The Black Hole a by DarrenRogers


									                                The Black Hole!a

                   Transforming untapped energy in organisations
                        to boost value and strengthen assets,
                            both tangible and intangible,
                                  with risk exposed

aAdopted from the paper “The board’s black hole – filling their assurance vacuum:
can internal audit rise to the challenge?” Andrew Chambers, Management Audit LLP

                       A contribution to the launch of the
        ACCA Corporate Governance and Risk Management Agenda and the
          Corporate Governance and the Credit Crunch Discussion Paper
                             at the House of Lords

                                 17th November 2008

Note    David Meggitt     14th November 2008      Page 1 of 9

The Association for Chartered Certified Accountants (ACCA) has been following
developments in the credit crunch closely since mid 2007.

A discussion paper prepared by the ACCA Corporate Governance and Risk Management
Committee, “Corporate Governance and the Credit Crunch”, calls for more debate and
research to address many basic questions. It suggests that a fundamental look be taken that
recognises the possibility of systemic problems and hints that changes to regulation alone
would be far from sufficient. There is a need to give attention to the bigger picture. What
may well be more effective is an approach that adopts less sophistication in risk
management and improved communication in the use of language that can be understood.

This note poses a question that is drawn from practices in the civil engineering industry
which is daily handling risk in the works that its professionals create and manage over their
life cycles. In design, for example, it is practice to allow factors of safety (or load factors)
that ensure that in use there is not a failure due to being “unserviceable” - it may wobble! -
or due to loads that will likely cause collapse. The factor of safety is higher for collapse.

Possibly one can conceive a factor of safety for serviceability that is applied to the
compliance of organisations with the regulations and formal processes. This is the realm of
the conventional audit with reliability placed on historical facts captured in information

However, could it be that work actually gets done despite the processes, with reliance being
placed on the informal network of relationships that exist in any organisation to oil the
wheels of designs based on machine age management principles? May it also be an illusion
that it is possible to control an organisation in all respects? How about creativity,
engagement, being agile?

We know that a sense of control occurs by restricting visible behaviour, and is often
expressed by regulation, domination and power. Unfortunately, this is often felt to be
intimidating. People have evolved to be self-reliant so this leads to a form of negative
dynamic disorder, with individuals defending their turf where possible, kicking against
authority and suffering a lowering of self esteem and personal and group energy – resulting
in a detrimental affect on performance.

Although we are able to restrict unwanted visible behaviour by regulation, we have left the
activities of the mind untouched. Yet, a sense of control can also be achieved by cultivating
consensus, altruism (a natural human trait) and reciprocity. By encouraging self-reliance,
with attendant benefits as well as risks, a positive dynamic order emerges.

Returning to our civil engineering analogy, perhaps it would be helpful to conceive the
informal network as being one that is allowed to function with a factor of safety appropriate
to collapse. Although unpredictable, behaviour in this mode can be influenced for the better
and it is entirely appropriate that performance metrics be identified within operating cells
in the light of knowledge of the whole. Additionally, research will be needed to establish how
the formal embedding of ethical values in processes can be reappraised to accommodate
the development of trust in informal networks.

Note     David Meggitt       14th November 2008         Page 2 of 9

Bearing the above in mind, we can now ask the following question that may well extend the
boundaries of the problem situation.

Whilst we can conceive of compliance addressing the serviceability of our formal
processes, in what ways could ACCA members, and indeed everybody, prevent collapse
of organisations and help deliver sustainable performance through the individual
informal contributions of their collective knowledge, skills, and professional expertise
at every level?

Potential Solution

All that is needed at the outset is to test a simple approach that is proven to cope with both
traditional and newer ways of thinking about work in organisations (refer Appendix A). It
requires just a little readjustment in our mindsets of how organisations really work in order
to reveal the hidden keys to creating outstanding results. It features the value perceived of
contributions made and received in work flow and the associated risk at any level. We
simply visualise and then analyse with appropriate questions the interaction of informal
networks (where energy resides) with formal processes. We examine the creation and
receipt of deliverables and the corresponding exchanges that take place through

As an illustration of some of the main elements of an approach that may well help discover
the answer to the question above, consider a typical configuration for a Board’s
interactions, including those associated with audit. The following diagram shows the value
flows generated by a Board, with formal and informal deliverables shown in general terms.
With guidance and using value networks analysis (VNA) principles, this visualisation can
explore the contributions of participants undertaking work together, their roles and
whether new roles would be effective. How would a “super auditor” fit in, for example?

Note     David Meggitt       14th November 2008        Page 3 of 9
Now follows an extract from a Value Opportunity Chart for the above network, with risks
included for a selection of deliverables. This focuses on the value of deliverables as
perceived by both senders and receivers, how critical the deliverable is to the receiver and
an assessment of risk at an operational level.



  4                                                                  Value assumed by sender
                                                                     Criticality to receiver
                                                                     Value for receiver
  2                                                                   isk
                                                                     R to sender


       ID2    FD1     ID5   FD10   ID12     ID7     ID9    ID18

How “healthy” are Board relationships with co-participants? Helpfully, when conceived as a
network, it is possible to develop and categorise perceptive questions. As a guide to
questions that are now routinely asked of networks refer to Appendix B. The ensuing
dialogue, when properly facilitated, invariably reveals where improvements can be made
and allows negotiation to be conducted in the context of a whole picture.

Equally beneficially, the shared development of solutions invariably fosters the energy
needed for that group to seek ways to introduce changes. A selection of case studies
developed over the last 10 years is available on with associated

The resulting Improvement Action Plans typically incorporate a mix of consultancy,
facilitation and coaching to:

       Utilise VNA tools to help move management practices from traditional industrial
       age designs to newer ones that are fit for purpose in the 21 st century

       Create and deliver internal and external communications plans to ease the process
       of change and identify and develop new sources of personal and group energy,
       ( refer )

       Deliver and use software that is business led and supports the agility now needed
       for speeding up auditable ongoing changes to task oriented workflow ( for
       processes, refer )

       Ensure strategic guidance on corporate governance and risk management during

An in depth analysis of the network illustrated above using a proprietary system for VNA is
available in a Meggitt Bird collaborative space. (refer page 5 for link).

Note     David Meggitt       14th November 2008           Page 4 of 9
Suggestions for action

Encourage all to adopt mindsets, skillsets and toolsets that are appropriate for the 21st
century, where cultivation and co-ordination of hearts and minds at every level
complements traditional command and control of hands and compliant heads.

       Gary Hamel in his book “The Future of Management” published in 2007 suggests
       that every company now has 21st century, Internet-enabled business processes, mid
       20th-century management processes, all built on top of 19th – century management
       principles. Recommending the text is the author Eric Beinhocker, author of “The
       Origin of Wealth – Evolution, Complexity and the Radical Remaking of Economics,”
       published in 2006.

       George Colony, founder and CEO of Forrester Research (one of the leaders in
       research in IT) stated this week in correspondence: “If we don’t get from IT to BT
       (Business Technology) we’re going to have more disasters like our present
       mortgage meltdown. Why? Because IT creates impenetrable systems that human
       beings can’t manage. BT is about human beings being back in control.”

Engage in collaborative conversation / dialogue to co-evolve solutions involving a wide
spread of disciplines and interests. For example, this note is posted on a Meggitt Bird
collaborative space together with further supporting information located at To gain access simply click on the http link and use for both
user name and password the word - visitor - when the screen appears.

Seek advice!


The author of this note, David Meggitt, is co-founder of Meggitt Bird transformation agency;
business planning advisor to Blackstone Franks LLP, a chartered accountancy, corporate
finance and tax consultancy practice; and co-founder/ director of 3Cs Community, a
business ecosystem for supporting entrepreneurship. The opinions expressed are his own.

He is a civil engineer by profession, a core member of the qualified value networks
practitioner community, an alumnus of PA International Management Consultants and
former infrastructure investment planning specialist with Planning Research Corporation.

Note     David Meggitt          14th November 2008     Page 5 of 9
                                          Appendix A

                             Approaches to work in organisations

       Assumption                 Traditional approach                   Newer approach
          Time is                    One thing at a time               Many things at once
         Growth is                    Linear, managed                     Organic, chaotic
         Change is               Something to worry about                   All there is
       Workers are                Specialised, segmented         Multi-faceted, always learning
       Knowledge is                      Individual                          Collective
      Information is                Ultimately knowable              Infinite and unbounded
      Life thrives on                   Competition                        Cooperation
      Organisation is                    By design                           Emergent
     Managing means                Control, predictability          Insight and participation
    Motivation is from         External forces and influences           Intrinsic creativity
  Scientific foundation is           Newtonian physics                   Quantum physics
 We understand things by            Dissecting into parts         Seeing in terms of the whole

    The above table is based on Tables 3.1 and 3.2 of “The Future of Knowledge –
 Increasing Prosperity through Value Networks” published in 2003 and authored by
       Verna Allee, the pioneer of value networks, their context and analysis.

Note     David Meggitt        14th November 2008       Page 6 of 9
                                              APPENDIX B

     Questions used when analysing the exchanges that occur within a value network

Value Networks and Value Network Analysis (VN/A)

Exchange Analysis for network and value stream/flow/process optimisation

                           Question                                          Context

A1     What is the overall purpose of the value           Every system fulfills its real purpose.
       network?                                           Sometimes the espoused purpose of a value
       - Why does it really exist?                        network is actually quite different from the
       - What other value networks does it serve          purpose that is revealed by its activities.

A2      - Are there influencers or beneficiaries that     It is always important to ask what is missing
       have been overlooked?                              or who has not been included. Look for key
       - Are key players being discussed in your          stakeholders who influence or are affected
       conversations that are not represented?            by the network activities even if it appears
       - Should they be?                                  they are not directly involved.

A3     - How deeply enmeshed and interdependent           The number, type, and frequency of
       are the participants?                              interactions are indicators of the degree of
                                                          structural coupling between a pair of
                                                          participants and may indicate the quality of
                                                          a relationship

A4     - Is every participant both contributing and       Perceived value is determined by the
       receiving value from the network as a whole?       number of in-going and out-going value
                                                          transactions. If people feel they are not
                                                          gaining positive value from the network they
                                                          are more likely to withdraw.

A5     - Does it appear that some participants might      This also is a question of perceived value. If
       be gaining value at the expense of another?        other participants feel a particular
       - If so, what are the implications?                participant is behaving unfairly, they are
                                                          more likely to reconfigure roles and
                                                          interactions in ways that diminish that
                                                          participant’s role in the network – or alter
                                                          the value interactions.

A6     - What do the patterns of reciprocity flows tell   A consistent pattern of reciprocity of
       you about this network?                            exchanges is an indicator of healthy value
       - Do they appear to be healthy or is there a       flows and whole-system optimization.
       possible imbalance?                                Missing links, dead links, and broken
                                                          pathways of value are indicators of missed
                                                          opportunities for maximizing value.
                                                          Sequencing transactions as they occur in the
                                                          overall activity helps reveal missing links
                                                          and poorly configured value paths

A7     - Are there bottlenecks, constraints, or           Network patterns can be affected by control
       instability in the flow of value?                  mechanisms and decision making. When one
       - If so, why?                                      participant unduly constrains or controls
                                                          transactions it is an indicator of structural or
                                                          behavioural constraints impeding value

Note        David Meggitt         14th November 2008            Page 7 of 9
B1     - How does value gained by one participant        If a group of participants belongs to the
       extend to other groups or strategic partners      same organizational entity, then value that is
       within an organization in a way that accrues      gained by one participant from an external
       value for the company as a whole?                 stakeholder accrues both directly to that
                                                         entity and either directly or indirectly to all
                                                         other participants in that organization.
                                                         When value gained by one participant is not
                                                         accrued efficiently to its internal and
                                                         external organizational partners, then value
                                                         gain is diminished.

B2     - How does the pattern or rate of growth in       Knowledge is the intangible that is easiest
       knowledge and other intangible exchanges          both to grow and to convert to other types of
       compare to corporate growth and                   value so systems that generate high value
       profitability?                                    probably would have correlating high
                                                         growth rates for value-added knowledge
                                                         exchanges. If there is high growth of
                                                         knowledge exchanges, yet corporate
                                                         profitability and growth remain flat, then
                                                         there may be problems with value
                                                         realization. A high number of intangible
                                                         exchanges is not always a positive sign. It
                                                         could indicate that people are interacting a
                                                         lot to try to manage infrastructure problems
                                                         or unhelpful behaviours.

C1 - What does the pattern of interaction suggest        The ratio of tangible to intangible
   about the level of trust in the network?              transactions, or the depth and quality of
   - What norms of behaviour are revealed by the         knowledge flows, can be an indicator of
   patterns of exchange?                                 trust.

C2     - Is one type of value exchange more dominant     The dominance of a particular type of
       in the whole system or between groups of          exchange may be an indicator of
       participants?                                     assumptions about value that drive system
       - Why do you think that is?                       behaviours. This pattern also may point to
       - What would the implications be if it were       places where there may be structural or
       different?                                        behavioural constraints on maximizing

C3     - Are there places people need to be engaged in   Every interaction is an opportunity to create
       exchanges, or offering value, but they aren’t?    value or build relationship.

C4     - Does every action elicit a response on the      Every action either triggers another
       part of the participant?                          transaction or has an internal impact on the
       - If not, why not?                                participant who is the recipient. If an action
                                                         does not trigger a positive value-creating
                                                         response or generate additional value
                                                         interactions, one needs to ask why is that
                                                         activity happening?

C5     - Who might play a new or different role in the   Questions around “What role do you really
       value network?                                    play in this value network?” can be very
       - What would happen if roles disappeared or       powerful. By imagining themselves in
       were combined?                                    different roles people will often spot unseen
       - How closely aligned are your role and your      opportunities.
       - What if the position of a node changed and
       the participant suddenly forged new ties to
       those with whom they currently have no

Note       David Meggitt        14th November 2008           Page 8 of 9

C6     - How closely aligned are your role and your             Intangible deliverables often point to kinds
       personal or group brand?                                 of things that people are know for — how
       - What do the intangibles tell you about the             they might be regarded. There can
       different "brands" and reputations that are              sometimes be disconnects between the role
       represented in this network?                             people think they play and the role that is
                                                                actually represented by their interactions.
                                                                Looking at outgoing intangibles can also
                                                                indicate certain kinds of attributes or
                                                                qualities of individual participants.

C7     - If there is a "heartbeat" in this network,             Sometimes the most important participants
       where is it?                                             are simply overlooked. Either their role is
       - What participant plays the most critical role          taken for granted or they appear to be
       in the life of this network?                             peripheral to the network (such as a
       - What would happen if the role were not there           champion or resource provider) — but if
       or the person playing that role were replaced            they were not there or someone else took
       with someone else?                                       that role the whole dynamic of the network
                                                                could change in — well, in a heartbeat.

17     How would you evaluate the current                       Please rate your judgement on a scale of 0-10
       performance of this value network?                       (zero being non performance and 10 being
                                                                excellent performance)

18     How efficiently is the network converting                Please rate your judgement on a scale of 0-10
       tangible and intangible inputs to financial and          (zero being non performance and 10 being
       non financial value?                                     excellent performance)

19     How quickly and efficiently is the network               Please rate your judgement on a scale of 0-10
       converting financial and non-financial assets            (zero being non performance and 10 being
       into tangible and intangible value outputs?              excellent performance)

A: Relates to network intent, scope and health

B: Relates to Value realisation: Sharing (S) Enhancement (E) Conversion (C)

C: Relates to role play behaviour and participant behaviour/alignment/intention

Note        David Meggitt              14th November 2008         Page 9 of 9

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