The Viable System Model (Part 1) A Powerful Framework to Reduce Complexity and Create Clarity

Core to our work is the knowledge that a startup is a system with purpose, elements and interactions that make it come to life. Therefore, it is not just the ‘having a good idea and give-it-a-go’ mindset that makes it work; it is good design at its core that makes it sing.

In the world of design thinking, we use three key areas of a business as focal points to evaluate and measure. These are Desirability, how what we offer chimes with what is needed; feasibility, whether we have the resources and capitals (social, intellectual, natural, and financial) available to make it happen; and viability, do the benefits of the business outweigh the costs of access and delivery? For any company, this is a challenge; for a startup, this work is a constant balancing act, juggling all three balls whilst trying hard not to fall over.

It is crucial to create litmus tests for each aspect and apply these to make judgment calls on what works and what does not. However, most of us rely on gut instinct—a valuable but not always scalable tool. The need for scalable tools in decision-making becomes evident when we consider the constant balancing act startups face.

Viability is often reduced to questions around cost vs. benefits. As important as these are, they somewhat diminish a wider consideration of what viability is all about. This article looks deeper into viability in terms of what scales and explores how the Viable System Model (VSM) can support founders and entrepreneurs in creating something that lasts.

The Urgency of Viability in Business

We live in a volatile, uncertain, complex, and ambiguous (VUCA) world where survival is not guaranteed. Over the last 80 years, the average lifespan of a company has declined from 67 years to 15 years. Not all of this was due to poor leadership and turbulence; the rise of M&A certainly added to the vaporisation of brands, but the VUCA world has increased the rapidity of such outcomes. In an HBR article, How Winning Organizations Last 100 Years (2018) by Alex Hill, Liz Mellon, and Jules Goddard, their research indicated that a “stable core, or an unchanged organizational purpose” is associated with survival, and those who do not constantly look around will die, it is a mix of balancing the radical and the traditional that helps businesses to stay the course, sometimes, decade after decade. The key word there is ‘balancing’ – no matter how hard it is to juggle it is even harder when we must stay upright.

Stafford Beer’s Viable System Model (VSM) is rooted in cybernetics (scary word!), a branch of systems thinking that focuses on key control and communication aspects rooted in feedback. A moment of reflection will help you see how recognisable these elements are in everything, whether biological, economic, social or organisational systems. For you and me, it is how we engage with the world around us, process that information and react as an outcome only to experience the world in a new way – thus creating circularity. Most of us have shortcuts to analyse and rarely have the time to appreciate the world, but these shortcuts can and often lead us astray, and pause is an essential facet of learning. Understanding this is a journey towards clarity. Communication structures that accommodate this need to be designed into an organisation to integrate how humans and technologies work together to deliver viability. In today’s VUCA world it provides a reassuring anchor, offering a profound sense of security and stability; it helps organisations survive the unpredictable and chaotic.

According to Patrick Hoverstadt (2020), a consultant and academic focused on organisational design and strategy, 80% of change fails due primarily to three areas of business development:

1.?????? Change often crosses different boundaries

2.?????? This leads to a lack of coordination

3.?????? Creating multiple speeds of travel, which develops resistance.

You may think that a startup or micro-business is immune to this. We are only small, so change should be easy. The problem is a lack of understanding of where the boundaries exist in the business. Changing your business model disrupts cash flow, concerns the bank, and affects suppliers and customers. Without an anchor, it can leave a startup rudderless and off course. Everything we do requires a communication system to overcome resistance when distilled into a change.

What is the VSM?

The Viable System Model (VSM) was developed by cybernetics expert Stafford Beer and explored in detail by many systems practitioners, including Patrick Hoverstadt. It originated because Beer wanted to improve the way business was organised and managed and, in doing so, create a universal model that could be used to describe any system. This model offers a unique approach to organisational structure and how business functions, creating invaluable insights for building viability into a system. Business is complex, but it does not need to be designed that way; the complexity stems from design imbalances, often between the internal structure and the external environment. ?Since systems are constructs based on purpose, consist of many elements and operate in semi-autonomous ways frequently forged by interactions foundational to the narrative, they create many challenges around coordination. Startups, which many may consider as simple systems, are not so. Any founder knows it takes time and practice to get it right, and even then, the pursuit of scalability drives a whole new layer of complexity.

Getting your business operational is an iterative process that can drain resources, including confidence, self-belief, and passion. It is full of tensions that can stress every aspect of our work and debilitate us and the business. However, designing processes and structures that work and scale can release those tensions. So, why do we not spend more time on this? ?

So far, we have talked about complexity as though it is uncontrollable and to be experienced rather than managed. According to Ross Ashby, a neurologist and leading theorist in cybernetics, noted that living systems (and we include startups in that) are “energetically open” to the environment but closed to the dispersion of information and how they are controlled (Capra and Luisi, 2014, p92). ?Ashby’s thinking is captured in The Law of Requisite Variety, where complexity is this idea of variety; the more variety we have outside determines the need for matching variety within.

This concept of why imbalances are a constant process of checks is just one reason running a startup is daunting and a real passion killer for the most ardent entrepreneur. There is, though, a way to work through this: engaging with the VSM.

In the VSM, there is a desire to fight against hierarchies and centralised control and instead work towards the idea of semi-autonomous areas of business connected through channels of communication that create the cohesion needed to accommodate change. It has been designed to strip down complexity into a simplified structure but without losing the requisite variety that any business needs.

One of the most common attributes of serial entrepreneurs is the desire to start multiple businesses. Often, we see them in a state of frustration because one or more are doing OK while others are not. If you see this in the language of complexity, it becomes clear why this is so draining. There is nothing wrong with having multiple value propositions. Still, it is vital that synergies and leverage are put into play and complexity is removed through focus and the importation of new resources.

The VSM – Going Deeper

The VSM is a graphical model with five systems connected in a specific way. Not driven by silos of activity but by moments of interactivity. It is a rigid-looking structure, as is the Business Model Canvas, but like the canvas, it is a tool to deliver agility and responsiveness.

1.?????? We will touch on the primary elements of the VSM and, in future posts, see how they can be used for:

a.?????? Analysis – overlay against an organisation

b.?????? Diagnostic Framework

c.?????? Organisational design – the blank canvas

At its core, VSM posits that any viable system (including businesses) consists of five interconnected subsystems. Let's explore how these subsystems can be leveraged in the context of business development and valuation:

System 1: Operations

This system represents the primary activities of the business. When building a company, focus on optimising these core operations. For valuation, assess the efficiency and effectiveness of these processes, as they directly impact the bottom line.

System 2: Coordination

This system ensures smooth interaction between various operational units. In business development, invest in tools and processes that facilitate coordination. For valuation, examine how well the company manages potential conflicts and synergies between different departments or functions.

System 3: Delivery & Control

This system oversees day-to-day management and resource allocation. When building a business, establish clear metrics and feedback loops. For valuation, evaluate the company's ability to maintain stability and optimise resource utilisation.

System 4: Development and Intelligence

This forward-looking system scans the environment for threats and opportunities. In business development, cultivate a culture of innovation and market awareness. For valuation, assess the company's adaptability and potential for future growth.

System 5: Policy

This system sets overall direction and balances demands from different parts of the organisation. When building a business, develop a clear vision and decision-making framework. For valuation, examine the strength of the company's leadership and strategic planning capabilities.

Why it matters

By viewing a business through the lens of VSM, entrepreneurs can ensure they're building a robust, adaptable organisation. Similarly, investors and analysts can use this framework to conduct more comprehensive valuations, considering financial metrics, the business's structural integrity, and future viability.

The beauty of VSM lies in its scalability and universality. The principles remain the same whether you're running a startup or evaluating a multinational corporation. Ensuring all five systems are present and functioning harmoniously enables you to create or identify viable, valuable businesses.

This was a brief overview of the methodology; in future articles, we will explore applications by way of a case study so that you can:

1.?????? Apply the VSM to create business development strategies

2.?????? Use it as a framework to create a diagnostic you can apply to your own business, identifying bottlenecks and areas of focus.

3.?????? Working with it and the Business Model Canvas to create a holistic approach to business design.

The Weave is dedicated to arresting founder burnout – Just as a decompression chamber safely guides divers back to normal pressure, The Weave guides founders from high-stress environments to a balanced state:

·?????? Pressurised Entry: We meet founders where they are, acknowledging their high-pressure situations through empathy and understanding.

·?????? Controlled Decompression: Our community gradually helps founders release accumulated stress.

·?????? Pure Oxygen: We provide essential knowledge and insights, like pure oxygen for the mind.

·?????? Constant Monitoring: Our supportive community keeps a watchful eye on the founders' well-being.

·?????? Enlivening the Journey: We inject fun and entertainment to make the decompression process enjoyable.

By rebalancing founders' systems in this controlled, supportive environment, The Weave helps prevent burnout and guides entrepreneurs back to a sustainable, productive state.

Join us in our Mighty Networks Community and follow us on LinkedIn – we have a Free for Life plan that brings people together.

Hoverstadt, P. (2020). The Viable System Model. In: Reynolds, M., Holwell (Retired), S. (eds) Systems Approaches to Making Change: A Practical Guide. Springer, London. https://doi.org/10.1007/978-1-4471-7472-1_3

Capra, F. and Luisi, P L. (2014) The Systems View of Life – A Unifying Vision, Cambridge University Press, Cambridge, United Kingdom. ISBN 978-1-316-61643-7

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