PROJMNGT 7047

Systems Design for Projects

Module 10

Viable System Model (VSM)

Dr. Nam Nguyen
Visiting Fellow, Business School, University of Adelaide
Director, R & D, International Centre for Complex Project Management (ICCPM) 1
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© Malik 2023
This document, its content and the methods and concepts implemented in this document are protected by copyright
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course for academic purposes only.

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Basic Questions on Organization

Introduction

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Five important aspects to consider when thinking about organizations

There are no good organizations

Don‘t just think about organizing – think about management as well

Don‘t start with organizational charts

Start with the purpose of organizing and the basic questions of Organization

No “organizitis”

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What is the second best situation?

+
- ++
Organization

-
-- +
- Management +

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Don‘t start with organizational charts

The organizational chart shows only a small

part of the organization:
- departments and their heads
- management relationships
- the official channels
- the levels of the hierarchy

What it doesn‘t show directly is how the

organization works. Some essential things
are missing:
− customers
− secretaries
− committees, projects
− groups
− meetings
− the “unofficial channels“
back

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Three basic questions of Organization

How do we have to organize ourselves so that:

1. attention is focused on what the customer pays for and will never again stray from
that focus?

2. our employees can actually do what we pay them for?

3. the top management can perform the tasks it really should be performing?

back

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“Organising-itis“

“We practiced with all our might, but the moment

we began to feel welded together, we were reorganized.

I later learnt that we often tried to

counter new conditions by reorganizing.
It is an absurd method.

It creates the illusion of progress,

but at the same time it causes confusion,
reduces effectiveness and has a demoralizing effect.“

(Gaius Pathromius, a Roman officer,

Cologne, ca. 100 AD)
back

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Classical symptoms of poor organization

1. Multiplication of levels of management

2. Constant talk about “trans-divisional working“

3. Lots of meetings with lots of people

4. Need for large numbers of assistants and coordinators

5. Many jobs that do “a bit of everything“

6. Attention misdirected onto things of minor importance

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A shift in mindset is not possible with conventional

thinking and methods but with systemic thinking and
methods.

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Coping with Complexity

Fundamentals, principles and laws for the accurate handling of complexity

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„How to control a complex system?“

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What makes a system?

The appearance of the Organization The functioning of the Organization

The interconnections are what make the

organization function!

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„How to control a complex system?“

What control mechanisms and processes should be

set up within the system and how?

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The Viable System Model

The best control system for managing complexity

Deducted from the logic of the functioning of the human central nervous system a
model for viability for any type of system was developed.

3
3* 2

1c

1b

1a

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System 1 (S1): Fulfilling the purpose

Operate
1. fulfill the purpose of an organization (do what
the customer pays for)
2. autonomously cope with the complexity and
dynamics of their environment
3. have the according autonomy and resources
4. surrender part of their autonomy to the
overall organization in the interest of the
1c overall mission.
Examples
1b a) Governmental Departments
b) Individual Projects
1a c) Business Segments

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System 2 (S2): (Self-)Coordination

Stimulate Self-Coordination and Collaboration

1. coordinates and supports the Systems 1
ensuring their self-coordination
2. regulates the interplay of the Systems 1
avoiding potential conflicts arising between
them
2
Examples
1c a) Rules and regulations
b) Common language
c) Implicit rules of the game
1b
d) Standards
e) Supporting standardized systems like IT
1a

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System 3 (S3): Inside & Now

Optimization
1. optimizes of the cooperation between the
elements of System 1
2. allocates resources for the optimization of the
3 whole
2 3. identifies and realizes synergies and ensures
the usage of experience and knowledge
4. releases regulations and ensures they are
1c followed
Examples
1b a) Operative Planning
b) Budget Planning and Annual Objectives
c) Intervention (if needed)
1a
d) Chairman / Governor / Head of…

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System 3* (S3*): Real-Time Feedback

Deliver Real-Time Information

1. direct observation of the Operations
2. supplies System 3 with unfiltered information
to enhance decision making (what is really
3 happening?)
3* 2 3. checks whether processes are effective and
efficient and performance and quality meets
the expectations
1c Examples
a) Ad-hoc inspections, walk-through the offices
1b b) Direct contacts to employees / customers
c) Surveys
1a d) Internal auditing

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Maturity (Saturation) and new Growth:

Growth can go on, but on a different path.

Foundations of
Evolutionary path of systems parameters

Optimal path of future existence

development

Foundations of
present existence

Past Future Time

Today

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System 4 (S4): Outside & Then

Intelligence and Adaptability

1. recognizes and interprets the environment and
4 develops an understanding of the organization
within its environment (opportunities &
threats)
3
2. suggests future developments and aligns them
3* 2 with System 3 (ensures adaptability)
3. builds future success potentials
1c 4. communicates with the environment (media,
associations, authorities, foreign partners etc.)
Examples
1b
a) Monitoring of technology & trends
b) Forecasting – as far as possible
1a
c) Strategic planning

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System 5 (S5): Identity

5 Defining the purpose and identity

Direct 1. defines the purpose of an organization: “Why
signal
4 do we exist? What services do we deliver to
whom?“

3 2. sets the standards and values

3* 2 3. defines the overall policy and supervises the
organization
4. guards the interplay of System 3 and 4 and
1c makes normative decisions in cases of
emergency
Examples
1b
a) Development of the organizational mission
b) Definition of guidelines and barriers for
1a
strategy and the operative leadership
c) Development of principles for right leadership
and collaboration
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The system functions of the Viable System Model

Purpose and Identity

Intelligence and Adaptability

Real-Time Information

Optimisation

Self-Coordination and Collaboration

Operation

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The principle of recursion (1)

Every viable system is part of a

viable system and consists of
viable systems itself.

This way the entire

organization can be designed,
based on the same model – all
levels, all units, all functions,
etc..

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The principle of recursion (2)

Wien

Wien

Wien

Wien

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Example for recursion: Allianz Group

R0: Allianz Group R-1: Allianz

Europe
5
R-2: Allianz UK
Board
4 5
Strategic
Mgmt.
4

3 Inspection*
Op.Cinic-
Mgmt.
Regulation 3*
3
2

3* 2 1c
Germany

1b

Allianz UK 1a
Asia

Italy

Allianz
Europe

Allianz
Australia

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Principles of organization

1. Make sure it is right for the strategy: Structure follows Strategy!

2. Ensure all 5 system-functions exist and are working

3. Form units that can operate independently

4. Minimize interfaces

5. Decentralize and ensure strong overall management

6. Place innovations at the highest possible level

7. Try to achieve clarity and transparency (but not necessarily simplicity)

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Exercise

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Exercise: Choose one organization (e.g. your entire company /

your division / department / unit…)
Draw a complete Viable System Model and describe the 5 system functions

5. What are the functions (tasks,

policies, regulations) that set
guidelines and give identity?
4. What are the functions (tasks,
4. Note down some ideas: What committees etc.) that forecast
might happen in the future? and plan for the future?
Future challenges in the 3. What are the optimizing
environment… functions (tasks, organizational
elements like committees etc.,
3*. What are the audit / positions)?
direct control functions? 2. What are the coordinating /
supporting functions (tasks,
support units, positions)?
1. Which are the basic units
in your organization?

Environment Unit Leadership / Head of unit

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Special Aspects

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The Importance of System 4

Sensitivity – „Model of Total Control“
Start Animation

Data
Information
Environment

Pattern Filter

Management of
the system

Action Δt: (Evolutionary Fitness)

(Organization, Communication)

Object Level Control

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The VSM provides your organization with a central nervous system for
organizational effectiveness – it does not require re-organization

Normative
Corporate
Management

Strategic
Corporate
New markets Management

Operative
Corporate
Management
Audit
Coordination
Carrier

Enterprise

Consumer

Environment Operations Management

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Innervating the existing organization: A central nervous system for organizational effective functioning:
Integration of anatomy and physiology with the neurophysiology of the central nervous system
Anatomy need not be changed if the neural pathways are correctly established.
Instead of re-building in the usual sense of organizing you do re-wire the corporate brain (Malik 2017)

S5: Normative
Board of Directors BD
Dr. Karl Heinzer
Corporate
Jolanda Huber Management
Karl-Friedrich Meien
algedonic

Corporate. Dev. CEO Assistant

S4: Strategic
GCD GL GBS Potential Corporate
Marketing
Anina Steffen Peter Spähn Franzen HR - CBH
future Management
Claudia
Services –
Org.chart (anatomy)
GMS → VSMProduct
GPM
Mgr. Quality Mgmt.
GQM
Remme
environment
(nervous
N. N.system) N. N. Reto Schadler S3: Operative
Needed: relations/ communication/ Corporate
reports: complete list of meetings, Management
CMO members of
committees, persons, COO CDO CFO
GM GO also: GD GF
meetings, electronic systems, etc.Joseph Collins
Patricia Bauer
with tasks / responsibilities (to map
GF Heine AG Sven Franke Joe Kayser S3*: Audit
on VSM), organizational chart, etc.
S2:
Market Dev.- CM Director Customer Service
CDO,
Director Finance Coordination
CDO,CDG,
CDG,CDS
Helmut Operations - CO CMC
Eric Friedrich
CDO, CDG, CDS
CDS
(Digitalization)
& Admin. - CF 1a
Hubacher Martin Franzen Erwin Dickmann

Corporate COP,CDG,
COF,CDS Customer Service Director Finance
CDO,
COP,CDG,
CDO, COF,CDS FOE
Communications CDO,
COI, CDG,
CQM,CDS
CQS FMC & HR - FF
COI, CQM, CQS Antonio Struwari (IT-Dev. & Ord. Pl.)
Deborah Lüthi Marina Eynatten

Director
1b
Market Unit FMD, COP,CDG,
FMA,
COP,
CDO, COF,CDS
FMR,
COF, Director
Director CH - FM Operations - FO CDO,
CDO,
COI, CDG,
CDG,
CQM, CDS
CDS
CQS
CDO, CDG,
FMF&FMP,
COI, CQM, CDS
CQS Regulations - FF
Franziska Letti Tony Obama
FMM, FMB, FME Martin Schulz
also:
MD Heine Oy
Market Unit FOD, COP,CDG,
FOA,
COP,
CDO, COF,CDS
FQR,
COF,
CDO,
CDO,
COI, CDG,
CDG,
CQM, CDS
CDS
CQS
Director DE - AM CDO, CDG,
FOF&FOP,
COI, CDS
FQM,
CQM, CQS
George Brown FOB, FOE (ERP)
1c
Market Unit
Director US - SM
Stephen David

Environment Operations Management

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Benefits of the VSM

1. Diagnoses quickly and accurately the changes required to make an

organization viable and complete

2. Produces a robust, simple structure that is nevertheless able to deal with

high internal and external complexity

3. Utilizes the rules and principles of how natural systems function from the
sciences of cybernetics and neurology (self-organization, self-regulation, self-
renewal, etc.)

4. Integrates all relevant dimensions: external and internal, present and future,
structure and process, management and performance in a single holistic
approach

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VSM Diagnostics
Dysfunctional Patterns: typical organisational issues

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VSM Diagnostics
Dysfunctional pattern, example 1: bottom-up growth
What are its characteristics?

• Weakly established S2, 3, 4 and

5
• Low regulatory function
• Lack of centripetal force; loss of
cohesion
• Strategic myopia; strategy is the
sum of strategies in the S1
Potential for conflict between units

• Significant amount of
Strong S1 with (too?) high levels of
duplication across all functional
autonomy
areas
• Synergies largely unused

 If the S1 are unequally strong, the viability of the weaker ones is endangered
 If the S1 are equally strong, antagonisms can lead to the collapse of the whole

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Dysfunctional pattern, example 1: bottom-up growth

What measures can be taken?

1. Strengthen S3 (through involvement of S1

leaderships)
2. Focus on synergies
3. Develop S4 as „counter position“ to strongly
focused S1. Focus on the environment
outside of the current activity.
4. Establish forums for coordinated self-
organization e.g. for R&D

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Dysfunctional pattern, example 2: "Bottleneck" organization

What are its characteristics?

• Management staff at the ?

operating units has little room • Systematic neglect of S4
to maneuver • Uncertainty about the strategic
• Potential for conflict between goals of the organization
S1 and S3

• Overall organization is heavily

• S1 are unable to autonomously
centralized
absorb the complexity of their
• Leadership is
environment (non-viable)
overwhelmed with
• A large part of the complexity is
operational micromanagement
absorbed by S3

 Due to a self-imposed operative overload, the S3 management turns into a bottleneck for
future-oriented development and thus long-term viability.

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Dysfunctional pattern, example 2: "Bottleneck" organization

What measures can be taken?

1. Clearly delineate the actual, viable S1 that

can independently deal with the
complexities of their environments
2. Strengthen S4
3. Relieve S3 by strengthening coordination
and audit (S 2,3*) and allowing self-
organization of S1

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