The one thing we know about the universe that is uniformly agreed to by all disciplines is that everything in the universe is energy – and that energy can neither be created nor destroyed. Therefore everything that happens in the world is the transformation of one form of energy into another.
We know energy can take many different forms, from the observable – such as the flow of a river or human activity, to the unobservable – such as magnetic flux or human thought. We also know that energy is almost always flowing and transforming; this seems to be one of the basic laws of nature.
Likewise, business is energy flowing and transforming, with the intent that it transforms into desired results. This is the first part of The Living Organization™ Model, the physics of business. It is useful to visualize this flow and transformation by referring to the following diagram.
The business system
In business organizations, the primary source of energy is the people and their unique contributions. It is from the active release of energy through their efforts that we derive the major source of energy for the transformation process.
Energy, however, cannot be allowed to flow totally free and still be expected to transform into a desired output. Energy, in order to create a desired result, must be directed like waveguides guide energy in physics. In business, these energy waveguides are the work flow and other business processes we use to help define how work is to be done. These energy waveguides are also the means for integrating and mixing the energies of the various elements of the organization; integrating energy from Marketing with Sales energy, Sales with Operations, Operations with R&D, and so on, and so on. It is these business processes that guide the flow of energy, directing and transforming it along the way into the desired output.
The desired output is the goods and services provided to markets and customers. In business, a common definition of “success” is providing a highly valued good or service to a market place that adopts it. The specific and unique way a company serves the market is defined by its Soulful Purpose.
Since the source of energy comes from the people, it is helpful to understand the dynamics that allow for increasing the flow of energy. Certainly one can increase energy by simply linearly increasing the number of people. However, this would run counter to the desire to most efficiently use resources.
It is here where we come to a fascinating aspect of the model – the primary source of energy (labor) delivers a varying amount of energy that can be increased on a per unit basis. When done correctly, the application of effort towards a desired result also increases the capacity, the amount of energy that can be contributed. This is the process we call Learning.
This is the basic system flow of every business; the organization’s Soulful Purpose defines its purpose and the derivative goods and services it will provide as its unique contribution, its service to the market. The Living Organization™ transforms the energy of its people into those goods and services with its business processes serving as the waveguides for the transformation process. It creates the opportunity for learning, thus increasing capacity and also defining the experiences of those interacting with the organization, thereby impacting the perceived value.
The feedback loop
As with all systems, this system requires a feedback mechanism to ensure that the process is in equilibrium and achieving the desired results. The gauge we use to measure the various aspects of organizational performance is the financial system.
The foundation of all feedback metrics is Profit, and its two major components: Revenue and Expense. While Profit is considered by many as being the root of all evil, it is anything but. In fact, the bottom line is a critically important aspect of any successful enterprise.
Revenue is the measure of value perceived by the market. The higher the value the market perceives in the goods and services the organization provides, and the larger the market that perceives such value, the more revenue the firm will generate. Revenue received is a function of value perceived.
Expenses are the measure of energy consumed by the organization, energy classically defined as labor and materials. Expenses should thus be viewed as the efficiency rating of the organization in transforming energy into its goods and services
Profit is the feedback that lets the organization know how much the market perceives the value of the goods and services in relationship to the consumption of energy required to produce it.
However, it is important to be mindful that this measurement system is not the same as the system being measured.
Norman Wolfe | President/CEO | Quantum Leaders, Inc