New approach to enterprise management «Efficient Enterprise»™

Improving Enterprise Efficiency

Challenges of the modern world, which manifest themselves in the growing complexity of tasks, a priori uncertainty and high dynamics of changes in supply and demand, force us to reconsider the existing approaches to management and reform enterprises in order to increase their efficiency.

In modern economy, in particular against the background of sharp aggravation of international relations, many Russian large enterprises are beginning to look for new ways of reforming in order to increase efficiency.

The solution of this task is seen in transition from centralized, monolithic, hierarchical structures with regulated top-down interactions to distributed network organizations consisting of autonomous (relatively independent) business centers built as virtual companies ( “Companies of companies”), interacting with each other and with external organizations on the basis of market principles and negotiations of equal parties, which creates the basis for launching mechanisms of self-organization and evolution. This provides greater openness, flexibility and efficiency, reliability and survivability of enterprises.

This approach is intended primarily for use in enterprises characterized by high complexity and innovative nature of products, where the result can be achieved only in the long-term, coordinated, creative, productive and responsible work of interdisciplinary teams of scientists, managers, engineers, economists, and workers.

Challenges of the Modern Economy

Profound qualitative changes taking place in management of large enterprises are mostly related to transition to the so-called post-industrial or information society, characteristics of which increasingly manifest themselves in the daily life of both entire enterprises and individuals:

Prevalence of information exchange over exchange of any physical objects.
Knowledge (intellectual capital) rather than money (financial capital) or violence (weapons) becomes the predominant economic resource and instrument of power.
Information network is becoming the predominant means of mass communication.
Prevailing organizational structure is network, not hierarchy.
Predominant methodology for enterprise development is self-organization and evolution.
Prevailing level of information exchange is global, not regional or local.

Brief Overview of Development of Management Models

Modern enterprises have gone through the following three stages of development:

linear structure (“line”) — employees are divided into departments, work is transferred from one department to the next. Departments reflect the main elements of the structure of the product or process.
matrix structure (“matrix”) — employees belong to departments, but management is built mainly through project teams.
network structure (“network”) — employees belong to the “houses” of knowledge centers as centers of professional competence, but are distributed by the project to business centers. Business centers are focused on profit, and knowledge centers — on extraction (generation) of knowledge.

Currently, the network form of enterprise organization is considered the most promising, since it allows for more flexible and efficient management of enterprise resources.

However, the network form of enterprise organization itself does not yet solve the main problems of effective performance.

Enterprise Management Problems

Nowadays, an intermediate project management structure is used at most enterprises — no longer a “line”, yet not a “matrix”.

This situation raises a number of problems in project management:

planning for labor intensity in corporate systems is conducted formally, in fact, once a year, and does not allow management to see real progress;
principles of outdated “costly” economy are dominating, which does not allow for planning and evaluating real profits on projects;
no motivation of employees to achieve world-class results, increase productivity and business efficiency;
no transparency, efficiency and flexibility in use of resources;
common corporate systems do not support real-time operation, cannot predict bottlenecks and lead to delays in decision-making;
data from corporate systems are incomplete and do not provide a correct and reliable picture of project management;
project management processes are extremely bureaucratic, overcomplicated and ineffective.

These features significantly reduce effectiveness of project management.

New Approach to Enterprise Management

Crisis in modern management, still based on the key ideas of ideal bureaucracy of M. Weber, is most clearly manifested in conditions when the world around us is becoming increasingly unpredictable and uncertain, unstable and rapidly changing.

Many modern studies on enterprise management show that the reason for this situation is the desire of managers to maintain their power at all levels of hierarchy and ignore personal creative qualities of their employees, turning them into ordinary «cogs», which is especially unacceptable in complex innovative activities at the junction of science and technology.

Implementation of this approach in a forced way breaks the existing bureaucratic stereotypes in management of companies and leads to emergence of fundamentally new network forms of enterprise organization and introduction of principles of organizational democracy.

In particular, holonic enterprise of Arthur Koestler, in development of which any enterprise becomes a “company of companies”, which is a multi-tier network of relatively independent business centers that organize themselves to solve tasks and execute projects.

The most prominent features of network and traditional enterprises are shown in the table below:

Traditional enterprises	Network enterprises
• Centralization of functions;	• Decentralization of functions;
• Hierarchical structure, rigid links;	• Network structure, flexible links;
• Closed to environment;	• Open to environment;
• Volume of knowledge used in decision making is strictly fixed, decisions are made according to formal rules of business processes;	• Volume of knowledge is not fixed, priority to acquire new knowledge, decisions are not made formally, but depending on the current situation;
• Planning approach, resources are allocated in advance;	• Market approach, resources are allocated as needed;
• Static, based on staffing plan, status and job descriptions;	• Dynamic, based on knowledge and experience, competencies, competition and cooperation;
• Issuing top-down commands along a rigid hierarchy;	• Negotiations of participants, their number is not limited, selected depending on the task;
• Batch rigid planning, following regulations and instructions;	• Flexible planning, finding compromises;
• Complete certainty in orders and resources;	• Any uncertainty in orders and resources;
• Communications are regulated;	• Communications are not regulated;
• Total external control;	• Internal motivation;
• Permanent monthly payment.	• Variable payment by result.

In management of such enterprises, managers are gradually replaced by “actors”, capable of solving the most complex and important problems and differing in their ability to learn and create.

In the course of the described management reform, it is proposed to gradually replace the multi-level enterprise management “pyramid” with a flat “horizontal” network of directly interacting elements:

Parent company — formed by the enterprise management as the “think-tank” of strategic management, delegating operational work to business centers and knowledge centers for stable enterprise development over a large time horizon;
Business Centers (BC) — created as autonomous «virtual companies» operating for successful execution of orders;
Knowledge Centers (KC) — consisting of the most competent specialists, united according to the principle of professional community, successfully accomplishing the tasks set in priority areas, able to continuously find and train new employees;
Service Centers (SC) — include economists, security and safety services, transportation units, etc., usually funded from overhead costs.

In the proposed enterprise model, development of competition and cooperation between BCs and KCs is directly linked to development of the enterprise’s virtual market.

Virtual Enterprise Market

The virtual enterprise market assumes that business centers and knowledge centers operate within the enterprise on the basis of mutual agreements and direct payments, i.e. negotiate and enter into contracts with each other and with service centers in order to achieve results and minimize non-transparent overhead costs.

When a Business Center invites a specialist from a Knowledge Center to a project, it at the same time pays the KC a commission for having raised this specialist (as a percentage of his or her payment). This allows the KC to return its “investments” spent on searching for the employee and training him or her. This is how the Knowledge Center receives profit, which also comes from fees for use of knowledge (intellectual property) expressed in articles, inventions, patents, etc.

Thus, each element in the new network structure is focused on improving efficiency of the enterprise as a whole.

Actors — Key Employees of the New Enterprise

Within the enterprise management reform, the task of identifying, supporting and developing skills of actors, productive employees, becomes one of the most vital ones.

Studies show that values of actors are very different from values of ordinary workers, which are often called «doers», emphasizing their process orientation.

Table of values: “doers” vs actors

“Doers”	Actors
Position (have to be)	Creativity (want to create)
Number of employees	Leadership
Control	Knowledge
Loyalty to management	Experience
Limited but stable salary	Unlimited salary (but not stable)
Upmarket education	Education through experience
Employment period	Respect

Below you can find comparison of the main features of actors and “doers”, which can help identify actors among employees of the enterprise.

«Doers»	Actors
• Follow formal processes	• Learn and create, breaking barriers
• Talk about difficulties and harmful people, downplay others’ results, avoid evaluations of personal contribution	• Proudly talk about their results and difficulties that they have overcome, use exact figures and facts
• Do not recognize their mistakes and do not want to fix them	• Always recognize their mistakes and try to fix them
• Carry long “blurred” conversations, are complex and incomprehensible in discussions	• Actively listen and quickly catch the essence, are simple and clear in discussions
• Closed and arrogant	• Friendly and open
• Disguise lies in reports, indulging in wishful thinking	• Direct and honest, never hide problems, suggesting solutions
• Afraid of the new and analyze risks before discussing the result	• Fly in the face of challenge and take risks, quickly implement new
• Appreciate position and career	• Appreciate creativity and results
• Looking forward to appointments or career progression	• Take responsibility and solve problems
• Earn little!	• Earn a lot!

Actors can gradually be promoted both to key employees and further to project managers.

Actors are not necessarily born by nature, they can be “raised” step by step in Knowledge Centers, for example.

Knowledge management

New international standards of enterprise management, as well as the new GOST standards in the Russian Federation, suggest the earliest possible introduction of knowledge management mechanisms in organizations.

However, the processes and results of this activity are not supported by the existing software systems and, therefore, knowledge management processes remain extremely labor-intensive and little implemented in practice.

We will show how the proposed management methodology makes these mechanisms highly relevant and helps development of enterprise knowledge.

Enterprise Knowledge Base

Enterprise knowledge base can already be built on the basis of modern technologies of the Semantic Web, which uses both existing ontology editors and specialized programming languages such as OWL, SHOE, etc. to build domain knowledge models.

Domain ontologies become the key component of knowledge bases. They are defined by concepts and relations, dedicated to a product, enterprise, employee, etc.

Knowledge Dividends

Knowledge formalization in the form that suitable for computer processing immediately makes it possible to build effective services that help reform management processes, for example, by introducing new employee motivation for results.

For example, for long-term employee motivation, the mechanism of “knowledge dividends” can be used, reflecting personal creative contribution.

Another possible mechanism of “knowledge dividends” is project virtual shares (PVS).

Project virtual shares are designed to materially consolidate intellectual contribution of a productive employee to the success of enterprise projects.

If the project is successful, the employee receives a certain number of shares in the project.

As a result, contribution of each employee can bring dividends to him or her for a certain period, at first increasing and then, possibly, decreasing to a zero, while encouraging the employee to create new contributions.

Individual Development Plan

One of the main tasks of the head of each Knowledge Center should be to develop a plan of individual development for each employee, reflecting the balance of current demands and resources, as well as the forecast of the need for specialists in the virtual market of the enterprise.

As a result, the employee will be constantly offered tasks not only according to his or her current competencies, but also according to the individual development plan.

Knowledge Transfer

If a young employee cannot yet cope with a new task, it should be performed under supervision of mentors.

In this case, the system can offer a young employee tasks that are higher than his or her current level, but can be completed successfully with individual supervision of a mentor, who will receive dividends of knowledge for the training.

Development of Competition and Cooperation among Actors

One of the ways for cultivating actors is development of competition and cooperation among them.

However surprising it may sound, it is development of competition that leads to increased cooperation. Moreover, the strongest usually unite faster and easier.

Gamification in Action

Described possibilities bring elements of game into performance of enterprises, which in the modern approach to improving management efficiency is called “gamification” of work.

Observing their results and results of their colleagues, employees can see the general situation and try to improve indicators daily.

New Management Roles

The proposed management methodology significantly changes the role of enterprise managers.

The role of the project manager becomes focused on achieving maximum profit, with unconditional fulfillment of requirements for product quality.

Committments of project manager:

participates in competition for the right to become a project manager;
gives competitive bids for project implementation to the management;
if successful — assembles a project team from any units;
discusses with top management and with the team the main indicators of project success;
manages all project resources (organizes the team, plans the work, provides and maintains control, and gives proposals for development);
having achieved the result, distributes project bonus payments in a team, based on the proportion of profit agreed with top management, depending on the project complexity.

Responsibilities of project manager:

achievement of target indicators of result quality and project efficiency;
compliance with all technical requirements for the product under the project;
control of intermediary results of project executors;
efficient use of all available resources (human, financial, etc.);
obtaining maximum profit under the project for the enterprise;
generation of project reports;
work in the enterprise information systems and generation of online reports;
compliance with project management regulations and rules.

Requirements for Development of Software Systems

Unfortunately, the existing systems worsen the existing bureaucratic processes of large enterprises with its inherent “costly” economy, which in the modern complex and rapidly changing world hinders the increase in flexibility and efficiency of management decision-making.

The proposed methodology requires a variety of smart project management decision-making support systems.

In particular, implementation of the proposed methodology in practice requires more intensive interaction between employees for continuous adaptive distribution, planning, optimization, forecasting and control of the use of project resources in response to unforeseen events, and in conditions of increasing complexity and number of projects.

For these purposes, smart systems of a new class are needed, which would fundamentally differ from traditional batch systems that can work in real time and constantly communicate with employees to develop and coordinate their decisions.

These systems will be phased in to the distributed real-time system “Smart Enterprise-5.0”, implemented in a network-centric architecture with adaptive p2p interaction of systems based on a common data bus and decision coordination.

Management Reform Roadmap

The roadmap of management reform includes three main stages:

development of a network approach to result-based project management;
introduction of real-time economy and adaptive resource management in real time;
development of knowledge and personal effectiveness of employees.

The expected main result of the management reform is significant increase in efficiency of enterprise resource use by 20–40% over the next 2-3 years, as well as its stable development over a significant time horizon.

Expected Results of Implementation

Expected measurable results of implementation of the proposed methodology will be as follows:

achieving full transparency of results in project management;
intensification of processes of accumulation, transfer and use of knowledge to improve quality and efficiency of work;
achieving greater efficiency and flexibility in project management;
improving efficiency of resource use in enterprise projects;
increasing productivity and efficiency of teams due to growth of internal competition and cooperation;
activation of formation and promotion of leaders;
development of entrepreneurial spirit to use the high scientific potential of the products and technologies under development;
an increase in remuneration of employees and increased internal motivation of employees;
growth of knowledge and competencies, support of creative potential and sparking the will and energy of employees;
increasing role of qualified engineers in decision making;
development of competition among projects and employees;
accelerated development of directions and increased profitability of projects, as well as creation of new business centers in promising areas;
reduction of bureaucracy, sophisticated extra steps and overabundance of managerial staff.

Moreover, an even more important expected result is strengthening the team spirit by recognizing the importance of productive employees and their creative contribution, respect for each actor, expressed in building individual profiles and development plans, flexible selection and assignment of tasks, orientation of each employee to results and many-fold increase in payments to specialists.

Methodology