Structural and behavioural coupling in business value-creating organizations

The objective of this paper is twofold: on the one hand, to present a coherent framework regarding the formal logic of value production in, or through, organizations (Mella); on the other, to show how the new logic of Economic Value Added and Activity Based Costing must be united in order to strengthen the cognitive activity of organizations in order to make the production of value maximally efficient (Moisello). The subject matter is developed along the following guidelines: 1 – the processes for the production of value are carried out by permanent production organizations, in particular Business Value-Creating Organizations (BVCO) or “production organizations”), as well as by for-profit business organizations (or “capitalistic firm”); 2 – the production of value takes place through a network of efficient production, economic and financial transformation processes guided by laws that determine the stable equilibriums; 3 – from an internal point of view, BVOCs are operationally-closed systems that are at the same time structurally and behaviourally coupled to the environment; through (and to the extent of) their own cognitive and computational resources they perceive disturbances such as external stimuli, process these, and act (react or pro-act) to balance the network of vital processes; 4 – in BVOCs the internal cognition - data gathering processes, strategies, decisions, planning and controls – are carried out by the management, which produces the thought of the organization (rational calculations for decision-making, strategies, programmes and controls) from which the organization’s actions derive; the production, economic and financial processes, which are instrumental for the production of value, are carried out by the effector organs that produce the action of the system; 5 - in this sense BVCOs can be conceived as “conscious cognitive systems” that link themselves to the environment through a system of processed, up-dated, and evaluated information which we can define as the representation of the external world; 6 – from an external point of view BVCOs are teleonomic systems that can continue to exist only as long as their performance as systems for the production of value is appreciated by the environment, according to a coherent system of performance indicators for the production of value (productivity, quality, economic efficiency, returns, Economic Value Added and Economic Value of the Firm); BVCOs allow managers to continually modify the network of autopoietic processes on the basis of the disturbances from environmental changes. 7 - the culture of value is diffused, and BVCOs not only have the maximization of value as their objective but must translate this into an operative approach to management problems. This approach emphasizes the capacity of BVCOs to generate an adequate cash flow for new investment and to insure a remuneration at rates that exceed the cost of capital, in order to have available resources for organizational expansion as well. Management must transform itself into a Value-Based Management (VBM) that must not only manage its normal activities but also the value of the organization as a whole; 8 –The appearance of new Web-Based Information Technologies that favor and strengthen the globalization process, as well as the growing role of financial markets, bring out more clearly the problem regarding the application of traditional decision-making, planning and performance-measuring models. This implies a reorientation of cognitive activity toward managerial models that favor the understanding of the driver of value and permit objectives to be set and performance to be measured in a manner which is coherent with the expectations of stakeholders.