We draw answers from cybernetics. Cybernetics, the foundations of which were developed by Norbert Wiener and presented in 1928, deals with the (systemic) ability of systems to execute control processes themselves. At a first level, the requirement to maintain equilibrium is met, while at a second level, the problems of instability, flexibility and evolution are overcome.
Companies need both: In ongoing business processes they have to maintain stability, while under changing conditions they have to find new equilibrium constellations again and again. The more complex a system is, the more non-linear the effect of the feedback of its output variables can become. Indirect feedback effects, i.e. those acting on the input variable via intermediate links, can occur in unpredictable form and magnitude as well as with a time lag.
An essential insight of cybernetics is that in complex environments existing states cannot always be maintained in a stable manner. To keep a system viable, it is necessary to accept instabilities in principle, sometimes even to abandon states of stability, and thereby to allow possibilities that open up paths to new (again, temporary) stability. Thus, it is not a matter of maintaining a previous state, but rather of the continued existence of the system, the organization in a suitable constellation. In dynamic, complex environments, systems can sometimes only evolve by letting go of the status quo and can only survive by doing so. If systems close themselves off to this flexibility, the accustomed stability could only be maintained with ever greater effort, quasi against the nature of the environment, until the effort can finally no longer be made and the system must be abandoned.
Example: Subsidies can provide a tailwind for new technologies in incubation phases and strengthen the economy in the medium to long term. Other subsidies can prop up existing systems that are not (or no longer) competitive. This helps those affected only superficially and the economy as a whole not at all. It slows down innovation activity and prevents adaptation processes. Valuable time for transformation remains unused until further subsidies are no longer possible. The collapse of obsolete structures is merely delayed, and the consequences are often exacerbated.
Become aware of whether you are cross-subsidizing product groups in your company. Look carefully at what this subsidy is doing to your company, whether it is already consuming your company from within, causing a loss of motivation, tying up good employees and other valuable resources in business areas that are not viable.
To assess the quality of your business, look at contribution margins and costs in each product group. You may be surprised by findings that were not obvious to you before. Then look at whether you really want to continue to hold non-profitable product groups, perhaps for strategic reasons. And now comes the most important thing: Any insight that does not result in decisions and implementations is in vain. Act! Cut loss-makers or bring them back into the profitable range by becoming creative.
Example: During the analysis of a German plastics processor working in a corporate group, which was in an acute economic crisis, it became clear that many items were being sold to some customers at a loss. The first reaction of the financial management in the Anglo-Saxon parent company to this was to stop producing these items (“cut-the-tail”). It soon became clear that offering these items was a prerequisite for being able to sell other profitable items. So they should not simply be cut. The problem was in the sales department, which didn’t even ask customers to raise prices on these items. So they explained the situation concerning these items to the customers and asked them to allow them to raise the prices on these items significantly. Surprisingly, in many cases, that was not a problem at all. In other cases, Operations achieved cooperation with other processors who had more suitable machines available for these items, and purchased the items noticeably cheaper than they could have been manufactured themselves. They could at least be passed on to customers in the trading business without loss. Customers could be offered a solution. Other articles could also be switched to alternative articles. Only in a few cases, which were also strategically irrelevant, did the articles have to be discontinued. A considerable part of the losses could be avoided by implementing this bundle of measures.
Cybernetics offers methods for providing systems with effective control mechanisms so that they can maintain equilibrium and continue to develop even when affected by disturbance variables. If the control functions without outside intervention, we have achieved self-regulation. Self-regulatory mechanisms that operate within an appropriate set of rules even make it possible to effectively manage large organizations that can only be managed indirectly. From a systemic perspective, therefore, the real management task is to provide organizations with self-regulatory capabilities. In order to be able to master this demanding management task, managers must familiarize themselves with how control systems work.