The appropriate structuring of companies is becoming more and more relevant as a mechanism for managing and enhancing their innovation capability. This article explores the concept of the Viable Systems Model (VSM) of Stafford Beer as a tool to better structure organisations for effective innovation and efficient operation.

Traditionally hierarchical and silo’ed structures are simply too cumbersome to deal with the modern imperatives of flexibility, integration and agility. Regular and transparent communication, of both the formal and informal kind, is generally lacking. This stifles innovation. Ask just about any person who works for a large corporate environment about the structure of their organisation. The chances are extremely good that you will not get a straight answer. This is not because they are avoiding the subject, but rather because the structure is not transparent to them. Ask more than one person and you are likely to get conflicting responses.

Matrix and other alternative structures have been instigated in companies to try and improve upon the inflexible, disconnected and opaque nature of these traditional structures and have proved useful at certain levels. The challenge remains that control structures continue to be extremely hierarchical in nature. But why is this problematic for innovation?

The need for ambidexterity

Innovation, inevitably, requires an organisation to change. Whether minor and incremental adjustments to the status quo, or a major and radical deviation from the norm, companies are required to change their modus operandi more and more often and in larger and larger increments to remain competitive. The traditional organisational structure is founded in an environment where success is achieved through:

  • role clarity – employees know what to do,
  • specialisation – employees know how to do it, do only that and do it well,
  • control – employees are coordinated and (micro-)managed by those “above” them, and
  • size – more revenue is created by larger organisations (mergers and acquisitions) controlled by deeper hierarchy.

These structures can be highly bureaucratic, slow to react, and lacking in connectedness between business units. Clearly, this is in stark contrast to the new imperatives for organisational success – flexibility, integration and agility. But, do these 3 attributes alone ensure competiveness?

Managing a production line for quality and efficiency and managing innovation share few similarities.

While they would support innovation, companies also need to be efficient in their current operations – their stream of revenue and immediate survival. Delivering value more cost effectively than the competition is vital. This requires “rigorous structures” that can be in direct conflict with the imperatives for innovation. Managing a production line for quality and efficiency and managing innovation share few similarities.

An ambidextrous organisation is therefore required – one in which operations and innovation can coexist. A mechanism that we use to describe how these conflicting activities can coexist, or rather flourish, is presented in the Viable Systems Model of Stafford Beer.

Basics of a “viable” system

Born in London in 1926, Beer was a theorist, consultant and professor in the fields of operational research and cybernetics. He was however best known for his application of cybernetics to organisational management, defining cybernetics as “the science of effective organisation”. It is in the works “Brain of the Firm” (first published in 1972, significantly extended in 1981), “The Heart of Enterprise” (1979) and “Diagnosing the System for Organizations” (1985) that Beer formulated and applied his Viable Systems Model. The basis for the model was established through Beers study of the human form in which he identified 5 primary sub-systems (see table and figure below). Beer postulates that these systems are fundamental to any higher-level system interacting with a complex environment – such as an organisation – if it is to be a viable (sustainable) system.

Human System Organisational System
System 1 The muscles and organs – performing the primary activities Operations – Primary activities, operations, project teams, quasi-autonomous
System 2 The nervous system – connecting and stabilising the activity of the muscles and organs Connection – Communication, conflict resolution, stabilisation
System 3 The base brain – overseeing and optimising the interactions between the muscles and organs Cohesion – Internal regulation, optimisation, synergy
System 4 The mid brain – providing a connection to the outside world through the senses Intelligence – Forward planning, strategy, innovation
System 5 The higher brain – representing the final decision making, identity and values of the human Policy – Ultimate authority, governance, identity

The intention of this article is not to reproduce the material. It is to (briefly) demonstrate that the VSM offers a solution to the challenge of organisational ambidexterity – creating an environment in which innovation and operations can flourish simultaneous.

At the core, the VSM states that each of the 5 sub-systems needs to be functioning properly and be in balance with its environment for the system as a whole to be viable. Further, from the diagram below, it is clear that the structure is a self-replicating one similar in concept to Mandelbrot’s fractals. Viable systems therefore exist within viable systems – known as recursion – as a mechanism for dealing with complexity and to ensure a certain degree of autonomy. This principle of recurring self-organisation is crucial to ensuring the desired level of flexibility and agility required for modern competitiveness.

In addressing the need for organisational ambidexterity, the VSM diagram below depicts the connections that exist between innovation (part of Intelligence, System 4) and operations (System 1) and the “positioning” of each. Through recursion, each business unit essentially has its own Intelligence function, providing forward planning, strategic direction and innovation for that unit in the context of its specific business. The higher-level innovation function is closely linked to this function and provides a perspective that is outside of the specific business of that unit. This combined top-down and bottom-up approach to innovation supports the need for consistent incremental improvement to the existing business to maintain competitiveness within a market and the occasional radical change to create new businesses and markets to survive over the long term.

Practical implications of viable systems theory

This article concludes with the following practical implications for structuring innovation within the organisation:

  • If the innovation mandate is not elevated to the appropriate level (as demonstrated within the diagram) it will not succeed. Innovation must be made part of the highest level metasystem – represented as the Intelligence function – and interact with the environment to identify high-level and latent opportunities not visible from an operations perspective.
  • Innovation has to have a place within each of the business units, as is demonstrated by the self-replicating structure – an Intelligence function as part of each business unit. This function would be focussed on identifying opportunities in the context of the particular market in which the unit is operating.
  • “Thick pipes” for communicating between these Intelligence functions (and all other functions) is vital to maintain the balance of regular incremental improvement to the existing business to maintain competitiveness within a market and the occasional radical change to create new businesses and markets to survive over the long term.
  • Operational business units, exhibiting the 5 sub-systems necessary for viability – with only the appropriate level of intervention from the highest level metasystem – will provide the required level of autonomy and agility necessary to successfully manoeuvre within a specific market and ensure their short-term competitiveness. Further, the bottom-up and incremental innovation emanating from the business units is not incompatible to the earlier mentioned “rigorous structures” necessary to deliver value in an efficient manner.
  • Higher-level structures – Policy, Intelligence and Cohesion – offer the appropriate level of intervention to ensure balance within the organisation, resolve conflict, offer additional perspective and opportunities external to specific markets, and identify synergies between units with the objective of ensuring long-term survival. Further, the creation of self-similar business units to address new opportunities offers the scalability necessary to rapidly grow the business.

By Heinz Essman

About the author

Heinz is a perpetual student, having spent much of the last 9 years understanding how companies are built, run and renewed through innovation. He obtained his PhD in Industrial Engineering on the topic of assessing and improving organisational innovation capability. Heinz has more than 5 years of experience in deploying a variety of tools and methods for business building, improvement and renewal as a researcher, business engineering and programme manager at the Innovation Management firm Indutech. Clients range from new and small companies, new spin-off units focussed on innovation, to large corporates and government organisations. He also lectures to final year Industrial Engineering students at Stellenbosch University on the topics of Innovation Management and Enterprise Engineering.