to put the pieces of the puzzle together to manage
and improve business processes.

The Role of Inputs: Inputs are required by every process to perform work. Inputs may be in
the form of men, money, material, machinery, knowledge and information. It is important to
understand that some inputs like men, money and material are approximately proportional
to their usage. This means that the more you use of them the more it costs you.

Hence the objective of any operational process is to ensure that resources are utilized in the
most conservative manner possible. At the same time other inputs like knowledge and
information have little cost and can improve the efficiency of the process drastically as we
shall see later. The objective is to use them to reduce the amount of inputs required thereby
bringing down the cost.
 25 / n

Operational/Transactional Processes (2/2)

Search for the Best Practice: It is important to understand that processes follow the principle
of equifinality. This means that the same process can be designed in “n” number of ways.
Considering your objective in mind, all the possible alternative ways must be explored.

Break free from the traditional mindset and use some lateral thinking to develop alternatives
before a choice is made. The idea is to choose one best practice which will meet the
company’s objectives best. However it is important to understand that even after the choice
regarding the best practice has been made, a company must be constantly on the vigil to
ensure it doesn’t become obsolete. Technologies keep on evolving over time and along with
them, best practices have to evolve too or else one stands the risk of being rendered obsolete
by a well informed competitor.

Standard Operating Procedure: Once the process is decided it must be documented and
created as a manual. This manual must then be given to all employees during their training.
One must ensure that the process is built in such a way that only the best practice can be
followed. If the employee has choices between alternative courses of action, the design is
faulty. What is the point of studying alternatives and coming up with the best one, if the
employees are not going to follow it in a standardized manner?
This standardization creates uniform levels of service and standardized quality no matter
where the service or product is delivered.
 26 / n

Control Based Processes (1/3)

To function efficiently any organization has to achieve “homeostasis”.
At a human level, our ability to adapt to hot or cold weather and continue living is
an example of “homeostasis”.

This word is used to describe the state of affairs wherein an organization adapts to
its environment and continues its normal operational activities.
At an organization level, IBM’s move from the worlds leading computer hardware
manufacturer to software consulting firm can be an example of homeostasis. IBM
changed to the changers in environment.

Control processes strive to bring about this condition of homeostasis in the

following manner:
The Principle of Feedback

Deciding the Metrics

Avoiding Conflict Metrics

Removing Human Bias

Reducing Time Lag

 27 / n

Control Based Processes (2/3)

The Principle of Feedback
All control procedures in the world are based on the simple principle of feedback. This means
that the processes constantly engage in a two-way communication. As and when the
communication signifies a deviation from a pre-established norm, corrective mechanisms
are activated.

A good example would be how thermostats work to control temperature. A thermostat is

designed to maintain a given temperature, let’s say 18 degree Celsius. The thermostat
therefore continually measures the result of its own actions. If the temperature goes above
or below the defined temperature (18 degrees Celsius), corrective action is initiated and
homeostasis is maintained.

Deciding the Metrics

In case of a thermostat, defining metrics is a lot easier. However organizational processes
are complex and need more sophisticated metrics to understand the state of affairs.
Consider a call centre operation for instance. The objectives are many and varied, sometimes
even conflicting. The objective in call centers is to ensure that calls are taken at the
maximum speed to ensure agents and infrastructure is fully utilized. Also customer service
and quality parameters have to be maintained. How would a singl e metric define the state of
affairs in such a case? It cannot, therefore composite metrics are composed. However the
principles remain the same. These numbers are monitored and corrective processes initiated
just like the thermostat example.
 28 / n

Control Based Processes (3/3)

Avoiding Conflict Metrics
Although it may seem obvious that one must ensure that the metrics must not conflict. Or
else it will lead to ambiguity and disorganization. But when organizations grow into MNC’s
and have operations spread across various continents, this does not remain v ery obvious.
There must be a separate process to ensure that all divisions of the organization are aligned
towards achieving their goal.

Removing Human Bias

Another important issue is to ensure that the feedback is unbiased and a true representation
of the actual state of affairs. For instance, if a manager reports what his/her subordinated
performance is, there is chance that the manager may misrepresent the case and the whole
control process becomes pointless. If a manager can rig the metrics, they can rig the whole
control process.

Take the case of Nick Lesson of Barings Bank Singapore who was hiding his own losses in a
Suspense Account and finally brought down the whole bank because of the failure of the
process to ensure automated control.

Reducing Time Lag

The idea of the feedback process is to ensure preventive measures. It is for this reason, that
the feedback time be as small as possible. Nowadays real time systems are available that
enable managers to keep a watch on the metrics and initiate corrective action as and when
things happen. This minimizes the damage possible.