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1.2 The St. Gallen Management Model as the Basis of an Integrative Approach to Management

[17] Management is an action-oriented science. It deals with the organization and design of purpose-oriented socio-technical systems. Its strong practical relevance means that management science interfaces with a wide variety of disciplines (e.g., economics, law, sociology, psychology, ethics, engineering, and computer science). The term “management” derives from Latin manus (hand) and agere (to lead). Ultimately, “management” is about goal-oriented leadership. At the same time, “the management” means a community of managers in an organization.

Organizations are embedded in a diverse environment and face the demands of different stakeholders. They also involve division of labor and functionally differentiated value creation. Managers must (1) optimally configure short- and long-term organizational value creation in the face of a constantly changing environment and (2) critically question their own managerial activities in the process. To do so, they need an integrative approach (see Section 1.4).

The University of St. Gallen (HSG) has long taken an integrative view of management. The St. Gallen Management Model (SGMM) has served as an intellectual map for the academic and practical discussion of management in and of organizations for several generations (see Section 1.3). Despite the SGMM‘s continuous evolution, three elements have remained consistent: environment, organization, management. In the current version of the SGMM (Rüegg-Stürm & Grand, 2020), these elements are structured and detailed according to (among others) the following key categories:

Task perspective:

– Environment: environmental spheres, stakeholders, interaction issues.

– Organization: processes, structuring forces, development modes.

Practice perspective:

– Management: value creation, orientation framework, management practice.

[18] Figure 1-1: Task Perspective of the 2020 St. Gallen Management Model

Source: Rüegg-Stürm and Grand (2020)

The introductory case study (see Section 1.1) illustrates the key categories of the task perspective (Figure 1-1). Below, the components of environment and organization are briefly presented as a repertoire for the further discussion of management. In the subsequent chapters, the task perspective is also supplemented by selected terms and concepts of the practice perspective (Figure 6-1) (for a comprehensive view of the current SGMM, see Rüegg-Stürm & Grand, 2020).

Environmental Spheres:

The current version of the SGMM highlights that organizations are embedded in and define their own environment (see Section 6.3.1). This environment contains different so-called environmental spheres: societal, natural, technological, and economic (Figure 1-1). The company is influenced by these spheres and in turn influences them. For example, an innovation in the environmental sphere technology (e.g., a newly developed production process) compels the company to change its own production in order to remain competitive. If, for example, [19] jobs are reduced as a result, and if different employee training profiles are required, this in turn impacts the company’s societal environment. According to the SGMM, environmental spheres are spaces of opportunity for the company from which opportunities and threats arise. Organizations need the environment and its different spheres to tap the resources they need for their products and services, and that enable an organization to develop strategic competitive advantages. For example, proximity to a research institution facilitates innovation and staff recruitment.

Stakeholders:

Stakeholders are key to the organization‘s relationship with its environmental spheres (see Section 6.3.2). They are specific actors (individuals, organizations, etc.) that operate in the environment and place their own demands on the organization. Stakeholder participation (e.g., employees, customers, investors, suppliers, or even the state) is necessary for the company’s survival. The most important task of management is to ensure cohesion among stakeholder groups (see Bleicher, 1991) and, in doing so, also to moderate conflicting goals between stakeholder groups. If, for example, in a crisis situation such as a pandemic, the company comes under economic pressure, management must decide how far it can accommodate employee demands (e.g., job preservation) without, for instance, jeopardizing supplier demands (e.g., cash flow). Because stakeholders are embedded in their environmental sphere, they also represent it. Environmental associations, for example, represent the natural environment; investors, suppliers, and customers the economic environment; the state and media the societal environment. Corresponding relationships with its environment enable the organization to tap the necessary resources via stakeholder groups. Media relations allow the organization to strengthen its reputation while investor relations contribute to raising capital. Good customer relations are essential for selling products and services, stable supplier relations for reliably providing the necessary components.

Interaction Issues:

[20] Interaction issues (see Section 6.3) are those topics that an organization negotiates with its stakeholders and that represent the organization’s interrelations with its respective environmental spheres. For example, natural resources are at stake when a company needs more land to pursue an expansion project. Norms or values are at stake when a company negotiates leadership principles and its future strategic direction with employees. State concerns and interests vis-à-vis investors are at stake when stock corporation law is under review, and thus the voting rights of individual shareholder categories.

Processes:

Processes can be defined as sequences of activities (see Section 1.5.2). The central processes of companies are business processes (see also Bieger, 2019). These include service creation processes (i.e., what the company actually produces), service innovation processes, and customer processes. The latter comprise customer acquisition, customer loyalty, and reputation processes. Management processes include those processes that serve to steer the company as a system, as well as its relationships with the environment. These require communication and decision-making skills and techniques (see Section 2.2). Support processes are functions that indirectly support business processes (e.g., financial management processes and human resources processes).

Development Modes:

Because the environment is dynamic, organizations need to keep evolving. In terms of development modes (see Section 3.7), two types of organizational change are distinguished. One is the continuous optimizing of current operations. The other is renewing the organization or parts of it by challenging the status quo. Optimization presupposes an existing structure, whereas renewal also involves structural change. A production line in the automotive industry, for example, can be improved step by step in terms of throughput times by fine-tuning the individual production steps (grinding, gluing, coating, etc.). However, it can only be changed fundamentally (e.g., adapted and converted to a new propulsion technology such as electric drive) at considerable expense and time. Companies often switch between these two modes. If a value creation system has been reconfigured (renewal), it subsequently requires a phase of optimization and structural stability. In management, these two modes often occur in parallel. Optimization decisions must be taken while questioning the status quo.

Structuring Forces:

[21] Structuring forces ensure the necessary basic order in the form of governance, a development direction defined by the strategy, an organizational form geared toward strategy implementation, and a system of norms and values defined by the culture.

– Governance (see Section 5.6) ensures the prerequisites for management and strategic capability by defining a suitable company purpose, management resources, division of powers, and processes: Governance defines the roles, rights and duties of management, as well as an organization’s normative orientation, i.e. its vision and mission (Rüegg-Stürm & Grand, 2020).

– A strategy (see Section 3.2) can be designed only if an organization’s long-term pupose is clear. A sports infrastructure facility, for example, needs to determine whether it is a health or a leisure company. This decision defines the fields in which a strategy is searched for (e.g., identifying new products). The purpose of strategy is to ensure competitiveness. To this end, strategic success factors are developed either within (“inside out,” e.g. core competencies) or outside the company (“outside in,” e.g. market positionings).

– An organization’s structure (see Section 4.2) must be aligned with the strategic success factors according to which the organization needs to define its processes and to design its strategy to optimally support those processes (Osterloh & Frost, 1996). If, for example, a company defines its ability to adapt service processes as optimally as possible to customer needs as its central strategic success position, it will focus on customer-oriented service processes. Consequently, the organization will need to align itself according to customer groups as its primary ordering criterion, possibly by defining its main departments according to customer groups.

– [22] Structure and culture correlate (see Section 4.6). For example, a strong hierarchical organization results in a culture of control, which in turn impacts the organization’s functioning. The culture, in turn, must be consistent or at least compatible with the company’s purpose.

These considerations, and the logic of the SGMM, lead to several basic management tasks that every organization must fulfill (Figure 1-2).

Figure 1-2: Basic Tasks of Management

Source: adapted from Rüegg-Stürm and Grand (2020)

1.3 Development of the St. Gallen Management Models

The latest version of the SGMM (introduced here) continues a 50-year tradition of systematically developing management at the University of St. Gallen. This began with the aspiration to create an “empty” framework in which to create meaning (Ulrich & Krieg, 1972). This framework (or “scaffold”) as such provides a structure for classifying problems and thus facilitates discussion. Like every model, it is a simplified representation of reality that needs to be concretized for the corresponding purpose.

1.3.1 First-Generation SGMM

[23] Already the first-generation SGMM, developed in the early 1970s, was guided by the idea of an open-minded approach to problems rather than a recipe-like imparting of knowledge (Ulrich & Krieg, 1972, p. 9). The model was based on systems-oriented business studies, which conceptualized companies as systems. The authors described systems thinking as holistic, process-oriented, interdisciplinary, analytical, synthetic, and pragmatic thinking (Ulrich & Krieg, 1972). Their approach took integrative thinking into account, while facilitating a cross-functional and cross-subdisciplinary approach to practical issues.

Figure 1-3: First-Generation SGMM: Management Model, Environmental Model, Company Model

Source: Ulrich and Krieg (1972, pp. 20, 27, 31)

[24] The first-generation SGMM has three parts: the company model, the environmental model, and the management model (Figure 1-3). The aim was to support management by representing the enterprise both as a productive and as a technical system, and by providing a tool for its analysis.

In the company model, the following five approaches were analyzed in more detail (Ulrich & Krieg, 1972):

– The company’s environment (stakeholders, environmental spheres)

– Markets and market performance (procurement and sales markets, resources and market performance)

– Functional areas (execution area, supply area, management area)

– Design levels (technological, economic, social)

– Structuring of tasks: repetitive and innovative tasks (preservation and renewal).

The environmental model with the environmental spheres and stakeholders is still part of the current SGMM.

In the field of corporate management (management model), three classification criteria were used (Ulrich & Krieg, 1972):

– Management levels (corporate politics, planning, disposition)

– Management phases (goals, means, processes)

– Management functions (deciding, initiating, controlling)

These structuring approaches recurred similarly in the subsequent generations of the SGMM. Over time, the model was repeatedly adapted to current findings in business studies and to management challenges.

1.3.2 Second-Generation SGMM

Bleicher (1991) titled the second-generation SGMM “The Concept of Integrated Management.” He highlighted Ulrich and Krieg’s (1972) holistic approach and explicitly addressed integrated management. The second-generation SGMM thus claimed to meet the requirements of a paradigm shift toward an understanding of management that consciously deals with increased complexity and the dynamics involved (Bleicher, 1991, p. 147). In the early 1990s, a new world order became foreseeable, following the collapse of the former Soviet system and [25] of centrally planned economies, as well as important technological innovations, for example, in the IT sector. Thus, the second-generation SGMM introduced the system levels discussed at that time (Schwaninger, 1988): the normative, strategic, and operational dimensions (Figure 1-4).

Figure 1-4: Second-Generation SGMM: Normative, Strategic, Operational Levels of the Organization

Source: Bleicher (1991)

1.3.3 Third-Generation SGMM

Rüegg-Stürm (2003) developed the third-generation SGMM as part of a curriculum redesign of business studies at the University of St. Gallen. His model served as the basis for an introductory textbook on business studies (Dubs, Euler, & Rüegg-Stürm, 2004, p. 8). Essentially, the key topics corresponded to the dimensions identified in the first-generation SGMM (Figure 1-5):

– [26] Environmental spheres

– Stakeholders

– Interaction issues (resources, norms, values, concerns, and interests)

– Structuring forces (strategy, structure, culture)

– Development modes (optimization, renewal)

In line with recent findings in business studies (see also Porter, 1985; Osterloh & Frost, 1996), these dimensions were supplemented by a process-oriented view. This replaced the functional view and distinguished business processes, management processes, and support processes, as well emphasized the importance of communication for performing management tasks.

Figure 1-5: Key Visualization of the Third-Generation SGMM

Source: Rüegg-Stürm (2003, p. 22)

1.3.4 Fourth-Generation SGMM

[27] Rüegg-Stürm and Grand (2017) conceived the fourth-generation SGMM as a renewed attempt to develop a language for reflecting on, discussing, and dealing with the complexity facing management practice (Rüegg-Stürm & Grand, 2017, p. 2). They defined management as a reflective design practice aimed at supporting entrepreneurial tasks and challenges. The fourth-generation SGMM complements the third generation’s process orientation by highlighting systematic reflection and ongoing enactment as core management tasks. The main reason for this emphasis is the increasing complexity, uncertainty, and dynamics of today’s world. These factors require organizations and their managers to incorporate the expected consequences of their own actions into their decision-making, which is subject to great uncertainty today.

The fourth-generation SGMM (Rüegg-Stürm & Grand, 2017), introduced briefly above (Section 1.2), has been operationalized since 2019 by adding a working tool (see Rüegg-Stürm & Grand, 2020). Its “task perspective” (Figure 1-1) comprises the same six key categories as the third-generation SGMM (environmental spheres, stakeholders, interaction issues, processes, structuring forces, and development modes). Its “practice perspective” contains four categories:

– Value creation (differentiation, resource configuration, value creation processes, decision-making practice, relationship culture)

– Orientation framework (operational, strategic, and normative orientation)

– Management practices (managerial communities, design platforms, design practices, language of reflection).

– Environment (environmental spheres, stakeholders, conditions for existence)

This latest edition of the current SGMM (Rüegg-Stürm & Grand, 2020) is intended to supplement to the basic textbook (Rüegg-Stürm & Grand, 2017) in the sense of a didactic working tool and as a means of reflecting more in-depth on management.

1.4 Integrative Management

[28] The St. Gallen tradition has consistently understood management as integrative. Integrative management can be defined as the design and steering of an organization as a purpose-oriented socio-technical system that consciously and responsibly handles significant force fields and conflicting goals (Bieger et al., 2021). These force fields and conflicting goals include the different perspectives of the individual corporate functions, but also different stakeholder expectations, or the deliberation between short-term, operational, and long-term strategic views, and, in particular, an integrated execution of all management tasks (analysis, planning, control). Management models, as simplified representations of a complex reality, are intended to support managers in performing these tasks.

1.4.1 Origins of Integrative Approaches to Management

Developing a new product requires the interaction of various factors: marketing (incorporation of customer needs), development, production, finance and controlling (securing the necessary investments), and compliance (with rules and legislation). In contrast, preparing a company takeover requires finance and compliance specialists to provide valuations and due diligence (careful examination of the acquisition object), to draft contracts (legal competence), and to support internal and external communications (communication competence). These two examples show that an integrative view is necessary for solving management tasks at every level of the organization. This principle applies not only to the required competencies and the associated corporate functional areas, but also to assessing how one’s own actions impact the various environments and stakeholders. Actors must also take into account the short- and long-term consequences of their actions — which points to the three dimensions (functions, stakeholders, time horizons) of integrative thinking.

Accordingly, various exponents of classical management research (e.g., Peter Drucker and Henry Mintzberg) followed an integrative approach. For example, in Concept of the Corporation (first published in 1946), Drucker described management as “a specific organ doing specific kind of work and having specific responsibilities” (Drucker, 1993). In his view, the rise of management as a discipline is probably the most important development in the 20th century: “In this century, [29] society has become a society of organizations. Every major social task in this society is being performed in and through large, managed institutions” (Drucker, 1973, p. 545). Other scholars have also highlighted that management is a decision-making and acting organ, i.e., actor. For instance, Henry Mintzberg’s remarkable Mintzberg on Management (1991) describes how managers cope with various tasks at the same time. Based on an observational study, he concludes that managers briefly hold problems in their hands like a juggler, before processing and sending them back into “orbit” for further processing (Mintzberg, 1991, p. 33).

St. Gallen management research has also explored the needs and requirements of management as an acting organ. Thus, Ulrich, Krieg, and Malik (1976) observed that “the purpose of business studies is to provide actors with the knowledge needed in specific problem situations” (p. 135).

Thus, in order to best serve management and managers, researchers often prioritized “relevance” (i.e., whatever serves life and efficiency) over “rigor” (i.e., scientific substantiation) — well, at least until business studies also began developing a stronger scientific approach. For instance, Gulati (2007, p. 776, based on Gorden & Howell, 1959; Pierson, 1958), noted that “The question first arose in the 1950s and 60s with multiple voices suggesting that management research was aspiring to be relevant at the expense of the rigor observed in other social sciences” (see also, e.g., Gordon & Howell, 1959; Pierson, 1959). There was an increasing orientation toward social science principles and theories, for example, from economics or sociology. One example was the development of strategies based on industry economics such as economies of scale, economies of scope, and economies of density. This approach was associated with a differentiation of management research, as evident in various disciplines. More and more, research became oriented toward individual functions and subdisciplines. For example, marketing as a research area differentiated itself as part of business studies; within marketing, other research areas (e.g., customer insight or brand management) emerged as subdisciplines with their own research communities.

[30] While this stronger scientific orientation enabled placing findings more strongly on micro-foundations, it made a deeper problem orientation more difficult (Nickerson & Argyres, 2018). For example, marketing research developed increasingly sophisticated explanations for constructs and theories such as perceived fairness or perceived customer value. However, 1980s heuristics (e.g., the dominance standard model) are still used in practice to tackle essential questions such as designing an integrated marketing mix (cf. Kühn, 1985).

1.4.2 Management as a Profession

This progressive differentiation of management as an independent activity and the specialization of management knowledge are also reflected in management practice. Management is developing into a profession in its own right, one based increasingly on scientific principles. It is also seen more and more as an activity that is not only necessary for companies, but which is also penetrating ever wider areas of business and society. Management methods are increasingly entering public administration, churches, the military, and nongovernmental organizations. Many such organizations long considered management a kind of “art” (Lynn, 1996). In hospitals, for instance, chief physicians or chief medical officers were typically entrusted with running the organization: They were considered best suited to management tasks on account of their personality or life experience (e.g., in the military).

Today, management is a profession in its own right. In Bourdieu’s sense, it possesses characteristics typical of professions: an independent language, independent rituals, and professional values (Bourdieu, 1972). Today, managers are prepared for their duties and responsibilities in management training courses. Managers also switch between different companies, industries, regions, and cultures. Today, not only professional managers move from airlines to pharmaceutical companies, but professional deans move between universities in different countries and cultures.

Combined with the specialization of management research, and because ever-increasing management tasks also demand a division of labor and thus the specialization of management itself (Rüegg-Stürm & Grand, 2019a), an increasing function orientation has also emerged in practice. For functions such as human resource management, [31] marketing, strategy management or financial management, independent research institutes, chairs and education programs have developed in undergraduate and graduate education (Figure 1-6).

Figure 1-6: Chairs at the University of St. Gallen School of Management (2020)

This differentiation is also reflected in the development of university courses. In the 1970s, many universities still offered courses in economics that integrated business studies and economics. These subject areas later became separate programs. Since the introduction of the Bologna system in early 2000, degree programs specializing in certain functions (e.g., strategy, marketing, accounting and controlling) are now offered, especially at the master’s level. In further education, certificate courses are offered, sometimes by professional associations, such as the CFA (Chartered Financial Analyst) or the CMA (Certified Marketing Analyst). Such courses enable further professional specialization. In some countries, they are also a legal prerequisite for holding management positions in companies (e.g., in accounting and finance).

1.4.3 Dealing with Complexity

[32] The demand to overcome functional silos or, in research, subdisciplinary silos has received attention early on (e.g., Aldrich & Herker, 1977). Research, for instance, often faces critique for pursuing increasingly specialized research questions (e.g., consumer behavior in isolated laboratory settings), and for neglecting the integrative issues challenging top managers and demanding a cross-disciplinary perspective. Practice shows that top managers must ultimately “integrate” the increasingly specialized management of individual functions. This, in turn, might overwhelm managers and increase the number of staff functions.

Thus, conflicts may arise between departments: for example, between the marketing function, which demands greater production flexibility in line with customer needs, and production, which wants the greatest possible standardization for reasons of efficiency. If incentive mechanisms (e.g., profit-sharing schemes for executives) are geared toward the success of one’s own department, fighting one’s own corner might take priority. Top management then needs to integrate competing views and optimize the overall system. To do so, it needs information, which in turn must be obtained from management staff.

This isolated optimization of individual functional areas, and the elaborate overall coordination required at the highest level, also reduces the agility of organizations. Integrative management is needed more than ever in today’s “VUCA age.” VUCA stands for “Volatility, Uncertainty, Complexity and Ambiguity” (Bennett & Lemoine, 2014). Today, developments are volatile because manifold shocks, for instance, in the financial markets, politics, or health, may strike home swiftly and simultaneously across the world. This sheer prospect causes uncertainty. Ever more at least seemingly contradictory goals (e.g., simultaneously achieving low-cost production and environmental protection), or the demand for high-performance teams and achieving work-life balance at the same time, create ambiguities and thus also complexity for management. Management needs to deal with these force fields and to define integrative solutions and approaches.

[33] Various authors have identified management practices and tools for overcoming the boundaries between professional communities and disciplines (Spee & Jarzabkowski, 2009; Levina & Vaast, 2005). Certain practices and tools (e.g., guided future workshops), or working tools (e.g., business planning or management models like the SGMM), have been found to facilitate the integration of diverse views.

Other approaches to promoting a more inclusive view (e.g., in strategy theory) have highlighted the importance of asking the right questions. For example, Nickerson and Argyres (2018) emphasize that avoiding Type III problems requires careful problem formulation. In this categorization, Type III problems involve situations where solutions are developed for the wrong problem (i.e., when the actual problem could not be identified). Integrative management is enabled and stimulated by asking broad, unconventional questions.

Working in groups is also important. These should be as diverse as possible (e.g., company members should represent different functional areas, as well as different cultures, genders, etc.). Groupthink should be avoided (i.e., overly focusing on group needs, especially group harmony). Instead, group members need to exchange ideas about each other’s perspectives on the problem at hand.

1.4.4 The St. Gallen Approach

The systems approach has remained central to St. Gallen management research (Bieger et al., 2021). Together with cybernetics (steering of complex systems), the systems approach was developed in the 1960s, as part of the debate on limited resources (see Meadows, Meadows, Randers, & Behrens, 1972), which ushered in an intensified search for integrative approaches. Important foundations were laid by Beer (1959) and Vester (1968). In St. Gallen, Ulrich (1968) pursued these approaches, which were later followed and further developed by different researchers in different subfields (e.g. Kaspar, 1996, on tourism). Systems thinking (see also Luhmann, 2002) was also treated as a new method, almost as a new paradigm (Kuhn, 1969).

[34] Beer’s (1959) work helped to establish rules for viable (and thus developable) systems based on cybernetic principles. The considerations and laws emerging from this research still shape management practice today, including the need to address organizational survival on different system levels (see e.g., Schwaninger, 1988). The three main management levels (Figure 1-7) — with their respective orientation bases, target categories, reference variables, and time horizons — have been integral to the SGMM since its second generation. Systems thinking continues to shape business studies research and teaching at the University of St. Gallen. Examples include Bleicher’s description of companies as socio-technical systems (Bleicher, 1991) or Gomez’s practical approach to solving management problems using integrated (networked) thinking (Probst & Gomez, 1991).

Figure 1-7: Integral Planning with Orientation Bases, Target Categories, Reference Variables, and Time Horizon

Source: Schwaninger (1988, p. 126)

[35] Another outcome of systemic approaches is Ashby’s Law (Ashby, 1985). This states that a variegated complex system also needs to be governed by an equally variegated and complex control system. For instance, if a team conflict occurs in an R&D department, it is not enough to simply remove the greatest “rebel.” Any team is a complex system, in which social relationships coincide with knowledge relationships, hierarchical dependencies, and project processes. The team as a system is characterized by different interconnected levels. Thus, the social system is strongly influenced by the interactions necessary for project processes, which in turn are influenced by the hierarchical system. Appropriately intervening in these conflicts requires analysis on all three system levels. Measures are also needed on the different levels, such as staff measures on the social level combined with changing project structures and simultaneously adjusting the management culture.

1.5 Thinking in Systems and Processes

As mentioned, thinking in systems and processes is a cornerstone of the St. Gallen Management Model. Systems thinking claims to enable interdisciplinary perspectives. Process thinking is intended to interconnect individual functions. In a value creation process, for instance, this would involve purchasing, production, and marketing. Accordingly, many companies are also no longer organized by functions but by performance processes, which enables overcoming functional thinking silos. Instruments such as working with networks in integrated problem solving (Probst & Gomez, 1991), or using process maps to handle complex issues, resemble “boundary-spanning objects” (see Spee & Jarzabkowski, 2009). Below, we present the essential characteristics of systems and processes.

1.5.1 System View of Organizations

[36] Ulrich (1968, p. 105) defined systems as an “ordered totality of elements between which relationships of some sort exist or can be established.” These elements can be represented by graphs in which arrows show the relationships between elements (Figure 1-8).

Figure 1-8: Tourism as an Illustrative Example of an Open System

Source: Bieger (2010, p. 64); based on Kaspar (1996, p. 12)

Different types, each describing the structure of systems and often represented as networks, are evident (see also Bieger, Pechlaner, Liebrich, & Beritelli, 2004). Thus, star networks, on the one hand, and mesh networks, on the other, are extreme cases (Figure 1-9). Pure star networks are centered on one element that “controls” the network, so to speak. Network development, however, also depends on the capacities of this central element. Consider logistics networks: For example, the hub-and-spoke networks of airlines handle traffic via a central hub (i.e., an airport offering transfer connections). Other examples include management consulting teams or the classical structures of academic chairs at universities, where all communication and working relationships are steered and thus also monitored by the managing partner or the chairholder (full professor).

[37] In mesh networks, relationships exist between different elements. In extreme cases, every element is connected with all others. The advantage of such systems is their redundancy. If one element fails, its functions can be performed by other elements. This basic idea also underpinned the development of the World Wide Web. In previous IT structures, remote terminals were connected to a central computer. If this failed (e.g., due to a terrorist attack or a technical fault), the entire IT system was paralyzed. Initiated by the military, the development of the World Wide Web sought to create an IT system that would continue functioning even in adverse cases because all computers were interconnected (see Deitel, 2012). On the downside, these systems are difficult to control because the central node through which everything could be controlled is missing.

A special case of the mesh network is the grid network. This consists of a rectangular network whose elements are connected to their neighboring elements on all four sides. If one of the nodes in a grid network fails, it is possible to switch to parallel connections. This explains why grid networks are often used in road and traffic planning.

Figure 1-9: Exemplary Types of Networks to Represent Systems.

[38] Every organization consists of different system levels (see, e.g., Schräder, 2000, p. 153). For example, a socio-technical organization such as a hospital has the following levels:

– a logistical level on which patient flows occur and on which different service elements (e.g., radiology department, laboratory, operating rooms) are combined to form a specific service chain for patients;

– an information level on which patient data are collected and made available in close conjunction with the logistical level;

– a financial level on which the financial flows between the different elements take place (e.g., the billing of services from the X-ray department to the treating ward and the individual patient);

– a hierarchical level consisting of reporting relationships and cooperation structures (e.g., in projects);

– a social level comprising personal and business acquaintances and informal communication relations.

Figure 1-10: Schematic Representation of System Levels Using the Example of a Hospital

Source: Bieger (2010, p. 75)

[39] These different levels influence each other (Figure 1-10). Thus, good interpersonal relations between two department heads positively impacts the logistical level by facilitating cooperation.

Systems can also be distinguished according to whether they are trivial or complex (von Foerster, 1993). Trivial systems are characterized by their stability (i.e., the same relations always exist between the same elements). Thus, one element has a stable effect on another: For example, if one element grows, the other element also grows. Many logistics systems are trivial systems — for instance, a firmly coupled value chain supplying glasses and involving a stable relationship between the suppliers of semi-finished products, manufacturing, and delivery to retailers. Such systems can be easily analyzed and controlled. In terms of Ashby’s Law (Ashby, 1985), their variety is low, meaning the entire system can be controlled with individual interventions (e.g., changing production capacity).

Matters are different with complex systems. These are characterized by:

– Openness. Complex systems constantly receive external impulses. As a socio-technical system, a company is affected, for example, by cultural values changing in its social environment, which in turn change employee behavior.

– Structural instability. The system restructures itself continuously, as individual elements or relationships emerge or disintegrate. For example, when communication relationships between individual organizational members stall in a hierarchical system due to conflicts, or even when leading figures are dismissed as a result of these conflicts and thus cease to be system elements.

– Tilting effects. The relationship between the elements is nonlinear, allowing tilting effects to occur. This happens, for example, when a management relationship is too strongly focused on performance and control, and intrinsic motivation suddenly vanishes as a result.

– Multilayeredness. The elements change their mode of action and behavior, especially if they are affected by changes on another impact level or by another system. If a manufacturing department [40] reduces maintenance due to cost-cutting measures (impact of the financial level), and malfunctions become more frequent as a result, this in turn impacts the system’s logistical level.

– Historicity. Complex or nontrival systems are historical. Their current state and way of operating depends — among other aspects — on their past. Basically, any event or decision can alter the current state and way of operating. Vice versa, historicity also means that prior decisions inform current and future ones. So-called path dependencies can occur. For example, an organization keeps using a certain software package, even though more potent alternatives have become available in the meantime.

Consequently, the behavior and development of complex systems are very difficult to predict. This is also evident, for example, in the case of a pandemic. Whereas virus propagation can be definitively modelled under stable (i.e., “biological,” laboratory-based) conditions, this is more complex for the living world where many system levels interact. Even at the biological level, nature is open-ended. Viruses can be carried into a country or jump between living beings. Human behavior results not only from events on the biological level, but also very much from those on the economic, political, and societal level (strength of the economy, trust in authorities, local culture of dealing with each other).

Similar interactions apply to companies if, for example, a business model that is consistent at the logistical and financial levels cannot be implemented because external influences (e.g., political conflicts) cause resistance at the social and emotional levels. Systemic analyses help to describe, model, and thus explain how companies and organizations behave in their environment.

1.5.2 Process View of Organizations

[41] Processes can be defined as a sequence of activities leading from one or more types of input to an output (see Porter, 1985) (Figure 1-4). The foundation and primary process of every organization is value creation. An organization defines itself in terms of its services. This orientation toward the customer value of a service is represented by the business processes at the heart of the St. Gallen Management Model (SGMM).

A value creation process must increase value between input and output (Figure 1-11). This value can be material (i.e., monetarily calculable) because input and output are traded on markets and thus have a price. This value creation can be distributed to stakeholders or used to further develop the company (Bieger, 2019). Value, however, can also be intangible, for example, when volunteer work enables care services or cultural creation unavailable in this quality on the market. Value is then designated, for example, via the required input (i.e., the amount of work) (for a critical exploration of value concepts, see Mazzucato, 2018).

Figure 1-11: Illustrative Process Chain

Besides the necessary steering of process activities (coordinating capacity and quality, etc.), the following aspects of value creation processes are of interest from a management perspective:

– Value chains tend to be restructured on an ongoing basis. Environmental changes (e.g., new technology or changed prices for input factors) mean that activities need to be carried out differently or that value chains may even need to be reconfigured. For example, “print on demand” makes stocking spare parts unnecessary.

– [42] Value chains tend to become increasingly differentiated and specialized as a result of the underlying “economies” (e.g. economies of scale).

– Additional value (e.g., boosting the attractiveness of a region by creating jobs and paying taxes) is created beyond primary value creation (Figure 1-12).

Figure 1-12: Differentiation of an Organization’s Primary and Additional Value Creation.

A process view of a company helps to optimize interactions between individual processes across functions. Porter’s (1985) basic process model of a company distinguishes primary and supporting activities. The former focus on the value creation process, while the latter establish the prerequisites (Figure 1-13).

Figure 1-13: The Value Chain

Source: Porter (1985, p. 37)

[43] For complex projects (e.g., purchasing a subsidiary) but also for complex service processes (e.g., recruiting a new executive, installing manufacturing machinery), process planning models are developed with the help of different techniques.

So-called “service blueprints” are often used to represent to-be processes (ideal situation). This normative design instrument is used to show various levels as well as a so-called visibility line. At the top are the customers or the physical points of contact with them (Figure 1-14).

Figure 1-14: Illustrative Service Blueprint: The Example of a Public Trade Fair

Source: Wiedmann and Kirchgeorg (2018, p. 56)

[44] Process maps, for example, can be used to show as-is (i.e., real) processes. These descriptive recording instruments enable empirically recording processes (i.e., as existing in reality) and displaying them as a process diagram (Figure 1-15). These process maps provide the basis for continuously improving such sequences of activities, because they illustrate the interdependencies of these activities.

Figure 1-15: Illustrative Example of a Process Map (ITEM-HSG Project Documentation)

Source: Rüegg-Stürm and Grand (2020, p. 83)

1.6 Types of Companies and Organizations

[45] How the management tasks described above are prioritized and performed, and how the corresponding questions are answered, depends not only on the environmental context but foremost on the type of organization. Various criteria (Figure 1-16) can be used to typify organizations (based on Rüegg-Stürm & Grand, 2020, p. 36; Thommen, Achleitner, Gilbert, Hachmeister, & Kaiser, 2017, p. 25).

Figure 1-16: Various Criteria and Their Categories Used to Typify Organizations

Source: based on Rüegg-Stürm and Grand (2020, p. 36); Thommen et al. (2017, p. 25)

[46] The type of organization and, above all, its economic (i.e. profit) orientation, significantly impacts the performing of management tasks and the force fields arising in the process. This is exemplified by the weighting of individual stakeholder interests.

Besides the differentiation according to the dominant environmental sphere, distinguishing organizations by profit orientation — “for profit” versus “not for profit” — is very important. Private companies seek profit, mostly directly or indirectly. They use their profit to compensate the risk capital needed, for example, to pursue risky innovation activities (e.g., when listed pharmaceutical companies research, test, and launch new drugs). Nonprofit enterprises mostly pursue social goals (e.g., NGOs operating in the field of development strive to combat poverty, while private foundations promote cultural projects). Not-for-profit companies are often financed by return on capital and donations, but also by their service fees (e.g., project services) or subsidies. In order to raise funds, they must document their success in attaining their goals in order to attract potential funders. For example, in 2019, the Bergwaldprojekt foundation had a total of CHF 1,726,754 in donated funds, which it invested in mountain forest conservation projects for 12,275 working days (Varinska, 2019).

Cooperations between public and private organizations are called “public-private partnerships.” Typically, such organizations often involve profit-seeking and nonprofit-seeking companies coming together. For example, the cooperative members of the Swiss Society for Hotel Credit include the hotel industry, the banking sector, the federal government (the most important member), and individual cantons. The Society grants subordinated loans to promote the hotel industry in regions with seasonal tourism. Such loans are granted in the interests of the public sector (i.e., the regions benefiting from funding), or of the hotel industry and the lenders.

Another important typification structures companies according to size. Large companies are usually more differentiated and have various management levels, whereas microenterprises (e.g., startups) are often managed directly and personally by a team. Thus, the management structure, management culture, and degree of formalization of management vary greatly — and also result in differences between the flexibility and agility of companies.

[47] The different legal forms of organizations provide different conditions for financing and growth, but also imply different requirements for management structure. While a simple partnership is usually managed by the owners, corporations are characterized by the separation of ownership and management, thus placing special demands on corporate governance. In most countries and cases, stock corporations have a two-tier system, in which a board of directors/supervisory board represents the owners/stakeholders while executive directors/management/board of directors run the company.

Figure 1-17: Typical Phases of Company Formation as an Example of a Possible Corporate Cycle

Source: Grichnik, Brettel, Koropp, and Mauer (2017, p. 239)

Today, the distinction by phase in the business cycle is also important. Thus, newly founded companies can be distinguished in terms of different start-up phases (Figure 1-17). While direct management (by the founding team) is possible both in a preparatory phase and immediately after a company’s founding, management will need to be transferred to more formal structures as the company grows. Whereas in the founding phase, for example, the founding team selected personnel itself, thus enabling selection to match personal values, this task is later performed by a specialized HR department.

[48] Thus, the demands on management, management structures, and managers vary depending on the type of company. However, companies change their structure not only through endogenous development processes, but also through interactions with other companies, including cooperation, consortia, strategic alliances, joint ventures, and mergers (Figure 1-18).

Figure 1-18: Forms of Corporate Ties

Source: based on Thommen et al. (2017, p. 35)

Chapter 1: Key Points

– [49] Integrative management is necessary to deal with complex management tasks.

– Classical management theory assumes that business studies should provide insights that support management and managers.

– The trend toward more scientific approaches in business studies led to a differentiation into functional subdisciplines (e.g., human resources and marketing), and to specialization according to management functions.

– Efforts to overcome the resulting “silos” brought forth various approaches, including systems-oriented management concepts.

– A systems approach helps to understand management as the reflective design of value creation systems in organizations, which in turn can be understood as socio-technical systems providing services to third parties.

– In its ongoing development, the St. Gallen Management Model (SGMM) provides a mental map, i.e., a model, for classifying and dealing with management tasks.

– Thinking in terms of systems makes it easier to grasp the developmental dynamics of organization-environment interactions.

– Thinking in terms of processes makes it easier to understand complex operations such as projects or service provision.

– Different types of organizations present different management challenges.

2 Decisions and Communication
2.1 Case Study: N26

[50] Inspired by the founding spirit of the Berlin startup scene, and fascinated by the disruptive potential of technological change in banking, HSG alumnus Valentin Stalf decided to start a company with Maximilian Tayenthal.

“In the garage,” so to speak, the two founders pushed ahead with the first concepts for a startup in the financial sector in 2013 in their native Vienna. Yet they soon realized that they needed a fertile “ecosystem” with access to technology, employees, investors, and attractive initial customers. They eventually found a space in a Berlin-based accelerator and managed to secure initial funding from the Axel Springer Foundation to the tune of a low six-figure sum. But a new round of financing soon became necessary to develop the venture, to ensure market maturity, and to sustain initial growth. Business angel investors subscribed for around half a million euros. “Papayer,” their then niche product, was a digital pocket wallet app with a prepaid credit card.

After about a year, at the end of January 2014, the company reached a crossroads. It became apparent that the earnings potential of the business model was limited, and that the pocket money app was used mostly by parents instead of their children. The company had already used up 400,000 euros and only had funds to keep operating for two weeks with what were meanwhile ten employees. Rather than giving up, they set higher goals and acquired new capital: The team managed to convince its investors that N26 was capable of building a mobile bank for customers of all ages.

Stalf and Tayenthal reached out to European venture capital investors Early-Bird and RedAlpine, who provided seed funding worth 1.5 million euros to relaunch the company. In spring 2015, U.S. venture capital fund ValarVentures invested 10 million euros; further rounds of financing amounting to more than 100 million euros with the participation of Asian investors were successful in 2016 through 2019. Even during the first Covid-19 lockdown, N26 raised more funding: On May 5, 2020, the company announced that 92 million euros in fresh capital had been secured. This provided the liquid funds needed for further growth, which materialized in the early summer of 2020, especially for Internet-based services, as a result of the coronavirus crisis.

[51] Today, N26 offers current accounts for private and business customers (www.n26.com). Accounts are linked to a debit Mastercard (and include various services and insurances). The basic monthly fee depends on the package, although no monthly fees are charged for the basic product. Nevertheless, N26 earns money even with its feeless, “free product”: As the “issuer” of the debit Mastercard, it benefits from so-called “interchange fees” (which are transferred by the bank accepting the debit Mastercard at the point of sale). All interactions — from account opening to managing balances and payment transactions — take place via a smartphone app (i.e., without expensive branches). This mobile-first approach enables providing low-cost products and a 24/7 digital experience. However, the heavy reliance on technology, combined with the lack of personal service in case of glitches, has also led to criticism. At N26, new products are constantly being integrated. Third-party services are also incorporated, for example, in foreign currency or transactions or lending. N26 designs the “user experience” uniformly (i.e., regardless of service).

New financial service providers such as N26 operate with scalable technology by relying on cloud solutions for data storage and operations. This keeps overheads low, as there is no need to operate an expensive technological infrastructure with server farms. The challenge is to achieve strong growth with the necessary investments in development and marketing on the one hand and to generate enough cash flow on the other. For a long time, investors and N26 managers focused primarily on growth. The return on investment of individual customers was not particularly relevant. The goal was to gain a critical market share in the consolidating market for mobile financial services, and thereby to benefit from network effects. As recently as 2018, a loss of 73 million euros was incurred on sales of around 44 million euros. At around 27 million euros, roughly the same amount was spent on customer acquisition as on employee compensation (Hüfner, 2020).

Until the beginning of 2020, the company was dominated by a culture focused on growth, innovation, and the integration of new services. Growth was financed chiefly by investor capital. This was followed by a shift from a growth model to a cash flow model, where operationally generated liquidity finances operations and growth. Thus, N26 began focusing not only on the sheer number of customers, but above all on active customers ensuring long-term profitability. On the revenue side, profitability can be increased, for example, by upselling to premium account packages with higher-value services. [52] The coronavirus crisis represents both an opportunity and a threat for N26. During the pandemic, social distancing and working from home increased the demand for location-independent Internet services like those offered by smartphone banks. N26 was thus able to attract the attention of new target groups that had previously relied primarily on analog (i.e., in person) banking. Activating these segments, which often have high purchasing power, represents a great potential that could be exploited with further investments in growth. At the same time, curfews and travel restrictions have significantly curtailed the freedom of consumption and movement, thus strongly impacting the number of card transactions at home and abroad. In addition, the investment climate has deteriorated given the increasing debt burden due to the coronavirus crisis. Today, investors are more critically eyeing the “burn rate” and are focusing increasingly on achieving cash flow and profitability.

The general economic slowdown is imposing fundamental considerations: Should additional money be invested in developing innovative services in order to continue the growth path and to reach new markets and target groups? Or should the money instead be invested in optimizing business processes, in upselling and cross-selling, and thus in securing sufficient cash flows?