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The applicability of the Viable Systems Model as a diagnostic for small to

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DOI: 10.1108/17410401311285282

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 International Journal of Productivity and Performance Management
The applicability of the Viable Systems Model as a diagnostic for small to medium sized
enterprises
Nicola Burgess Nicholas Wake
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The applicability
The applicability of the of the VSM
Viable Systems Model
as a diagnostic for small
to medium sized enterprises 29
Received 29 July 2011
Nicola Burgess and Nicholas Wake Revised 25 January 2012
Operations Management Group, University of Warwick, Coventry, UK 26 June 2012
Accepted 16 August 2012
Abstract
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Purpose – This paper presents research into the use of the Viable Systems Model (VSM) in small
to medium sized enterprises (SMEs). Research on the VSM has been focussed on large organisations.
The purpose of this paper is to explore the usefulness of the VSM in diagnosing issues of viability in SMEs.
Design/methodology/approach – Case study research was undertaken in which semi structured
diagnostic interviews took place with SMEs using the VSM as a diagnostic tool. The aim was to
investigate whether the VSM would assist in diagnosing problems with viability and whether it could
then prescribe and facilitate improvements in operations. Qualitative case study evidence is presented
that shows the results of these interventions.
Findings – The paper reports some examples of operational problems that were exposed through the
intervention process and shows some general conclusions to support the use of VSM for analysing
operations and supporting small business viability. A number of “threats to viability” themes were
apparent and these are discussed.
Practical implications – The semi-structured interview protocol created for the research could be used
to diagnose viability issues in other SMEs and thus is of practical relevance to other organisations.
Originality/value – The VSM originates from the theory of cybernetics which can be broadly defined
as “the science of effective organisation”. Previous use of the model has focused upon the viability of
large organisations; the applicability of the VSM in a small business operational context has received
little attention. The paper demonstrates the benefits of the using the VSM to pinpoint problems that
threaten SME viability.
Keywords Business performance, Business analysis, Business improvement,
Performance management, Small to medium-sized enterprises
Paper type Research paper

1. Introduction
The foundations of management cybernetics is to be found in the work of Wiener
(1948) who discussed the science of communication and control in the animal and the
machine. This work was built upon substantially by Stafford Beer in his work over
many decades but which has its origins in Beer (1959). The author proposed the viable
system model (VSM), an holistic approach to assessing organisational viability and
identifying the root cause of any problems that might pose a threat to that viability in
organisations. The VSM has been applied to a wide range of situations, however, the
application of the VSM to organisations is one of the key applications of the model.
The VSM was partly intended as a guide for any goal seeking, adaptive
system (Beer, 1981, p. 5). In particular, for making recommendations that might International Journal of Productivity
improve: business performance, organisational structure, information flows, and Performance Management
Vol. 62 No. 1, 2013
organisational identity, core mission and purpose, coordination and control, pp. 29-46
r Emerald Group Publishing Limited
monitoring and intelligence, and internal variety mechanisms to attenuate, amplify 1741-0401
and absorb external variety. The aim of the model was to take the focus away from DOI 10.1108/17410401311285282
 IJPPM hierarchy and structure toward decentralisation of control processes and critical
62,1 linkages by providing a vehicle for identifying dyadic relationships.
Advocates of the VSM claim a general applicability for the model ( Jackson, 2004,
p. 560). The same author outlines the advantages of the theory. First, it is a rich
representation of the organisation and insightful in its portrayal of relations with
the environment. Second, it provides a role and scientific justification for
30 empowerment and democracy in the organisation by promoting the role of the parts
of the system and the workforce in the overall purposes pursued. Third, its recursive
nature allows it to cope with organisations whose parts are both vertically and
horizontally interdependent. Finally, the model enables a focus on the important
sources of command and control and it is a suitable starting point for information
systems design. Although research demonstrating successful application of the VSM
to organisation contexts exists, Whittaker (2003) argues that the work of Beer is
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“scandalously undervalued”. Brocklesby and Cummings (1996) identify a lack of

publication accessible to the practitioner community as being a primary reason for
this absence. Some attempts have been made to make the work accessible to the
practitioner community; for example Diagnosing the System for Organizations
(Beer, 1985). However, a key criticism of this work is that it introduces the VSM and
asks the reader to situate her own organisation on the model as opposed to presenting
the reader with a more practice-oriented approach. Application of the VSM in small- to
medium-sized enterprises (SMEs) is substantially more limited.
This paper serves aims to present an approach to using the VSM as a
diagnostic tool for SMEs to undertake an audit of viability. The paper presents
a diagnostic questionnaire that maps on the VSM and which was administered to a
number of SMEs; this paper aims to demonstrate the outcome of using the tool in
various case-study organisations.
The paper first introduces the VSM through a review of the literature, using the
literature to define a gap in current research. The next section defines how the research
explores this gap, explaining both the methodology that underpins the research and
also how the VSM model was used in this research. The main findings of the research
are then discussed through the analysis of empirical data gathered through fieldwork.
These results are then discussed before the paper provides some conclusions regarding
the usefulness of the VSM to diagnose issues with viability in SMEs.

2. Literature review
This section summarises and critiques the literature on the VSM.

2.1 The VSM

Managerial science and operational research communities view Stafford Beer’s work
in cybernetics and the application of their concepts to complex systems as seminal.
In the closely related field of organisational and management theory, however, far
less time seems to have been devoted to analytical critique of a body of knowledge
declared applicable to: “yorganisations of any size and capable of dealing with
the fundamental problem of management – how to deal with complexity itself”
(Beer, 1985).
The viability of an organisation has historically exercised the minds of leading
academicians (Mintzberg, 1979; Lawler et al., 1980; Miller and Frieson, 1980; Van de
Ven and Ferry, 1980; Peters and Waterman, 1982; Cameron and Whetton, 1983; Miles
and Snow, 1984; Prahalad and Hamel, 1990; Schwaninger, 1990; are a few examples).
 The “VSM” has been developed over a number of years, with significant contribution The applicability
from Stafford Beer (1972, 1975, 1979, 1981, 1984, 1985). It builds on the work of Wiener of the VSM
(1948) and Ashby (1956) and combines cybernetics and the study of biological systems
using machine, organism and brain metaphors, to provide a generic framework that can
be used to explain and analyse system “viability”. A system is defined as viable if it
can maintain a separate existence, has problem-solving capabilities and can survive
disturbances from its wider environment. 31
Despite the power of the model, its application to organisational contexts has been
limited; it has been argued that this is because presentation in a format that is
accessible to the practitioner community has been absent (Brocklesby and Cummings,
1996). There have been other criticisms of the work of Beer, for example Checkland
(1980) critiques Beer (1979) stylistically and questions the underlying assumption
that organisations can be conceptualised as machines. (Checkland, 1986) also critiques
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Beer (1985) on the basis that the view taken of organisations is myopic whilst Rivett
(1977) argues that his work is not underpinned by empirical evidence, and makes
unsubstantiated assumptions regarding the theories underpinning the model.
Beer (1984) argues that in a viable system “there are five necessary and sufficient
subsystems interactively involved in any organism or organization that is capable of
maintaining its identity independently of other such organisms within a shared
environment. This ‘set of rules’ will therefore apply to any organism such as a human
being, or to an organization consisting of human beings such as the State”.
The VSM has been adequately described by a number of authors who have applied
the VSM to organisational contexts. For example Bititci et al. (1999) applies the model
to the strategic analysis, planning and management of business agility. Given the well-
documented nature of the VSM, this paper provides little more than a summary
examination of the model’s constructs and philosophy. A more detailed examination of
the VSM is presented by Bititci et al. (1997).
Beer (1979, 1981) saw an organisation as a series of interconnected, if autonomous,
activity systems connected by control loops of information rather than a structure
based upon functional, geographic or product lines. Jackson (1988) argues that the
VSM “can legitimately be seen as a sophisticated working-out of the implications of
Ashby’s (1964) ‘law of requisite variety’ in organisational terms”.
The VSM consists of five major components that must exist in all social systems with
a purpose, including organisations (the reader is advised to refer to Beer, 1985, p. 136 for a
graphical representation of the VSM to accompany the narrative provided below).
The operational system (System 1) is the basic work unit for implementing tasks,
producing goods or services. This system has various interconnected subsidiaries
or sub-systems, linked to the wider management system, that act as localised
management centres with their own policies, development, operational control,
coordination and implementation functions, all having their own links to the relevant
part of the external environment; enabling System 1 to be autonomous in its own right.
The second system (system 2) fulfils a coordination function to ensure the various
rules and regulations of the organisation act to ensure the cohesion and harmony of
operational elements in System 1.
System 3 provides a control function to monitor and check the rules and regulations
promulgated by System 2 are adhered to. The role of System 3 encompasses the day-to-
day running of the enterprise and the management of the supporting services (such as
human resources and finance). Contained within system 3 is a function that directly
monitors and audits the System 1 activities and this is called System 3*.
 IJPPM Systems 1-3 make up what Beer called the “autonomic management” of the
62,1 organisation in maintaining stability and optimising performance with necessary
reference to higher management.
System 4, often referred to as “intelligence”, is the place where internal information
received from System 3 is brought together with information captured about the
organisation’s total environment and its variety and presented in a way that facilitates
32 decision making that supports “requisite variety”. System 4 helps the organisation
represent itself (through marketing, planning, public relations research and
development) to the environment.
Finally, System 5 has to ensure that the organisation adapts to the external
environment as and when necessary, but still maintaining the benefits of internal
stability.
Systems 3-5 are referred to as the “meta-system”, and it is this system that
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is responsible for identifying and managing change (Bititci et al., 1997). In this
meta-system, System 5 sets policy and direction, System 4 identifies the changes
that are necessary whilst System 3 is responsible for the implementation of
these changes.
Each of these sub-systems represents an interactive, cybernetic function acting as a
filter between the environment and the organisation’s management to connect
management processes and their various communication channels. This filtering
function is sophisticated in its ability to attenuate (i.e. reduce high variety) on the one
hand, whilst on the other to amplify (i.e. increase) other data (Yolles and Guo, 2003).
Some of the essential features of the VSM are now described.
2.1.1 Coordination and control. Each of the systems described will exhibit
“operational elements” that directly interface with the external environment to “sense
and interpret” critical communications relating to strategic direction. The role is to
internally “coordinate” to ensure harmonious working as well as maintain and allocate
resources, while at the same time to “identify” and conceive the purpose or raison d’etre
of the system and its cultural development. Rules and procedures are also used to
coordinate tactics and the use of scarce resources while at the same time, maintaining
standards of quality. Various “organisational conversations” between these activity
systems themselves and the external environment, allow a sharing of problems
and solutions, etc., and allow a cohesive network to be maintained. Espejo in
describing cybernetics as a “fifth discipline”, suggest that by using the science
of communication and control, it provides a panacea to unify the dazzling array of
management initiatives available.
2.1.2 Recursion. Another powerful and important feature of the VSM is its recursive
nature. Systems exist in hierarchies, the organisational form in higher level systems
can be found duplicated in the lower sub-systems. As a consequence, all viable systems
exhibit the same organisational characteristics. The recursive nature of systems, and
this applicability to different system levels, allows elegant representations of
organisations to be constructed and act as a great variety reducer for manager and
management scientists.
Each of the sub-systems also have their own independent operations existing
simultaneously as higher-level systems. Beer’s VSM was further developed to adhere
to Maturana and Varela’s (1972, 1980) essential distinction between the “pattern of
organisation” (the configuration or relationships among the systems components – an
abstract mapping of relationships) and the “structure” (the physical embodiment of its
pattern of organisation describing the systems actual components).
 2.1.3 Requisite variety. In summary, every viable system should exhibit each of The applicability
the five systemic functions described above. Of particular importance, however, are of the VSM
the cybernetic concepts of “variety” and Ashby’s (1956) law of “requisite variety”.
An organisation can remain a viable system and survive in a potentially hostile
environment only if it has the capacity to operationally match all life-threatening
variety states that its environment may present, in other words to achieve “requisite
variety”. “Variety” being the number of distinguishable environmental states or 33
scenarios, present and potential, which all have a bearing on the purpose of the system.
Attempts by the system to manage external variety and complexity involve either
“amplification” techniques, where the system tries to match the “variety”; or
“attenuation” techniques, where the system seeks to control and reduce such variety.
Such thinking closely parallels isomorphism, contingency theory and integration/
differentiation perspectives of Lawrence and Lorsch (1969).
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2.1.4 Critique. Whilst Beer has been highly influential in both generating
and shaping the body of knowledge the academic rigour of the work is questionable.
Beer (1984) acknowledges that the data contained in the case study work he presents
were not “academic exercises” but rather that they are the result of paid consultancy.
He acknowledges that very short time periods were spent with working with firms –
which perhaps precluded him from making claims about the long-term viability of
organisations. However, there were cases in which the period of study was several
years – for example the work undertaken by Espejo (1980).
Another concern regards the nature of organisations studied. The majority of
publications use large organisations as exemplars when discussing aspects of the
VSM. Beer (1984) states that applications of the VSM “have been so many and
widespread that they defy a proper listing”, but uses an engineering concern and a
bakery as examples of “amenable organisations” within the small business sector.
However, many of the exemplars used to illustrate issues raised in his work are large
enterprises. For example Beer (1985) uses manufacturing and particularly the steel
industry (p. 5) and the steel supply chain (p. 59) as exemplars as well as education
(p. 59) and national government (p. 61). Other important contributions to VSM theory
have also been through exemplars which are large organisations – for example the
work by Espejo (1980) explores the use of the VSM within the context of the Chilean
government.
There has, however, been some work undertaken in which the VSM was applied to
SMEs. Espejo (1979, 1989) offers some detail of a VSM application to a medium-sized
British manufacturer. He does not, however, reflect on the implications for the model
or the organisation, when dealing with this type of firm. However, the manufacturer in
question was a subsidiary or division of a much larger firm and recursion was applied
to the parent company – which clearly brings the claim that it was an application of the
VSM within the context of an SME into question.
Beckford (1992) also provides an interesting application of the VSM to a family
business. From the findings, it is clear that the model provided a valuable tool to enable
analysis of the whole organisation and the requirements of each of its parts.
The advantages and disadvantages of using the VSM in a small business context,
however, were not examined.
This limitation (the relative lack of empirical work that considers the use of the
VSM in SMEs) is significant gap in the literature. This is particularly the case in small
(employing 10-49 people) organisations where there appears to be little empirical
research concerning the application, advantages, and disadvantages of the VSM.
 IJPPM This research aims to fill this gap by researching whether the VSM is an applicable
62,1 diagnostic tool for small enterprises.
A further criticism of the published body of literature on the VSM is the
accessibility of the publications to practitioners – particularly SMEs. Two of the main
contributions to VSM theory, The Heart of Enterprise (Beer, 1979) and the Brain of
the Firm (Beer, 1972) are both several hundred pages in length and require the reader to
34 immerse themselves in the theories that underpin the VSM. The publication aimed
as a handbook or managers guide – Diagnosing the System for Organisations
(Beer, 1985) whilst considerably shorter requires the practitioner to understand the
principals underpinning the VSM in some depth and to use this knowledge to
undertake a diagnostic analysis of their organisation. A key part of this research was
the creation of a diagnostic instrument that was generated based on an understanding
of the VSM that could be used by the researchers to identify viability issues in the
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SMEs. This instrument is discussed in more detail in the next section.

In summary the research aimed to identify whether the VSM is an appropriate
tool to diagnose viability in small enterprises. The research also aims to explore
whether the VSM is an appropriate diagnostic instrument to identify areas that could
potentially compromise viability. Thus this research aims to contribute to the body of
knowledge by exploring the use of the VSM in SMEs.

3. Research design
This section first describes the research methodology before documenting how the
VSM model was used to identify the “target system”. This section also documents
the diagnostic interview used to identify issues with viability.

3.1 Methodology
An action research approach based on that proposed by Westbrook (1994) was used in
undertaking the study. This approach appeared highly relevant: as Westbrook (1994)
argues, it is an approach that supports a “research agenda [that] requires a holistic
integrated approach to investigate how subsystems fit together”.
Westbrook (1994) suggests a number of “rules”, a term the he uses loosely to mean
as much as anything rules-of-thumb, that should be considered when undertaking
action research which were used in structuring the approach.
Westbrook argues that the researchers should “agree the problem areas with
the collaboration companies, but not prespecify the solution” and that it is necessary
to “record in semi-structured formats”. In this case a diagnostic approach was
designed using the VSM model to identify viability issues in the small businesses
researched. This diagnostic tool relied on the researchers creating a semi-structured
interview protocol that the research team could administer to business mangers – often
the proprietor/business owner. The protocol – which was created in the form of
a semi-structured questionnaire – was derived from the key components of the VSM
documented by Beer (1972, 1979).
Case study organisations were sought that were producers or manufacturers
adding value to a tangible product and small enterprises – that is to say employing
o49 employees. Multiple case studies were found which were literal replications of
each other Yin (2003). Yin (2003, p. 47) identifies two advantages of multiple case
studies; first that direct replication means that “analytical conclusions independently
arising from two cases [y] will be more powerful than those coming from a single
case” (Yin, 2003, p. 53). Second, Yin (2003) states that given it is likely that the context
 of the two cases are likely to be slightly different, the external generalisability of the The applicability
findings will have been expanded. of the VSM
An initial search identified a number of firms that fulfilled the eligibility criteria
discussed above. Various methods were used to promote the research and recruit firms
after which firms were contacted directly to secure their participation. This resulted
in a number of case studies being initiated. An initial appointment was sought with
the firms agreeing to take part in the research. Semi-structured interviews were 35
subsequently conducted with senior managers and/or proprietors using the
research instrument previously described. These varied in length between two and
four hours.
Westbrook (1994) advocates seeking multiple viewpoints. In this research after the
initial interview, further meetings were arranged as necessary both for the purposes of
clarification and to interview other staff members. The data gathered in these meetings
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were analysed and then a final meeting arranged to review findings.

Westbrook (1994) suggests that one should “have the company check your write-
ups”. The final step in this small business operational diagnostic involved what came
to be known as a “close-out” session. This final meeting was conducted with each
organisation and was used by the research team to confirm findings and in which the
researchers and system in focus (SiF) representatives agreed and confirmed the
intervention areas needed to ensure future viability.

3.2 Target system identification

Accurate recognition of the (SiF) is perhaps one of the most important and probably the
most difficult step in VSM analysis as it offers an interpretation and delineation of
the boundary between the internal and external environments. This process involves
a “boundary critique” which validated the conceptualisation and interpretation of the
operational system.
The process began with a conceptualisation of the SiF boundary provided by the
system representative(s) during interview. First, the identity of the “system
representative(s)” was established and the individuals provided with a short
questionnaire to elicit an initial boundary around the SiF. In order to achieve greater
validity of the SiF a number of stakeholders were interviewed. The identified SiF was
then validated with organisational representatives.
A further interview was used to validate the wider SiF data collected thus far
and to check the initial attempt at a boundary conceptualisation. The wider
environment constituted a second and more detailed boundary critique using a series
of questions to elicit the role and requirements of important external, influential
individuals or organisations (such as suppliers and customers), the dynamics of the
environment and the firm’s ability to adapt to complexity and dynamism when
supplying goods.
Finally, the full diagnostic process (discussed in detail) was uninitiatedin which the
SiF was checked at as many points as possible to ensure the main aims of the
organisation remained clear (what products and/or services did it provide and how
could it continue to satisfy customers in the future).
It is important to note that the SiF was confirmed at a number of additional points
during this diagnostic process: first, as part of the employee review; second, during the
identification of sub-systems and areas of intervention and finally; and third, at a final
“close-out” meeting conducted after a report had been prepared and used to review the
whole process with organisational representatives.
 IJPPM 3.3 The SME diagnostic interview
62,1 This sub-section describes the main steps used to conduct the diagnostic interview.
The interviews were guided by a diagnostic semi-structured questionnaire which
created interview questions from the five systems contained within the VSM.
3.3.1 System 1: implementation. The research aimed to establish the prime purpose
or objectives of the organisation in terms of operational activities and subsequent
36 outputs ( products, services and customer value). Any constraints to fundamental
operational management had to be clarified and the necessary resources required
identified. Critical in these respects were the individuals accountable for performance
and any performance measures applied. A conceptual process of operational function
mapping was used to elicit likely organisational activities such as inbound logistics,
operations as part of transformation activities, outbound logistics, purchasing and
procurement, order processing customer service; and, product and process
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development and modification. The research focused upon the main operational
activities undertaken by each organisation, how their performance was measured, any
significant problems in undertaking these activities, any constraints upon these
activities and the critical resources necessary from external stakeholders.
3.3.2 System 2: coordination. Systems 2 and 3 (control) represent the “inside and
now” orientation of the organisational system. The role of the diagnostic research was
to identify the communication systems used ( particularly for operational management)
and any possible sources of conflict between these sub-systems and the environment.
Equally important are any means employed by the organisation to resolve these
conflicts between them and to identify their predominant management style.
The research also sought to ascertain the operational coordination functions and
processes; information systems employed (both internal and external); human resource
factors (training and skills, recruitment, motivation, team working, staff motivation,
turnover and absenteeism, recruitment problems, training and development); team and
group working arrangements and effectiveness; and coordination activities (the array
of functions and mechanisms used, their effectiveness, conflict resolution activities
and the effectiveness of internal and external information systems and supporting
technologies).
3.3.3 System 3: control. The aim was to understand what control mechanisms were
employed to monitor overall operational performance and the type of authority that
was exercised in the event of deviation. Such mechanisms involve resource bargaining
and allocation processes for different parts of the operational system, types of
resource bargaining, any audit processes used, responsibilities and processes involved
in operational performance and crucially, monitoring the relationship between the
operations System 1 and the coordination System 2, for example, the styles of control
ranging from autocratic to democratic. In practice, procedures for supplier relations,
quality control, people management, technology maintenance, performance
measurement and leadership style were reviewed.
3.3.4 System 4: intelligence and information. Systems 4 and 5 (implementation of
policy) represent “planning and policy” or the “outside and then” orientation of the
small firm. The diagnostic questions in this area revolved around the strategic or
operational planning activities used to adapt to future environmental threats and
opportunities; particularly in seeking novelty or innovation in product process
development. Evidence of any environmental monitoring activities as well as sharing
such information with other sub-systems was considered of particular importance
(supplier or customer negotiations for example).
 The investigation focused upon any external operations strategies (long-term) and The applicability
internal functional strategies (short term). The former included elucidation as to how of the VSM
resources, capabilities and competencies were acquired and used to respond to changes
in environmental demands (whether stable or unstable). Positioning and alliance
capability was also explored together with details of any policy management process
(forecasting, planning procedures, formulation of objectives and goals, industry
analysis, organic and piecemeal operations strategy development, etc.). Research into 37
functional planning included an examination of areas such as: operations, marketing,
human resource management, information systems and technology, finance,
procurement, research and development, continuous improvement, etc.
Questions here included the duration of the operational planning process (if any),
types of plans developed, degree of formality and the ability to monitor progress. Any
rationale behind the planning approach was also explored to better appreciate whether
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decision makers had a high or low propensity for risk taking and rationality and what
steps they took to improve the future activities of the organisation. Cognisance of the
external environment, the information collected, and its transmission and use in any
operational planning process were also important. Finally, details of products and
markets, their potential development and marketing were also requested.
3.3.5 System 5: policy. The direction of the organisation is identified in System 4
and the implementation in System 5. The initial step was to ascertain existing policies
(especially operational in nature), identity and mission as well as the person(s)
responsible for setting direction. This step involved the examination of strategic
information flows and channels used to implement decisions as well as the effects of
this policy making upon the other systems (Systems 1 and 2) as part of a management
of change process.
Data were gathered concerning the mission, vision and objectives of the
organisation and how these were conveyed and reinforced by strategic functional
deployment (especially operational) together with any feedback mechanisms that
ensured a “bottom-up” contribution (the degree of support employees might have for
direction). Details were also sought concerning the deployment of specific policies
concerned with operations, quality, recruitment, health and safety, equal opportunities
and skills training and any particular concerns in these areas for both the development
and implementation of policy.

3.4 Identification of intervention areas

The final part of the process sought to reach agreement over possible areas for
intervention and direction with SiF representatives. Although the process was mainly
one of working with these individuals to identify problem areas, the process was
designed to record potential differences in both subjects of intervention and substance.
Issues were listed and ranked from both perspectives – those of the research team as
well as the SiF members.
The varying interpretations were recorded on a matrix indicating degree of urgency
and importance. Differences of opinion were then further explored. This additional
discussion enabled an in-depth appreciation of the problem themes. The research
attempted to classify these in terms of the degree of difficulty (e.g. whether a complex
mess or a relatively straight uncomplicated difficulty) and mode of likely intervention
(coercive/autocratic for speed of action, unitary to “buy-in” to the solution, or highly
pluralistic recognising the contribution of different group interests – or possibly the
use of more than one mode). Consideration was also given to whether the solution
 IJPPM approach required an “expert” (reductionist) perspective or was more “generalist” in
62,1 nature (systemic and holistic). The final issues or tasks identified were then mapped
against the systems (although in practice, the complexity involved dictated that more
than one system might be affected).

4. Findings
38 The research suggests that the VSM has a number of advantages for the study of
viability in SMEs. Some of the main findings are discussed with using cases from the
research.
The most common operational failing for the small businesses involved was
the absence of sub-systems for control, coordination and communication. These
are systemic mechanisms found at all levels in the VSM as self-sustaining feedback
loops and vital for proper links between operations and other parts of the organisation
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(Table I).

5. Discussion
This research set out to identify whether the VSM is an appropriate tool to diagnose
viability in SMEs.
One of the major challenges in using the VSM is ascribing a primary operational
purpose (e.g. to provide goods and/or services) to the organisation which in VSM
terms is called the SiF. This step was a beneficial exercise as thinking carefully
about the system and its operational purposes brings new issues and insights into
consideration concerning the real purpose of the organisations. Whilst it was felt
that for a small business the task should be easy since there are only to few people
involved lowering the risk that the SiF is open to a multitude of subjective
interpretations. In reality, often the firmly entrenched views of an owner or
proprietor are hard to influence. Nevertheless, the fundamental objectives of each
organisation must be confirmed in order to delineate the external and internal
environments.
One of the key findings from the research was that the method was successful in
identifying issues with viability. Table II summarises the analysis of the case data.
On reflecting on why the approach was successful, it is necessary to return to the
holistic nature of the VSM model which requires any intervention to view the
organisation in its entirety with an intricate analysis of detail recognising cause and
effect between sub-systems. Whilst the issues presented themselves as being
operational problems the VSM diagnostic model viewed the operations as a part of a
wider socio-technical system. This view places attention on the many systemic
components and the linked cause and effect implications of change to business
interfaces that are involved in various operational processes and designed to
encompass entire supply networks.
It was found that organisational activities were often instinctive and unconscious
responses to internal and external “variety”. Internal homoeostasis was not present in
Companies A, B and D whilst external homeostasis was not present in Companies C, E,
F, G and H. This meant that variety was not responded to and where this was the case
the viability of these organisations was extremely weak. “Requisite variety” is a
fundamental theorem underpinning the VSM and refers to an organisation’s capability
to respond appropriately to its environment.
It also seems clear that the VSM offers many advantages for organisational
research. The structured and holistic viewpoint it encourages in seeing an organisation
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Company and description of issue Analysis Intervention

A total quality management was introduced into

Company A: the firm lost much time due to frequent From a VSM perspective, this phenomenon is the organisation allowing the scheduling of
machine breakdowns. Upon further investigation it an example of variety attenuation through quality at source and routines to be put in place to
was discovered that there were no formal “sheer ignorance” (Beer, 1985, p. 24) between establish preventative maintenance into the work
maintenance procedures and the continual problems the operation and the management within flows as well as better workplace practices such
were dealt with reactively without any real planning System 1 as a pull system, the “5S”s’ (sort, straighten,
for proactive preventative action. There was a lack of shine, standardise and sustain), continuous
total quality management for either products or improvement and small lot manufacture. From a
processes. The operations manager was convinced VSM perspective this is an example of both a
that lean production techniques had been introduced reduction of variety attenuation between the
in part of the firm but could not show any evidence of operation and the management of in System 1
tactics such as downtime prevention and quality at and variety amplification (Beer, 1985, p. 27)
source – he was also unaware that the maintenance between the management and the operation. The
issue had been continuing for nearly 12 months intervention created homeostasis between
because few information flows were in existence management and the operation
The problems presented by Company B were The VSM diagnostic highlighted issues with Oscillation dampening occurred through the
described as being centred around human resource, System 2 (co-ordination); up until the introduction of some slack into the system using
communication and control issues. Statistical implementation of SPC the natural oscillations capacity and safety stock. This changed the
process control methods were introduced in part of between the other sub-systems were of no nature of the control dynamic from worker pace
the operational system. Unfortunately, unbeknown consequence however not only did the to emphasise work flows. Homeostasis was also
to the owners in the context of their operations, these introduction of SPC bring to the fore the lack of achieved between the operation and management
systems require a high degree of regimentation to communication and control through other sub- through the introduction of new team working
meet specified cycle times and this soon led to systems, the resultant quality and productivity practices which allowed members to determine
workers feeling pushed and stressed. This in turn problems increased inter-elemental oscillation their own task assignments within their area of
caused productivity losses and quality reduction responsibility
problems
(continued)

Findings
The applicability
of the VSM

39

Table I.
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40
62,1

Table I.
IJPPM

Company and description of issue Analysis Intervention

Company C: a fast growth specialist building Upon examination it was found that the core With the help of the workforce a system of
company differentiated by the personalisation of competency of the firm had been information “continuous improvement” was implemented to
homes erected. The speed of growth was outmatched flows between operations and the external support better communication and coordination
by development in control and coordination customer. From the perspective of the VSM, the at all levels
mechanisms negatively impacting upon quality and issue was identified as being with transduction
efficiency – effective use of communication channels had
begun to deteriorate and with variety
attenuation through ignorance of customer
needs. This resulted in failure of requisite
variety within the operations sub-system to
make many changes that customers required
Company D is maker of coffee machines that was run Diagnosis using the VSM suggested that the The diagnostic was able to pinpoint these failings
by a highly autocratic owner/manager who felt issue with viability here stemmed from and help to introduce a system of decentralisation
unable to delegate and was overwhelmed by excessive control being exerted from System 3 of managerial activities. This allowed
operational tasks of System 1 at the expense of System 1 homoeostasis to occur within the System 1’s, of
management which the link to relevant external environment
was particularly important
Company E specialised in the design and sourcing of From the perspective of the VSM the introduction In response, the firm re-established design teams
high-quality ethnic goods for the home ware market. of the wholesaler would result in variety to have a direct contact with the producers of
The unusual design of these products was attenuation since the wholesaler would provide a goods and took a greater role in visiting small
fundamental to its sales success in a niche market. In limited range of goods. Further analysis revealed production outlets and advising upon the
the past the firm had sent out its own buyers to seek a more fundamental and serious issue with this introduction of new ideas that would suit UK
unusual designs from exotic locations. More recently, strategy. The use of an intermediary killed the customers. The firm introduced a fast-flow
however, it had sought to cut costs and use third- communication channel between the design team design system that aims to produce at least 12
party suppliers and wholesalers and the supplier meaning that the variety of new innovations from each region every month
goods being made were reduced to a degree that
the whole operation was becoming unviable; the
latest and unusual design trends had been reason
for past success. It was clear that within System
1 communication needed to be reinstated
between the operation and environment to
support the continual design process
(continued)
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Company and description of issue Analysis Intervention

Company F is a manufacturer of decorative ironwork. From the perspective of the VSM, the issue was New communication systems were introduced to
The owner would take a customer order and then one that the local System 1 interaction between capture these data and steps taken to ensure the
supervise the production team without fully relaying the operation and the environment had been cut entire workforce had contact with suppliers and
the specific needs of the customer to the workers. This off completely and instead the communication customers. That is to say that homoeostasis was
lack of response alienated the staff and meant they was between the management and the reintroduced through the reintroduction of
had no “feel” for the customers individual customer. The System 1 operation acted in communication channels between the operation
requirements. As a consequence a rich opportunity for “sheer ignorance” through total attenuation of and the environment
feedback was neglected and thus never communicated the incoming signal and indeed the lack of
throughout the firm (or its supply base) amplification of the outgoing signal
Company G supplied ready meals into supermarkets. The organisation lacked a System 4 function to The intervention sought to stimulate a greater
The company was totally occupied with daily, review external variety and respond to it. This environmental awareness in the firm by helping
operational issues and lacked the time and/or lack of intelligence compromised the viability of to establish clear communication channels with
inclination for any planning considerations that the operation customers and supplier organisations (i.e. to set
would encompass the external environment up a System 4 intelligence function).
Their status as suppliers had been increasingly A communication programme was introduced
under threat due to a failure to quickly develop new to stimulate customer and supplier interaction
lines to generate ideas for different products and
the necessary operational systems (through
System 3) to introduce them
Company H produced food sauces for a larger food The variety present within the environment The diagnostic intervention attempted to help the
manufacturer. It was continually under pressure to overwhelmed the ability of the System 4 to cope firm better understand demand on a “real-time”
satisfy all orders and frequently tried, without much with it and maintain homoeostasis basis. It conducted a full investigation of all the
success, to forecast sales more accurately demand factors in the external environment. From
the results, it seemed that there were various
demand “triggers” that could be linked to product
groups. This meant that different operational
systems had to be established for particular
products and customer types to ensure
homeostasis occurred at the level of System 1.
This approach allowed the firm to use its
operational systems to better respond to different
demand and customer behaviours – from the VSM
perspective, a number of different operational sub-
systems were established and each dedicated to a
particular product or customer type
The applicability
of the VSM

41

Table I.
 IJPPM Company Problem
62,1
A Excessive variety attenuation between the operation and management components of
System 1
B Inadequate coordination of System 1 activities by System 2 leading to oscillation
C Transduction failure between the operation and environment components of System 1
D Excessive System 3 control over System 1 activities leading to System 3 overload and
42 lack of homeostasis between the operational and environmental components of System 1
E Excessive attenuation of the signal between the environment and operation components
of System 1
F Excessive attenuation of the signal between the environment and operation components
of System 1
G No System 4 component
H No homeostasis between the environment and operation excessive centralisation of
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Table II. function in System 4 that should have been carried out in System 1 through transduction
Summary of information from the environment to the operation

responding to its internal challenges and external environment, are perhaps of most
note in this respect.
Despite the importance of establishing the SiF and thus the organisation’s raison
d’etre some very small and new businesses clearly struggle with overall direction due
to a lack of future planning (System 4), whether informal or formal – for example in the
case of Company G. Intervention did help long-term thinking and some external
reflection.
It perhaps comes as no real surprise that many small businesses become entwined
in the day-to-day running of all aspects of the business, often at the expense of doing
any one aspect properly. Symptoms such as lost sales, inefficiencies and high levels of
waste were symptoms often seen in the research.
The VSM proved an invaluable tool for targeting the root of the problem in order to
highlight remedial action needed. Analysing an SME using the VSM provided insights
into the intricate details of an organisation.
For viability the system needs to match the requisite variety of the external
environment. Viability is maintained by engaging in different activities, not necessarily
reducing activities to become simpler to manage, a common misconception, but keeping
activities and functions from interfering with each other, whilst managing them together,
and focusing on the future, and doing so in the context of an identity within which the
interests of the whole can be considered. Such a task presents diverse challenges to an
SME and thus the long-term viability and hence survivability of an SME.
For the small business, the research offered an important opportunity to “step back”
from the daily minutiae and “fire-fighting” allowing a more reflective practice with a
longer-term, external orientation: For example, two companies who were involved in
the research described the process as being “like standing in front of a mirror” and
“a launch pad for the future”.

6. Conclusions
The VSM has been used in this study as the foundation of a diagnostic intervention
focused upon the activities of a number of small businesses. The approach used
action research in an effort to aid the firms involved and, it is hoped, to develop their
own mechanisms of assistance and be less reliant upon external agencies.
 Perhaps the main difficulty in using the VSM to diagnose small business viability is The applicability
the propensity to use the model to provide a schematic representation of a logical of the VSM
hierarchy replicating a bureaucratic organisational structure with power vested at the
top and filtering down. This is especially true for the small business having power
often vested in an owner/proprietor. For the inexperienced, this could encourage a mere
replication of the existing organisational chart in VSM format, thus little benefit will be
yielded in consequence. 43
However, returning to the aim of the study, the research suggests that when
used appropriately the VSM is valuable for understanding operations and
assessing their viability and thus for developing increased flexibility, efficiency
and effectiveness. These are all operational strengths of firms of this size, but
can only be properly understood at the level of the interface between operations
and the task environment and between operational and other support
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sub-systems.
For the small firm flexibility is about changing existing states quickly (speed of
response). Larger firms it seems may have difficulties with speed of change in this
sense but have the excess resources to potentially facilitate change into a greater
number of states or the necessary “requisite variety”. From this study it became clear
that the smaller business was operationally more nimble but could not always achieve
the number of states necessary to cope with the variety from its external environment.
They have the advantages of velocity over variety.
Both operational flexibility and agility were of equal importance to this study and
the adapted VSM was particularly helpful in seeking the holistic interventions
necessary across the whole organisation and its external linkages. Future research
would do well to expand upon this particular aspect as it remains key for the success of
many small- and medium-sized firms and correlates directly to the wealth, health and
well-being of SMEs as a whole.
Lastly, the positive findings of the research to date should help to promote the
formulation and testing of further research into viability in SMEs. This research was
conducted amongst manufacturing SMEs: additional research might involve detailed
case studies and further empirical work for a broader number of SMEs.

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Corresponding author
Nicholas Wake can be contacted at: Nicholas.Wake@wbs.ac.uk
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