The VSM Guide

An introduction to the
Viable System Model
as a diagnostic & design tool
for co-operatives & federations


Jon Walker

Version 3.0 (2006)


Introduction
Preface
Section 0: Cybernetic Eyes
Section 1: The Quick Guide to the VSM
Section 2: Case Studies
        Hebden Water Milling 1985
        Triangle Wholefoods 1986
        One Mondragon Co-operative 1991
Section 3: Preliminary Diagnosis
Janus interlude
Section 4: Designing Autonomy
Section 5: The Internal Balance
Section 6: Information Systems
Section 7: Balance with the Environment
Section 8: Policy Systems
Section 9: The Whole System
Section 10: Application to Federations

Bibliography
Links
Appendix 1: Levels of Recursion
Appendix 2: Variety

Case Study 3: ONE MONDRAGON CO-OPERATIVE

This case study is a diagnosis.

I visited Mondragon in February 1991 in order to look at the way they handle federations of co-operatives. However, much of what I learned about the organisation of a single enterprise was of such relevance to the use of the VSM, that I felt bound to include it in these case studies.

Many of the conclusions I made concerning Suma have been reached by the Mondragon co-ops, presumably by entirely different routes.

And in many cases they have adopted practical solutions which fit in exactly with some of my more theoretical proposals.

BACKGROUND

My visit to Mondragon was primarily to study the way that they manage to get 173 different co-ops to collaborate. However, the structure of their manufacturing plants has been changing recently, and these changes were of direct relevance to the conclusions I have been coming to through VSM diagnosis.

Mondragon are the most successful group of co-ops that I know, and during the visit I made in February 1991 I was continuously impressed by their commitment to both co-operative ideals and to state-of-the art production techniques. All the factories are full of computer controlled machine tools and robots. They have huge warehouses run entirely by computer. And most of the steel presses and control gear are made by other factories within the Mondragon group.

Some general comments are needed before beginning the description of a single Mondragon co-operative.

  1. The vocabulary used by the people who escorted us was strikingly similar to that used in the VSM. They think in terms of "autonomy" and use "synergy" regularly. The other word which occurs regularly is "solidarity" which comes as close to Beer's concept of "cohesion" as I can imagine.

  2. To join a Mondragon co-op every member has to put in the equivalent of about a years salary (around 7,000). 25% of this goes to the general funds and the individual never sees it again. The other 75% goes into the individual's account and grows as a percentage of profits is divided amongst the members. The member is not allowed to touch this money until he/she leaves or retires, but interest can be withdrawn.

  3. The co-ops are organised into Regions and Trade Sectors (again they talk about the need for synergy), and at the end of each financial year the profits of one co-op are used to offset the losses of another. They say that this is mutual support, and that over the years most co-ops have had lean patches and have needed financial help.

  4. Distribution of profits is done across a Region or Sector (everyone gets the same) and if the group of co-ops makes a loss, then money would be withdrawn from individual accounts. So far this hasn't happened.

  5. If jobs are lost in one co-op, the individuals are relocated and to date no-one has had to leave the Mondragon group. While members cannot be guaranteed the same kind of job, so far no-one has been made redundant.

  6. Mondragon has its own social security system which provides health care, sick pay and pensions. If you need a particular operation Mondragon will fly you anywhere in the world and pay all medical expenses.

ORGANISATION OF ONE MONDRAGON CO-OP

The General Assembly meets once or twice a year, involves all members and is concerned with major policy issues, such as membership rules, production targets, budgets and distribution of profits.

Its decisions are binding.

The Board of Directors is elected; members are unpaid and serve for 4 years, meeting once a month. They review and co-ordinate operations, appoint the Management who attend meetings but cannot vote.

It sets Operational policy.

The Management are the executive body of the business, serve for 4 years and have full administrative control.

The Audit Group consists of 3 members elected by the General Assembly who inspect the accounts, sometimes calling in experts. They alert managers of problems (which they are expected to resolve), produce information for the General Assembly, and may alert the Co-op of crisis.

The Workers Council consists of all members. It meets monthly to discuss matters such as wages, conditions and safety. It represents the work force on the Board of Directors.

The Operation covers the basic activities of the system.

DIAGNOSIS

At the Metasystemic level, all four VSM functions may be clearly identified.

System 5: Policy

The General Assembly deals with the major policy issues and elects the Board to set Operational policy in its monthly meetings. The Board provides the monitoring function whereby the rest of the Metasystem is seen to operate within policy guidelines.

System 4: Long Term Planning

Long terms plans are drawn up by the Management and sent to the Board for approval. Some debate may follow.

System 3: Optimisation

This is the responsibility of the Management and seems to be taken seriously. They discuss "synergy" between the Operational elements. The Audit group is System 3*, and is a crucial element of System 3 activities. Its job is to provide the information needed to complete System 3's model after the usual information from the business has been obtained. All companies have some sort of audit function - Mondragon seem to have realised the importance of theirs.

System 2: Stability

The Mondragon philosophy provides an extremely effective stabilising system. There are further System 2 bodies like production scheduling and cash flow control. But generally everyone seems to work together well, and conflict of interests get resolved easily.

System 1: Operation

In 1982 the General Assembly decided to change the basic working procedures within the Operation. It was felt that on the shop floor members lacked motivation and that more participation was needed.

They reorganised the production lines into autonomous work groups of about 8 people in which everyone could do all the jobs. Instead of working with a time horizon of 45 seconds , each group had to complete its task in 16 minutes. This gave people time to make a phone call, or have a quick cigarette or whatever.

In the washing-machine factory they changed a 300m line with 70 people into 7 lines 30m long, each with 8 people. The change led to a self-organising system, more motivation, and improved productivity and quality.

This system of autonomous Operational elements uses performance indicators. These measure quantity, quality and costs. The daily indicators are measured (e.g. the number produced). Each week they estimate the more subjective measures (e.g. safety, tidiness, autonomy) and give themselves marks out of 10. This number has to be agreed with the foreman who has the final say.

Each work group has responsibility for maintenance, quality, design and so on. At monthly meeting they monitor production targets, discuss problems, arrange training and so on.

CONCLUSIONS

System Design

Throughout the description of how the Mondragon co-ops function I found it hard to believe that the system had not been based upon the VSM. In the five years since the Doughnut proposals at Suma I have been attempting to introduce performance indicators, long term planning functions and the like, and almost everything I have been proposing is standard procedure at Mondragon.

Perhaps the only aspect that could be improved is the statistical analysis of the daily information to generate Algedonics automatically. As far as I can tell, they inspect all the information they generate.

Participation in Policy

It has always seemed fundamental that all members of a co-op have the ability to affect policy at all levels and Mondragon seem to adhere to this principle. Within the co-op all members make policy at yearly meetings, and occasionally at emergency General Assemblies called by a minimum of 10% of the co-op. During my visit to the Refrigerator factory there were notice boards everywhere full of information on the policy issues which were to be debated at the next General Assembly.

Representative Management

They give their elected managers "full administrative authority" although they insist that this can only be maintained if the manager has the trust of the workforce. (He can be removed by an emergency General Assembly.)

It's clear that some Metasystemic functions must be performed without continuous consultation with the work-force (for example long term plans) and at Mondragon they seem to have found a balance between complete authoritarian control and the lack of clear decision making that comes from having to discuss everything with everyone.

The model which was offered to us was that of a busload of people who instruct the driver as to where they want to go, and then leave the details to him. Once he's been instructed, the rest of the people on the bus leave him to operate the brakes, steer and accelerate as he sees fit. The passengers can also direct him to drive more safely, or get another driver if he's no good. But basically it's up to him to drive the bus.

Finally ..

The Mondragon structure seemed to me to be an example of both efficiency and co-operation based firmly upon autonomy and participation. The VSM diagnosis revealed no major flaws, even in the details of how Operational information is gathered.