The VSM Guide

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

Jon Walker

Version 3.1 (2018)

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

Appendix 1: Levels of Recursion
Appendix 2: Variety


In this Section you will be looking at the internal environment of your organisation - the entire complex of interacting Operational units and Systems 2 and 3 which are there to stabilise and optimise.

If it is out of balance, then there will be instabilities (lots of conflict, people competing for the same resources, confusions about who should be doing what), a lack of optimisation (clear ways that overall efficiency could be improved, but no way of either planning it or of getting it implemented), and the Operational units may be working in isolation from the rest of the organisation.

The solution to these kinds of problem is to ensure that there is a balance between the complexity of the problems affecting the Operational units, and the capabilities of Systems 2 and 3 who have to deal with them.

The approach is as follows:

First Deal with as many of the problems at the Operational level as you can.
Then Increase the capabilities of Systems 2 and 3 to ensure they can deal with the remaining issues competently.

Internal Environment: Systems 1, 2 and 3

The Inside and Now is the internal environment of the organisation. It includes the Operational elements, and Systems 2 and 3 which have the job of optimisation, stabilisation, gathering the information needed for these functions, and passing information to and from the rest of the organisation.

In the next few pages we will be looking at the design of all of this.

But first: review all the elements of the Inside and Now by considering your VSM diagram of Systems 1, 2 and 3. It will look something like this.

Three Operational elements are shown with the interactions between their Metasystems, Operations and Environments.

System 3 is shown with its two subsystems: System 3* responsible for audits and surveys, and System 2 responsible for stability.

The diagram also illustrates 6 vertical channels which interconnect the various aspects of the Operational elements:

C1: Environmental intersects.

C2: Audits and surveys (System 3*).

C3: Operational interactions.

C4: Mandatory System 3 information.

C5: Negotiated System 3 information.

C6: System 2 (stability) information.

The Question now is:
How can we ensure that all of these aspects of the Inside and Now are properly designed?

Operational and Environmental Interactions

If you take your VSM picture and look at the Operational units and their environments, you will have something like this.

At this stage you will be looking at two aspects of this diagram:

  1. The environments will interact (shown by the overlapping bits of each environment). This will be suppliers or customers or Local Government ...

  2. The Operational bits themselves will have some sort of interaction (shown by the squiggly lines between the ellipses). In a steel works the Operational units are the workshops which deal with each stage of the process. The partially-processed steel is transferred along the squiggly lines. In an educational system, System 1 will be schools & colleges - the students will move along the squiggly lines.

In a study on a federations of co-operatives, these two perspectives proved to be of crucial importance.

Environmental Overlaps

The environments consisted mainly of markets and suppliers and the crucial overlap was the delivery areas. Many of the problems in establishing the federation could be dealt with by re-defining the delivery areas to concentrate on local service. Suppliers (the other main part of the environments) also required consideration. By making each warehouse specialise in a limited range of suppliers, the expertise of the group could be improved.

Operational Connections

The movement of goods between warehouses proved to generate interesting ideas. One warehouse with a surplus could use the others to reduce it. Short best-before-dates could be moved more quickly. Shortages in any part of the federation could be dealt with quickly by supplies from another.

Having made the Operational units as autonomous as possible the next step is to look at these two channels and to see if any issues can be dealt with in this way.

The steps involved in this procedure are given below.

Step 10 Operational and Environmental Interactions

10.1 Look at your big VSM diagram and add notes about the intersection of the environments. In some cases they may be large overlaps - for example a series of shops supplying the same market. In others they may be minimal - for example divisions of a company which deal with different parts of the world.
10.2 Think about any ways that these overlaps could be changed to deal with current problems or to improve the overall performance of the Operational units.
10.3 Add squiggly lines between the Operational units and note what materials or information pass between them.
10.4 See if there are any ways these can be altered to either deal with problems or to improve overall efficiency.

Designing Systems 2 and 3

In the previous pages we have looked at

  • Making the Operational units autonomous.

  • Operational accountability and allocation of resources.

  • Intervention rules.

  • Environmental intersects and how to use them to make System 1 more efficient.

  • Operational interactions and how they may be used to to make System 1 more efficient.

All of these techniques enable the Operational units to deal with day by day problems without interference. They are ways of generating the maximum amount of autonomy within the limits of the larger whole.

The question now is:
"Do Systems 2 and 3 have the capabilities to deal with their jobs of stabilising and optimising the internal environment???"

You have already identified the parts of your organisation which do these jobs at the moment.

  • You will have a rota or some sort of scheduling system to make sure people know where they should be working.

  • Someone will have to decide yearly budgets.

  • At some stage there will be discussions on optimisation - "If we put more emphasis on manufacturing and less on publicity we could do lots better ..."

But are your existing systems adequate?

As the rate of change of markets continues to escalate it becomes more and more essential to monitor and deal with problems on a continuous basis - and so monthly committees are becoming progressively more useless.

How thorough is the information you have from your Operational units? How good is the model of System 1? How up-to-date? If this is inadequate, then any decisions made by Systems 2 and 3 will be made in some degree of ignorance.

After thinking about issues like this you may decide to increase the capabilities of Systems 2 and 3 in order to ensure they can do their job. This may involve more time, more people, more thorough monitoring or whatever.

Whatever you decide, it is essential not to interfere with the autonomy of the Operational units, unless it is absolutely necessary.

The steps involved in completing the internal balance are given on the next page.

Step 11: Completing the Internal Balance (Summary and Conclusion)

11.1 Make the Operational units as autonomous as possible.
11.2 Negotiate resource allocation between System 3 and each Operational unit.
11.3 Change the environments with which each Operational unit is involved if improvements can be made.
11.4 Change the way goods and information flow between the Operational units if overall efficiency can be improved.
11.5 Make your information systems capable of producing thorough and up-to-date information.
11.6 Following these changes, consider your existing Systems 2 and 3 and see if they now have the capabilities to deal with the entire complex of Operational units. This will involve both making the relevant decisions and making sure they are implemented.
11.7 Increase the capabilities of Systems 2 and 3 to complete the balancing act.

Designing the Internal Balance: Examples

Example 1: Suma

Suma's internal balance was restored as follows

  • the departments were made autonomous.

  • a Finance Officer and Personnel Officer were appointed.

  • information systems were created to measure daily performance statistics in the sales office and manufacturing departments.

  • weekly business information was produced and given to all members.

The combination of local autonomy, improved information systems, and the new System 2 and 3 jobs restored the balance.

Example 2: National Manufacturing Company

A major national company was the subject of a VSM diagnosis which revealed severe shortcomings in the way that information on stock levels was sent from the local warehouses to the central manufacturing facility.

This led to incorrect assumptions as to the products which needed to be produced and huge inefficiencies at the factories. On several occasions late information would result in a change of plan, involving resetting a production facility which had taken eight hours to set up.

A study of the internal environment revealed that establishing accurate information systems was all that was needed to restore the internal balance.

Example 3: (Hypothetical) Federation of three Warehouses

The traditional approach to ensure that the three warehouses work together efficiently would be hierarchical: appoint 3 managers and put them all under the control of a general manager. In VSM terms, this is the use of the command channel (C4) but this inevitably interferes with the autonomy of the warehouses and thus their ability to deal with their own environments. Consider the other alternatives:

  • Design the delivery areas so the warehouses don't compete.

  • Agree to audits and surveys.

  • Study the interchange of goods between warehouses.

  • Agree performance targets and report back.

  • Design stabilising systems to schedule deliveries.

Once these systems have been established, the need for any sort of authoritarian system should become completely unnecessary, and Systems 2 and 3 may be designed with relative ease.

Example 4: Chile 1972

Beer's work in Chile was essentially to integrate the entire social economy into a single system using the VSM.

He established communications links between most of the nations factories and a central gathering point in Santiago which implemented Systems 2 and 3.

Each factory measured its performance daily and sent a set of indicators through communications systems based on microwaves and telexes and in some cases messages on horse back.

A suite of computer programs analysed the indicators, and sent any alerting messages straight back to the relevant factory. (This was 1972 and computers were still very expensive. Most of this would be done by Micros today, thus enhancing local autonomy).

The integration of most of the nation's industry into a single system had some dramatic consequences.

During 1972 the CIA initiated a strike of 70% of Chile's transportation. They had embarked upon a policy of "destabilisation" and had bribed the owners of the trucks to refuse to work.

Immediately, the alerting signals began to flood into Santiago. No raw materials here, no food there.

This began a period of intense activity as the signals were processed and plans were produced to provide as much of the nations transportation needs with the 30% which was under the control of the Government.

Because the information systems were so thorough, the people in Santiago knew exactly what was needed, by whom, what trucks were available and so on.

During the next 36 hours all the emergencies were dealt with, everything which was needed was delivered and some factories said that they had never had better service.

For this situation, Systems 2 and 3 were clearly able to deal with the demands of the Operational units, despite the fact that 70% of the distribution system was unavailable to them.

Most of the success is due to the conception of an integrated economy, and to the information systems which enabled the people dealing with the crisis to know just what was involved: their models were thorough and current.

The US Congress reports of that era show a great deal of surprise at the stability of Chile under Allende, and that in order to attain their goal of bringing Pinochet to power they had to make far greater efforts than they had expected.