While System Dynamics (its system Content and behavior) provides a framework for understating how elements within the system interact, it does not address how to effectively organize and control the embedded system to ensure continuous viability (adaptability) within a changing environment. Furthermore system dynamics determine the properties of key variables and their behavioral relationship (causal relationship).
System failure does not stem from cause and effect relationship but from pathology of the system as a whole.
The Viable System Model (VSM) fulfills the requirement that any governance model of a complex organization will have to reflect the organization system relationships and its emerging properties and has to be aligned to its adaptive cycle and furthermore ensure that the system is steered towards its set-course (goal).
Organizational design key focus s with respect to governance : viability, complexity, adaptability, recursiveness, variety and consists of Normative Management, Strategic Management and Operational Management within the VSM framework:
- Normative Management: System 5 is responsible for policy, identity, ultimate authority decisions within the organization as a whole to balance demands from different parts of the organization and steer the organization as a whole. Normative management (system 5) develops the organization’s overall vision and strategy
and establishes its ground rules. It selects the organization’s strategic direction from those recommended to it by strategic management. It develops policies, establishes values and objectives, provides the means of enforcing the rules, changes organizational structure as required, and monitors the tension between the demands of current operations (operational management) and future preparedness (strategic management), and determines when and how to shift the balance from one to the other.
- Strategic Management : The bodies that make up System 4 are responsible for looking outwards to the environmental scanning, strategy, planning and innovation and to monitor how the organization needs to adapt to remain viable. It is the intelligence gathering function. It collects and analyzes information about changing conditions from internal and external sources and assesses its impact on organizational strategy. It identifies opportunities and threats and ensures that the
system can survive in a changing environment; it uses benchmarks to assess organizational performance relative to competitors; and it develops strategic options.
- Operational Management : Management functions associated with systems 1, 2, 3 and 3* with respect to delivery of service and products towards its known environment. Operational management allocates resources, optimizes performance, implements policies, monitors routine performance via performance indicators and investigates non-routine events which influence the attainment of short term performance targets.
The main theoretical proposition stipulated by VSM is that an organization is viable if and only if it has a set of management functions and their interrelationship as stipulated by theory.
Deficiencies such as missing functions , insufficient capacity of the functions or communication channels , or faulty interaction between functions impair or endanger the viability of the organization.
The viability, cohesion and self organization of an enterprise depend upon these functions being operating recursively at all levels of the organization under normative, strategic and operational management.
Primary activities, those responsible for producing the products or services towards the environment implied by the organization’s identity defined by normative management.
A viable system also has systems in place to co-ordinate the interfaces of its value-adding functions and the operations of its primary sub-units. In other words, co-ordination is necessary between the value-adding functions as well as between the embedded primary activities in order to optimize and achieve synergy, optimization and synchronization in order to maximize potentiality and capability.
This is the channel from operational management through which resources are negotiated, direct line management instructions and goals are issued and accountability reports flow upwards to keep the meta-level management in touch with events. The control function needs an assurance that the accountability reports it receives are indeed an accurate reflection of the status of primary activities by means of its validation services.
The Intelligence function management by the strategic management service is the two-way link between the primary activity and its external environment. Intelligence is fundamental to adaptability; provides the primary activity with continuous feedback on marketplace conditions, technology changes and all external factors that are likely to be relevant to it in the future; secondly, it projects the identity and message of the organization into its environment. The intelligence function is strongly future focused. It is concerned with planning the way ahead in the light of external environmental changes and internal organizational capabilities so that the organization can invent its own future (as opposed to being controlled by the environment), create new industry paradigm, elevate its potential, provide operations management guidance with respect to adaptation .
Policy making function manged by the normative management service provides closure to the system as a whole. The main roles of Policy are to provide clarity about the overall direction, values and purpose of the organizational unit; and to design, at the highest level, the conditions for organizational effectiveness.