Any enterprise progresses by evolving from what is potential to its activation
By Mondher Khanfir

Several resounding failures of some leading firms have marked the advent of the post-industrial age. The extent of the social, economic, and even ecological, disasters they induced has left the conscience of our society seriously shaken. Never before has the way in which the firm, any firm, goes about exercising its activity been of concern to society as a whole. This is all the more true when it comes to public companies or those listed in the stock exchange which are now required to report in more detail on issues of relevance to the viability of their economic model or of their strategic orientations, their risk assessment and the controls they implement.

Yet, much of the discourse on the firm and its performance, especially the discourse which we hear in general meetings, remains extremely monolithic and anachronistic. Indeed, financial balanced score cards, as obtaining from traditional management control systems (corresponding to the industrial age), do not allow a measurement of the whole set of the firm's material and immaterial assets and connecting them with the creation of value.

Accordingly, to apply rules however pertaining in sound management they are claimed to be on an outmoded conception of the firm may prove to be not only ineffective but also highly costly for the firm. Consider, for instance, a firm that reports a drop in its orders portfolio due to the appearance of a new competitor on the market. The general manager would then be tempted to apply a sharp cut in costs, especially labour costs, in order to maintain the financial balance of the operating of the firm. By so doing, he would be mitigating the short-term impact of the problem, without however addressing the cause of it, i.e. the loss of market share due to a lack of anticipation and innovation. In many cases, such a decision would irreversibly trigger the decline of the firm since, by laying off staff, the firm not only refrains from giving battle, but also deprives itself of an immaterial asset that is difficult to rebuild..

How can a manager possibly command respect for the viability of his discourse on the performance of his firm, its soundness and its potential, vis-à-vis the many exigencies made by the shareholders, customers, suppliers, banks... etc?

The answer requires a new business model and a new language to describe it.

Towards a new enterprise model

Based on the fact that performance conditions have changed and on the observation that a new paradigm resting on guiding has supplanted the old paradigm resting on control, it may be submitted that the firm, according to its modern sense, is a complex system of processing of flow.

It is, on the one hand, a system since its parts are interdependent within this system, operate together as a whole and react to the overall environment of the firm; it is, on the other hand, complex since its output data do not derive in a linear way from its inputs. The components of the firm as system ensure, therefore, the processing of input flows (physical, information-related and monetary) into output flows via well-identified processes which materialise the value chain .

The advantage of such a model is that it allows a definition of features that are generic to the firm and which are specific to any system, its objective (mission), its accomplishment potential (capacity to achieve its objectives), its response speed (cycle time), its complexity (its components), its entropy (loss of resources)... etc.

The whole set of these features impacts the position, growth, size, structure, as well as the management « philosophy » of the firm.

Let us note, in passing, that the way according to which the output flows are produced is unlike that of any other firm. The more the firm develops over time by securing additional profits and producing more goods and/or services, the more the "flow traffic" will increase, and hence the density of its expertise and support processes. Such density governs, consequently, the conditions of the static and dynamic balance of the enterprise system.

Besides, the more the firm develops, the more it needs to be provided with elaborate sub-systems to ensure rigorous guiding which would, in turn, ensure proper inter-operation of the subsystems based on modes of guiding and of continuous adjustment of any variances reported in quasi-real time.

Like its environment, the firm is in constant change; the task is at once to adapt to incidental events and to evolve towards a new state of balance that is more favourable for its development.

Based on the assumption that any firm evolves from a starting state of balance A towards a state of balance B-knowing that it seeks eventually to reach a state of balance C-the assessment of the performance of such an exercise must proceed by a double measurement of variances or gaps: the variance between what has been achieved with respect to what was planned, on the one hand, and between what was planned with respect to what is potential, on the other hand. It being recalled that what is planned is often subjective, since it derives from a wish to reach a "target" corresponding to the vision of some of the firm's decision makers.

If the objectives set for the firm exceed its potential, the firm stands, in principle, no chance of achieving these objectives. The whole task, then, lies in putting forward the appropriate hypotheses (of which the strategy itself) and ensuring the conditions necessary for their validity. Herein lies, indeed, the new complex role entrusted to managers who are expected not only to develop the potential of the firm but also to seek to activate it.