Application of Beer's Viable Systems Model and Senge's Five Discipline on Oman India Fertilizer Company - Research Paper Example

 ABSTRACT The researcher has endeavoured to apply the principles of System thinking using a major and a minor metaphor. Organization as Politics has been applied as a major metaphor while Organization as Culture has been applied as a minor metaphor on the organization called Oman India Fertilizer Company, Oman (OMIFCO). Viable System Methodology (VSM) is used to aid management decision making in order to find out optimum solution for the allocation of problem situation in various departments of OMIFCO especially the Production Department and overall environment of the organization. In addition, meaning of Senge’s five disciplines have been discussed are discussed in order to meet the financial challenge faced by OMIFCO as a result of the Global Financial Crisis of 2008. The application of these principles in OMIFCO is also discussed with an aim to improve the functioning of the company specifically in the area of profit generation. 1 BRIEF DESCRIPTION OF THE ORGANIZATION The Oman India Fertilizer Company (OMIFCO) is jointly owned by Oman Oil Company, Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Krishak Bharati Cooperative Limited (KRIBHCO). The Oman Oil Company owns 50% of its shares, 25% shares are owned by Indian Farmers Fertilizer Cooperative Limited (IFFCO) and the rest of 25% shares are owned by Krishak Bharati Cooperative Limited (KRIBHCO). OMIFCO was established as the result of a project planned by the Governments of Oman and India in order to construct, own and operate a modern world scale two-train ammonia and urea fertilizer manufacturing plant at the Sur Industrial Estate in the Sultanate of Oman. OMIFCO’s mission is to create a culture of excellence, teamwork and responsibility among the members of its workforce, which is the company's most important asset, so that OMIFCO can meet the highest economic, social and quality expectations of its shareholders, the local community and other stakeholders. Its vision is to become an internationally recognized model for major chemical and fertilizer manufacturing companies based on its achievements and standards in the fields of health safety and environmental protection, employee and community relations as well as operational performance. The organizational structure of the company can be understood through the following diagram (Omifco.com). Fig. 1 OMIFCO’s Organizational Structure Some basic data about the company is also given for a better understanding of the company under analysis (chemicals-technology.com). 1. Plant owner: Oman India Fertiliser Company (Omifco), joint venture between Oman Oil Company, 50%, Krishak Bharati Cooperative, 25%, and Indian Farmers Fertilisers Cooperative, 25% . 2. Project completion: 2005 3. Production capacity: Urea - 1.65 million t/yr, Ammonia - 250 000t/yr 4. Project cost: $969 million 5. Lump sum turnkey contract: Snamprogetti/Technip-Coflexip 6. Equipment supply: Larson&Toubro 7. Process automation: Yokogawa Blue Star 8. Gas feedstock supplier: Government of Oman 2 BRIEF DESCRIPTION OF THE WORKPLACE SITUATION The researcher works in the department of production. The Production Department produces access ammonia and sends it to the storage. During the production ammonia is processed with the help of CO2 to produce Urea. The Production Department works with the support of the Utility Section. The Utility Section provides its support by running the power generations and producing steam. The department is headed by a director called the Director of Production who is answerable to the CEO of the company. Five managers work under the leadership of the Director of Production. These managers supervise their individual sections having multiple number of operators working under them. 3 SELECTION OF MAJOR AND MINOR METAPHORS The OMIFCO is a commercial organization involved in manufacturing and marketing of products in order to generate profit. The company sometimes suffers from losses due to managerial, cultural and political issues. The workforce comprises workers from two different nationalities i.e. Omanis and Indians. The managerial problems stem out of hasty induction of the CEO of the company. The situation started when the Chief Executive Officer of the company Mr. Y resigned from his job. Since the shareholders needed to appoint the new CEO immediately they could not wait for long time before they appoint a new CEO. In order to make this appointment convenient and quick they recruited one of the company’s own Production Director named Mr. X as CEO of the company. The new CEO did not have enough administrative experience since he had come from production background. One day, while Mr. X was on a visit of the Production Department, some operators complained about the quality of the safety gloves. After hearing this the CEO decided to provide good quality gloves to the workers and immediately contacted one of his old friends in United Arab Emirates and ordered 500 gloves for 300 operators of the Production Department. The workers at the Production Department also complained that whenever they have some problem and want assistance from the administrative staff, the admin staff do not respond properly and due to this the operators have to leave their areas unattended in order to accomplish the necessary administrative requirements. They also told him about an emergency situation that had taken place two months ago. The emergency situation was declared when one of the boilers in the Production Department tripped. The incident took place due to the absence of the boiler operator who had gone to the administration building in order to collect his salary slip. During his absence the shift supervisor went to the location to cover the operator work. Due to this situation the communication between Utility and Urea plants were disconnected and when the steam pressure became low and the panel operator loudly told both Urea processes operators to stop one of Urea plants but it was nobody was there to hear him because of the absence of the operator. Consequently the boiler tripped and the production had to be stopped in both the Urea plants. After hearing all this the CEO came back to the control room and after having a thorough discussion with the plant operators, he issued orders that the production managers should always stay in their designated area and they were not allowed to visit the control room. The CEO Mr. X further decided to install new management system software in all the departments of the factory in order to restrict the technical employees from going to the administration building. However, the Human Resources and Development Department decided to train four employees from each department on the management system software without considering the number of employees in various OMIFCO departments. Cultural and political differences at OMIFCO matter a lot too. Employees from two different cultures work in the company. The Omani employees have Omani cultural values which are entirely different from cultural values of the Indian employees working in the company. Due to these cultural differences they also have political differences. The administration manager quite often receives complains related to the cultural and social differences. Since the majority of the employees belong to the Indian culture, the food served in the company’s canteen is mostly vegetarian and spicy. This annoys the Omani employees since they do not like such food and they have to go to downtown Sur in order to get the food of their choice. This and many such issues rising from time to time stem out of cultural differences. One such issue is more social in nature than being cultural. Members of the local society often complain that OMIFCO is not fulfilling its social responsibilities towards the local committee. Whereas the fact of the matter is that the company quite often sponsors social and cultural events in the area and its contribution in the socio-cultural progress of the area is quite noteworthy. This clearly shows that the activities sponsored by the company are not advertised in a befitting manner. The marketing department of the company seems to lack appropriate strategy and planning. Another issue of concern in the company is political in nature. The company has been divided into two clear-cut lyres based on national affiliation rather than merit. The higher administration positions are reserved for the Omanis and the production positions have been allocated to the Indians. Indians, in this regard feel deprived while the Omanis have a sense of security. The Omanis appear to be less motivated because of their job security and administrative superiority while the Indians seem more motivated since they have to work appropriately in order to secure their job. In consequence of all these drawbacks the company has suffered from high costs and low profits. 1 Major metaphor – Organization as Politics The main problem that OMIFCO faces is vague micro policies. Starting from the CEO to the employees nobody does his job as it is written in the job descriptions. Politics are a reality in the workplace and consequently one has to manage the conflicts that arise out of politics. Politics itself is not bad because if it works to serve the company’s goals by making sure that the workplace is productive and that morale of the workers is high, politics can become a productive force. Politics, however, must never be allowed to degenerate into a self destructive process. The internal politics at OMIFCO negatively affected the productivity and progress of the company on three different levels during the scenario under discussion: 1.3.1.1 CEO The CEO’s ordered the gloves from his friend’s factory without following the prescribed steps. Normally if any department needs to purchase anything it has to follow certain steps which are: a. Production Department sends an order of hand gloves to the warehouse. b. The warehouse checks for the availability of gloves in the stocks. c. If the gloves are not available in the stock or it is the type of gloves that have been demanded for the first time, the warehouse collects quotations from the local market. These quotations include information about the quality, quantity and suitable prices for the items demanded. d. The warehouse sends the order and its comments to the purchase department which then approves the best supplier and makes contact with the approved supplier. e. The supplier sends the order voucher to the Account and Finance Department with the required number of gloves to the warehouse. f. The warehouse checks the quality and quantity of the gloves and stores them accordingly. g. In the end the warehouse confirms the Account and Finance Department about the quantity and the prices of the items and sends the gloves to the production department. Instead of following the above procedure, the CEO simply telephoned one of his friends and asked him to deliver the gloves and set an inappropriate example for the rest of the company management. This is how politics adversely affects the progress of the company at OMIFCO. 1.3.1.2 Human Resource Department Politics also has its visible impact in the Human Resource Department (HRD). According to the company procedures the HRD has to consult the Information System Department as well as other departments whose employees are to be trained on the New Management Information system whereas in the scenario under discussion the HRD directly gave the orders about the training of workers without consulting the any other department. This way it did something inappropriate which later resulted into certain complications. Each employee has the right to be trained on the new management information system software however the HRD ignored the micro policy which has been followed since establishment of OMIFCO. 1.3.1.3 Administrative Structure The administrative structure of the company is quite obviously discriminatory since all the higher positions are reserved for the Omani nationals while the lower administrative position are allocated to the Indian nationals. This imbalance of the administrative hierarchy gives way to certain decisions that seem political in nature. 2 The Minor Metaphor – Organization as Culture It has already been mentioned in the introduction that OMIFCO has employees from two different nationalities and cultures. The employees are either form Oman or from India. This phenomenon provides rich cultural diversity at OMIFCO. The relationship between climate and organizational culture has not always been clear. Generally, culture is seen as the background and climate as the foreground. That is, culture is a more fundamental concept, and climate is influenced by culture, rather than vice versa. Culture has been variously defined as the way we do things around here, and the right way to think, feel, and act. Climate is generally considered to be the environment for something e.g. safety, quality, service, etc. Both Indians and Omanis lack motivation because OMIFCO’s shareholders have decided that that Omanis cannot be made production manager and Indian cannot be made administration manager. This phenomenon has generated an environment in the company which is uncomfortable and disturbing for all the employees of the company. Another culturally charged phenomenon is the eating habits of the employees at OMIFCO. Since the employees belong to two different cultures, they have different eating habits based on their cultural values and idiosyncrasies. Omanis usually do not like to eat the spicy food available in the company’s canteen. As a result they have to buy their own food from downtown Bur. This cultural difference deprives the Omanis from taking benefit from a necessary facility i.e. canteen. 2.1 SELECTION AND JUSTIFICATION OF METHODOLOGY FROM THE SYSTEM OF THE SYSTEMS METHODOLOGIES (SOSM) Models are extremely important to run the system of every organization. “For all managers in all organisations, their ability to manage a situation or organisation effectively is in direct proportion to the accuracy and relevance of the models they are using to understand it” (Hoverstadt & Bowling, 2002). The researcher has selected Viable System Model (VSM) for the improvement of goal seeking capability and viability of OMIFCO. The scenario described by the researcher clearly indicates that the company is suffering because of its ineffective organisational structure. Beer (1984, 1985) believes that VSM model works well for the success of an organization since it concentrates on organisation rather than structure. Furthermore, Beer believes that VSM has the ability to enhance capability and profit of any organization due to the following reasons: 1. Concentrates on functions rather than departments 2. Highlights need for vision & direction 3. Balances internal & external needs 4. Emphasises interaction organisation and environment 5. Responsiveness to internal & external change 6. Promotes autonomy According to Espejo and Gill VSM “provides the ability to respect the relational and recursive nature of the organization, to nurture it into a healthy balance both internally and externally, making it intrinsically adaptable to change” (2009). Espejo (1993, p. 522) further states "VSM provides a language in which to appreciate the complexity of organisational tasksand the communication mechanisms underlying people's interactions." In this regard, Beer (1985b) asserts that any viable system requires five essential systems functioning within its organizational structure in order to functional successfully in its environment. These five functions ensure the productivity and performance of an organization. 2.1.1 Implementation: System 1 The main operational and implicational tasks of any organization are carried out by the operational or production divisions. This includes production of products and services. 2.1.2 Co-ordination: System 2 The second system aims at coordinating the activities of various divisions of an organization in order to prevent communication gaps and instabilities. 2.1.3 Control: System 3 The control system functions to interpret and implement policy and carries out audit of various divisions in order to sustain accountability. 2.1.4 Intelligence: System 4 Intelligence system is required for assessment of the strengths and weaknesses of the operations. It discovers new opportunities and points out threats of the environment to the organizations. The information provided by this system provides essential help to the policy makers. 2.1.5 Policy: System 5 The policy system chalks out direction, vision and objectives for the organization and sets and modifies its mission. One of the most important functions of this system is to device ways of adaptation to the external environment together with maintenance of stability. The following figure shows the working of these five functions in an effective manner: Fig. 2The Five Essential Functions for Viability While discussing the strategy for implementation of a viable system Carlota Perez argues: “It is not enough to define the criteria for good regulation, it is also crucial to define the criteria for a whole set of other policies that must accompany the treatment of finance in order to guide market behaviour in the direction that is most beneficial for all.” This means that application of the systems of the systems methodology on any organization is a complex phenomenon which requires a lot of deliberation and understanding of a variety of issues including the five systems described by Beer. 3.1 APPLICATION OF VIABLE SYSTEMS MODEL ON OMIFCO After weighing the characteristics of VSM the researcher concludes that it is the most appropriate system for the scenario under discussion. OMIFCO suffers from the following organizational flaws which can be resolved through application of VSM in an effective manner: a. Lack of communication or breakdown in communications which is evident from the scenario discussed earlier when due to lack of communication a boiler tripped the production of OMIFCO products had to be stopped till the time the boiler got repaired. b. People are out of touch with events. The new CEO of OMIFCO was appointed from within the company but he had no idea about what had been happening in the Production Department. This lack of information shows lack of interest of the managerial staff at OMIFCO. c. Slow response to change. The changing outer environment in Oman and the world demands major revisions of policies and procedures at OMIFCO yet the directors have not taken any steps to deal with the challenges like the Global Financial Crisis which has already decreased profits of the company. d. Autocratic ‘meddling.’ OMIFCO’s CEO has an autocratic attitude. His act of ordering gloves to one of his acquaintances shows lack of professionalism and is a good example of autocratic meddling. e. Centralised management & administration. The administrative and managerial units do not have any autonomy. They have to rely upon the decision and guidelines from the autocratic CEO of the company. 3.1.1 Implementation: System 1 The production and services system of an organization like OMIFCO can be quite complex to understand. The various layers of production management need to have good communication. The incident related by the researcher regarding tripping of a boiler in OMIFCO’s Production Department occurred due to lack of coherence in the implementation system. Every worker in the production must be placed in such a manner that his absence can be covered by another worker. Secondly, the administration must try to understand the requirements of the workers working in the Production Department and they must device a system through which they should provide necessary services to these workers at their very workplace. These measures can prevent any such incidents in future. 3.1.2 co-ordination: System 2 Various divisions of OMIFCO can work better if there is a better communication and coordination system working in the organization. Divisions like the Production Department, the Financial Department, the IT Department, and the Human Resource Department must work in coordination with each other. This requires frequent meetings of the heads of all these departments and a flexible policy making mechanism. 3.1.3 Control: System 3 The control system at OMIFCO doesn’t seem to function properly. The policies are in place but their interpretation and implementation is not carried out by the CEO and other senior management officers. The control system can be improved through better interpretation and implementation of policies and this is not possible without the functioning of an accountability system. OMIFCO, therefore, needs to improve its audit and accountability system which can automatically improve the implementation of policies in the organization. 3.1.4 Intelligence: System 4 To put an intelligence system in place a Board of Governors or a like system is essentially required at OMIFCO. A single autocratic CEO cannot formulate an intelligence system. A group of experts can do the job better because system assessment needs a variety of professional expertise. Evaluation of the strengths and weaknesses of the organization and formulation of policies keeping in view the changing environment is vital to the progress of OMIFCO. This requires a structure like a board of governors that can function like a mechanism of intelligent thinking. If such a system is in place the CEO will not be able to take political decisions like buying gloves form the company of his choice. 3.1.5 Policy: System 5 Policy is the most important system since it guarantees flexibility, viability and productivity of a system. The policy system chalks out direction, vision and objectives for the organization and sets and modifies its mission. The current policy at OMIFCO is no doubt pragmatic enough to uplift the organization’s productivity and progress. However, a continuous thinking, rethinking and policy revising mechanism is required in order to ensure adaptability of the policies to the external environment together and maintenance of its stability. This type of mechanism will also cater for the needs of the workers of different nationalities working at OMIFCO and fix the political behaviour prevalent in the organization. 4.1 IDENTIFICATION OF A CHALLENGE RESULTING FROM THE 2008 GLOBAL CRISIS THAT RELATES TO IMIFCO The global financial crisis began somewhere around December 2007 and reached to its heights around September 2008. The crisis is yet not over and most of the industrialized world has been undergoing a recession. The global financial crisis has caused decline in the international trade and has drastically increased unemployment and slumping commodity prices around the world. A variety of things contributed towards the crisis. The causes of the crisis include subprime mortgage lending, over-leveraging, credit default swaps, collateralized debt obligations, credit creation, and oil prices etc. The following graph shows extent of losses and the bailouts for the US and European countries. The flood of unemployment has been so severe that it has been estimated that by the end of 2009 20 million jobs will be lost most of these employment cuts will occur in construction, financial services, auto sector, and real estate businesses. During 2008 several large declines in stock markets of the world were observed. The stock markets of Europe, America, and the Asia Pacific had believed to have been fallen by 30% during the year 2008. Governments around the world decided to have emergency interventions in their national financial systems. In order to revive their falling economies governments of most of the developed and emerging countries made plans for their banking systems. The US, China, and European Union countries were among such nations who announced bailout plans for the businesses having financial threat. Fig. 3 Losses and bailouts during the Global Financial Crisis The global financial crisis seems to have affected the researcher’s firm quite adversely this is evident from the financial performance statements of OMIFCO for the years 2007 and 2008. The profit $131,967,000/- to $119,634,000/- while the amount of total equities and liabilities rose from $889,407,000/- to $922,736,000/- in the year 2008 (see appendix A & B). This change clearly indicates that the global financial crisis adversely influenced OMIFCO’s financial progress. This challenge posed by the global financial crisis can be handled using Senge’s model for leadership and decision making called the fifth discipline. 4.1.1 Senge's The Fifth Discipline Peter Senge’s The Fifth Discipline: The Art and Practice of the Learning Organization presents a plain, rational structure and plenty of material for educating managers, leaders and administrators in five disciplines for building a learning organization. Each one of these five disciplines provides strategic guidelines and vital data for its learners. The five disciplines enable leaders and managers to address the most pressing issues they face in their corporate lives. Starting with the most relevant discipline, they can engage other five disciplines one after the other. The five disciplines present a variety of theories and methodologies for development of certain vital potentials and capabilities. These capabilities include: fostering aspiration, developing reflective conversation, and understanding complexity. The five disciplines of learning organization thought out by Senge in his book are: 4.1.1.1 Personal Mastery Mastering the underlying principles that help us accomplish our goals is vital to the professional growth of the leaders. Personal mastery, once attained, stays there forever and makes the leaders and managers work without much conscious effort or in a natural way. Leaders can stimulate personal mastery awareness among their subordinates through performance appraisals. Leaders can also identify behaviours that can lead to their company’s success. 4.1.1.2 Mental Models "Our mental models determine not only how we make sense of the world, but how we take action" (Senge, 1990: 175). Gathering information about the organization, its employees and communicating with them effectively helps us stay aware of the common vision of the company and also helps us reshape the existing mental models. 4.1.1.2 Shared Vision Shared vision provides a common goal to all the employees of an organization and helps them use their money, the available technology, and the human resources in a coordinated manner. The coordination of all the components of an organization towards success cannot be attained with a shared vision. 4.1.1.3 Team Learning Team learning makes flow of vital information possible. Team learning ensures flow, understanding and evaluation of feedback in an effective manner. Team learning events provide great opportunity to the workers to understand each other’s thoughts and perspectives. 4.1.1.4 Systems Thinking System thinking provides vision about how various components of an organization are connected. It helps leaders and managers in finding links and relationships between things The fifth discipline is vital for the rest of the systems since it is meant to integrate the rest of the four disciplines. The fifth discipline provides us significant guidelines for good leadership and managerial skills. These guidelines can be called the laws of the fifth discipline: 1. Today's problems come from yesterday's solutions. 2. The harder you push, the harder the system pushes back. 3. Behaviour will grow worse before it grows better. 4. The easy way out usually leads back in. 5. The cure can be worse than the disease. 6. Faster is slower. 7. Cause and effect are not closely related in time and space. 8. Small changes can produce big results...but the areas of highest leverage are often the least obvious. 9. You can have your cake and eat it too but not all at once. 10. Dividing an elephant in half does not produce two small elephants. 11. There is no blame. 5.1 Recommendations Regarding how the Five Disciplines may Contribute to learning about the Financial Challenge Faced by OMIFCO The challenge of falling profits can be learnt and handled through application of Senge’s five disciplines. The researcher will discuss the disciplines one by one. 5.1.1 Personal Mastery The OMIFCO management needs to carry out research in order to discover the underlying principles that can help accomplish the financial goals of the organization. The managers on the key posts of OMIFCO’s various divisions must undergo extensive training workshops so that they are able to develop personal mastery which will make managers work without much conscious effort and in a natural way. 5.1.2 Mental Models and Shared Vision The management and workers at various departments of OMIFCO are not conscious of the vision of the company. A mental model must be made and distributed among the workers and managers of the company so that the awareness about the vision and mission of the company stays fresh in every one’s mind. This will make attainment of goals much more possible for the company. 5.1.3 Team Learning Managers and supervisors must be given opportunity to get together and discuss various issues regarding the financial losses of the company. They must be given chance of sharing vital information about the company’s financial position and must be allowed to give feedbacks to each other on regular basis. A mechanism must be devised for mangers to know each other’s thoughts and perspectives. 5.1.4 Systems Thinking System thinking is a pragmatic way of running an organization. OMIFCO already has a mechanism of system thinking but the mechanism needs a lot of improvement. The application of the first four disciplines can make this mechanism a lot better. CONCLUSION It is concluded that the application of the Viable Systems Model and Senge’s five disciplines on a firm like OMIFCO can be extremely useful. The two systems provide highly pragmatic theoretical and practical framework. Understanding of these systems can lead to highly effective policy making and can considerably increase the profits of a firm like OMIFCO. REFERENCES Ashby, W.R. (1964). Introduction to Cybernetics. Meuthen: London. Beer, S. (1979). Heart of Enterprise. John Wiley & Sons: Chichester. Beer, S. (1984). “The VSM – it provenance, development, methodology and pathology.” Journal of the Operational Research Society, Vol. 35. Beer, S. (1985), Diagnosing the System for Organizations. John Wiley: London and New York. Beer, S. (1985b). Diagnosing the System for Organizations. Wiley: Chichester. Chemicals-technology. Omifco Fertilizers Complex, Sur Industrial Estate, Oman. 13 Nov. 2009. . Espejo, R. & Antonia Gill. The Viable System Model as a Framework for Understanding Organizations. 16 Nov. 2009. Espejo, R. (1993). “Domains of interaction between a social system and its environment.” Systems Practice, 6,5. Global Financial Crisis. 17 Nov. 2009. . Hoverstadt, P., Diane Bowling. (2002). Modelling Organisations Using The Viable System Model. 15 Nov. 2009. . Oman India Fertilizer Company. (2009). 12 Nov. 2009. Perez, C. (2009). “After crisis: creative construction.” Open Democracy, 5 Mar 2009. Senge, Peter M., et al. (1994). The fifth discipline fieldbook: strategies and tools for building a learning organization. New York: Doubleday. Senge, Peter (1990). The fifth discipline: the art and practice of the learning organization. New York: Doubleday. Appendix-A Appendix-B Read More