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
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
Appendix 1: Levels of Recursion
Appendix 2: Variety
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Section 7: BALANCE WITH THE EXTERNAL ENVIRONMENT
The following diagram illustrates the relevant parts of the VSM involved in this Section.
The issues which will be addressed in this Section are:
Connection to the External Environment
System 4 is charged with dealing with future planning in the context of the external environment. Clearly, the first job for System 4 is to decide which part of the (infinite) external environment is of direct relevance.
The VSM distinguishes between two kinds of external environment:
The first is the Predictable which can be monitored. Trends may be identified and decisions made accordingly.
The obvious example of this is the way that a market is changing.
In most businesses it is clear that as market trends alter, the business must adapt. Most large corporations spend enormous amounts of money on Market Research and on running experiments in selected areas to assess the mood of the consumer.
The second is the Novel. Things may be proceeding just as you expect and then someone invents the light bulb. Clearly every Viable System must have some provision for coping with the novel, even if it's only being aware of development programs in the relevant areas.
Connection to the Internal Environment
System 4 has to be an integrated part of the Viable System. Its main internal connection is through System 3 which is charged with stabilising and optimising the internal environment.
The intense interaction between Systems 3 and 4 was mentioned in the Preliminary Diagnosis. This is essential as all plans must evolve in the context of both external threats and opportunities, and of the internal capabilities of the System-in-Focus.
The example of a new warehouse was given earlier - System 4 needs to look outwards (at possible sites, financing options, etc. etc.) and to look inwards (necessary square footage, headroom, hygiene standards, etc.) and to make a decision in the light of both sets of information.
In practical terms this means that the need for good communications between Systems 3 and 4 must be recognised.
There is no point in having these two essential aspects of viability working in isolation.
The Role of System 5
It's clear that at some stage, decisions will have to be made about the investment to be made in System 3 and System 4.
If the balance is not made correctly disaster may ensue:
Too much emphasis on System 3. Internally, the systems may work wonderfully, but without System 4 the products may become irrelevant, e.g. perfectly designed and manufactured Sedan Chairs.
Too much emphasis on System 4. The future planning may be impeccable but the Inside and Now may be incapable of producing the goods. In this case, the kind of product may be exactly what the market needs but their quality or price may make them unsaleable.
An example of this kind of imbalance is illustrated by Clive Sinclair's production of electronic calculators. His research and development was superb, but the organisation was not viable as his production cost were too high. Too much System 4: not enough emphasis of System 3.
It should be noted that his next venture got the balance right. The ZX computers were well conceived and well produced.
It should also be noted that his Electric Cars displayed his first error in System 4: they were not what the market wanted and despite good quality and prices were (in the UK at least) a complete flop.The decisions about the investment in Systems 3 and 4 have to be made at the policy level. The decision will have to be made in terms of the nature of the business, and the speed with which the market changes.
This is a job for System 5.
Step 13 Design the Balance with the External Environment
Example 1: Small Co-operative
In a small co-operative most of this is taken care of through the mechanics of thorough discussion.
Systems 3 and 4 are the same people and so the necessary communication is straightforward.
The System 4 plans will be made with thorough knowledge of the capabilities of the Operational units.
Allocation of resources must be performed by deciding to put time aside to look at markets, and to formulate plans.
But, basically the system can work well, as long as the need for these functions is recognised.
Example 2: Large Co-operative
The perceived need for a System 4 in large co-operatives seems to vary enormously.
Some co-operatives seem to function without any continuous focus for future planning and with sporadic bursts of activity when the need becomes obvious. Most of these co-operatives function in markets which are not in a rapid state of flux, and have survived without a well defined System 4. Their viability depends upon the markets continuing in this mode, or upon the realisation that continuous future planning is a necessary function.
Other co-operatives recognise the need for System 4, which is often carried out by one of the founder members.
Example 3: Mondragon
At every level, the Mondragon co-operatives take System 4 functions very seriously.
They monitor market trends, and technological advances and ensure their production techniques are state-of-the-art. They do their own research and development and from the evidence I had from my visit, they are fully adapted to the external environment.
Currently one of their main preoccupations is with the unified European market, and how it will affect their market position.
It is difficult to assess their allocation of resources without a thorough study, but their seem to put equal emphasis on their future plans and simulations and upon the need for efficient production techniques.