Exploring corporate performance
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Exploring corporate performance - a systems approach to corporate modelling helps understanding and guides model development Stuart Clarke and Andrew Tobias The ever increasing uncertainty of the modern business environment and the futility of forecasting ifs long-term future with any accuracy, has necessitated that companies respond to outside influences more quickly and vi'orozisly
than ever before. This is a serious challenge to any
inaizager's ability and one that requires a clear and full understanding of how a business reacts to its complex environment. Lhifortu nately, although financial models (simple 'definitional' models based on accounting relationships) have provided sonic support for business plan-
ning and decision making, thei are not particularly useful for strategic planning because of their inherent reductionism and financial bias. What is needed is a
hoi is tic approach to business modelling which can only he
provided by a model of the organisation as a whole - a 'corporate' model. The application of soft systems tech-
niques can ensure that ail of the factors influencing business performance are identified and hence provide a rich understanding of the business and its environment. Such analysis can sometimes be sufficient in its own right
for strategic management purposes or, if appropriate, form the specification for subsequent development of corporate models that are likely to be far richer and more reliable than could have beemi achieved without the prelimnj nary work. The case study described here shows how this
process was achieved at West Midlands Passenger Transport Executive.
these financial models are inappropriate for longterm strategic analysis because they tend to ignore the non-financial aspects of an organisation. Fur-
thermore, the frequent use of spreadsheets as a modelling medium can often encourage mindless quantification, resulting in the neglect or distortion of qualitative factors.
The importance of holism has been noted by many authors. Ackoff commented that 'it can be proven rigorously that when each part of an organisation improves its performance independently of other parts with which it interacts, the performance of the whole may well suffer. This follows from the fact that the performance of a system is not the sum of the performances of the parts taken separately, but is the product of their interactions' (Ackoff, 1993). Therefore, what is needed is not a financial model, which restricts business planning to an investigation of the accounting aspects alone, but a 'corporate' model which addresses the organisation as a whole.
Fortunately, managers can now visualise and
understand their complex business environment, and therefore develop holistic business models using the spreadsheet medium, by applying soft systems techniques.
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A systems approach to corporate modelling
In the 1960s and 70s, managements and business planners struggled to build corporate models in an attempt to represent the financial, production and marketing facilities and the c
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